17.

8
Cost and Management Accounting

Illustration 17.1
following:
Calculate cash from operating activities from the 31st March
2011 2012

60,000 65,000
Profit and Loss Account
48,000
85,000
Debtors
40,000 81,000
Bills Receivable (B/R)
1.72,000 2,07,000
General Reserve
26,000 8,000
Wages outstanding
8,000 10,000
Salaries prepaid
70,000 60,000
Goodwill

Solution
Caleulation of Cash from Operating Activities

60,000) 5,000
Profit during the year (65,000
Add: Transfer to general reserve (2,07,000 - 1,72,000) 35,000
Goodwill written off (70,000 - 60,000) 10,000 45,000
50,000
Add : Decrease in debtors (C.A.) (85,000 48,000) 37,000
87,000
Less: Increase in B/R (C.A.) (81,000- 40,000) 41,000
Increase in salaries prepaid (C.A) (10,000 - 8,000) 2,000
Decrease in wages outstanding (C.L.) (26,000 - 8,000) 18,000 61,000
Cash from operating activities 26,000

C.A. - Current Assets; C.L. = Current Liabilities.

Illustration 17.2

From the fllowing balances calculate cash from operations :

31st December
2011 2012

Bills Receivable 50,000 47,000

Debtors 10,000 12,500
Bills Payable 20,000 25,000
Creditors 6,000
8,000
Outstanding Expenses 1,000 1,200
Prepaid Expenses 800 700
Accrued Income 600 750
Income received in advance 800 250
Profit made during the year 70,000
Cash Flow Statement
17.9

Solution
Calculation of Cash from Operating Activities
Profit made during the year 70,000
Add : Decreases in current assets and increases in
current liabilities :
Decrease in bills receivable (C.A.)
3,000
Increase in bills payable (C.L.) 5,000
Increase in outstanding expenses (C.L.) 200
Decrease in prepaid expenses (C.A.) 100 8,300
78,300
Less: Increase in current assets and decrease in current liabilities:
Increase in debtors (C.A.) 2,500
Decrease in creditors (C.L.) 2,000
Increase in accrued income (C.A.) 150
Decrease in income received in advance (C.L.) 550 5,200
Cash from operating activities 73,100

C.A. = Current Asset, C.L. = Current Liability.

Calculation of Cash Flowsfrom Investing Activities
disposal of
Cash inflows and cash outflows from investing activities result from acquisition and
investments. The net effect of cash inflows and
long term assets, non-operating current assets and
activities in the cash flow statement.
outflows is determined and shown as cash flows from investing
Calculation of Cash Flows from Financing Activities
debentures, redemption of preference shares and
These activities relate to issue of shares and effect of inflows and outfows of cash
loans and repayment of loans etc. The net
debentures, raising of in the cash flow statement under this
financing activities is determined and shown
relating to these
head of Cash Flows from Financing Activities.

Illustration 17.3
the basis of the information given in the Balance Sheets of
on
Prepare a Cash Flow Statement
P.S. Ltd. 2011 2012
2011
2012 Assets
Liabilities
10,000 2,000
2,50,000 Goodwill
2,00,000 2,00,000 2,80,000
Share Capital
1,00,000 80,000 Land and Building 1,00,000 1,30,000
12% Debentures 70,000 Machinery 60,000
50,000 40,000
General Reserve 60,000 Debtors 90,000
40,000 70,000
Creditors 20,000 1,00,000 Stock 15,000 18,000
Bills Payable 20,000 Cash
25,000 4,35,000 5,80,000
Outstanding Exp.
4,35,000 5,80,000
17.10 Cost and Management Accounting

Solution :
Cash Flow Statement for the year ending 2012

(i) Cash from Operating Activities

Profit during the year tr. to general reserve (70,000- 50,000) 20,000
Add: Goodwill written off (10,000 - 2,000) 8,000
Increase in creditors (C.L.) 20,000
Increase in bills payable (C.L.) 80,000
1,28,000
Less : Increase in debtors (C.A.) (-) 20,000
Increase in stock (C.A.) (-) 20,000
Decrease in outstanding exp. (C.L.) (-) 5,000
Cash inflow from operating activities
(ü) Cash from Investing Activities 83,000
Purchase of land and building (-) 80,000
Purchase of machinery (-) 30,000
Cash outflow from investing activities
(i) Cash from Financing Activities (-)1,10,000
Issue of shares
50,000
Redemption of debentures (-) 20,000
Cash inflow from financing activities
Net Increase in Cash 30,000
Add: Cash balance in the beginning of the 3,000
year 15,000
Cash balance at the end of the year
18,000
Objectives and Uses of Cash Flow Statement
 17.11

Problem 17.1 PROBLEMS AND SOLUTIONS

Brom the following calculate cash
from
PROFIT AND LOSS ACCOUNT operations
:
F0R THE YEAR ENDED 31ST
MARCH, 2012
(? 000)
To Salaries ( 000)
5,000 By Gross profit
To Rent 25,000
To Depreciation 1,000 By Profit on sale of land
2,000 5,000
To Loss on sale of plant Income-tax refund 3,000
To Goodwill written off 1,000
To Proposed dividend 4,000
5,000
To Provision for taX 5,000
To Net profit
10,000
33,000 33,000

Solution
CALCULATION OF CASH FROM OPERATIONS

Net profit 10,000

Add: Non cash items :
Depreciation 2,000
Goodwill wnitten off 4,000
Proposed dividend 5,000
Provision for tax 5,000
Loss on sale of plant 1,000 17,000
27,000
Less : Non operating incomes
Profit on sale of land 5,000
Income tax refund 3,000 8,000
19,000
Cash from Operations

Problem 17.2
Following information is available from the books of Standard Company Ltd
2012 2011

2,50,000
Profit made during the year 500 600
Income received in advance 1,600 1,400
Prepaid expenses 80,000 95,000
Debtors 25,000 20,000
Bills receivable 45,000 40,000
Creditors 13,000 15,000
Bills payable 2,500 2,000
Outstanding expenses 1,500 1,200
Accrued income
17.12 nting
Solution :
Calculation of Cash Flow from Operations

2,50,000
Profit made during the Year
Add 15,000
Decrease in Debtors (C.A.) 5,000
Increase in creditors (C.L 500
Increase in outstanding expenses (C.L. ) 20,500
2,70,500
Less : 100
Decrease in income received in advance (C.L.) 200
Increase in prepaid expenses (C.A.)
Increase in bills receivable (C.A.) 5,000
2,000
Decrease in bills payable (C.L.) 300 7,600
Increase in accrued income (C.A.)
2,62,900
Cash from Operations
C.A. = Current Asset, C.L. = Current Liability.
Problem 17.3
Calculate cash from operations from the following :
(i) Profit made during the year 2,50,000 after considering the following items:

(a) Depreciation on fixed assets 10,000

(b) Amortization of goodwill 5,000
(c) Transfer to general reserve 7,000
(d) Profit on sales of land 3,000
(ii) The following is the position of current assets and current liabilities :
2008 2007

Debtors 15,000 12,000

Creditors 10,000 15,000
Solution Calculation of Cash from 0perations

Net Profit for the year 2.50,000

Add : Non-cash charges :
Depreciation on fixed assets 10,000
Goodwill written off
5,000
General Reserve 22,000
7,000
2,72,000
Less : Non-operating Incomes : Profit on sale of land 3,000
Profit from operations 2,69,000
Add: Decrease in Current Assets :
Bills Receivable
2,000
Prepaid Expenses 2,000
4,000
2,73,000
Less: Increase in Current Assets : Debtors
3,000 8,000
Decrease in Current Liabilities : Creditors 5,000
Cash from operations 2,65,000
 17.
Problem 17.4
The balance sheets of VXL Limited as
Assets
at December 31 of two years are given
below :
2012 201
Cash balances
Trade debtors
(?)
60,000 50,00
Inventory 1,00,000 75,000
Land 1,20,000 1,40,00C
Plant and Machinery 80,000 1,00,00C
Total 2,50,000 2,00,000
Liabilities and Capital 6,10,000 5,65,000
Trade creditors
Debentures 40,000 30,000
Provision for depreciation on plant 90,000 1,50,000
Equity share capital 80,000 60,000
Retained earnings 2,40,000 2,00,000
1,60,000 1,25,000
Total
6,10,000 5,65,000
Cash dividends ofR 25,000 have been
paid during the year.
You are required to prepare a cash flow
statement on indirect basis.
Solution
CASH FLOW STATEMENT

(i) Cash flow from operating activities

Net profit during the year (25,000 35,000)* 60,000
Add: Depreciation (80,000 - 60,000) 20,000
Net decrease in inventory (1,40,000- 1,20,000) 20,000
Net increase in creditors (40,000 - 30,000) 10,000
1,10,000
Less: Net increase in debtors (1,00,000 - 75,000) 25,000
Net inflow from operating activities 85,000
(i) Cash flow from investing activities
(-) 50,000
Purchase from plant and machinery
Sale of land 20,000
()30,000
Net Cash outflow from investing activities
(i)Cash flow from financing activities 40,000
Issue of share capital (2,40,000 - 2,00,000)
(-) 60,000
Redemption of debentures (1,50,000- 80,000) (-) 25,000
Dividend paid () 45,000
Net cash outflow from financing activities 10,000
Net Increase in Cash (85.000 - 30,000 - 45,000) 50,000
Add: Cash balance in the beginning 60,000
Cash balance at the end
earnings.
during the year = Dividend paid + Increase in retained
Yorking Note : Profit
 Cost and Management
17.14
Accounting
Problem 17.5
The Balance Sheets of XLtd as on 31st March, 2011 and 31st March, 2012 were as follows:
31st March
2011
31st March
2012
Assets :
Land and Buildings 80,000 1,20,000
Plant and Machinery 5,00,000 8,00,000
Stock 1,00,000 75,000
Sundry Debtors 1,40,000
1,50,000
Prepaid Expenses 14,000 12,000
Cash at Bank 16,000 18,000
8,50,000 11,75,000
Liabilities and Capital :
Share Capital 5,00,000 7,00,000
Profit & Loss Account 1,00,000
General Reserve 1,60,000
50,000 70,000
Sundry Creditors 1,63,000 2,00,000
Bills Payable 30,000 40,000
Outstanding Expenses 7,000 5,000
8,50,000 11,75,000
Additional Information :
(i) 50,000 depreciation has been charged to plant and
Machinery during the year, 2012.
(ü) A piece of machinery was sold for 8,000 during 2012. It had cost ? 12,000, depreciation of
R7,000 has been provided on it.
Prepare Cash Flow Statement from the above details.
Solution
WORKING NOTES :
PLANT& MACHINERY ACCOUNT

To Balance b/d 5,00,000 By Cash Sale

To Profit on sale 8,000
3,000 By Depreciation 50,000
To Cash (Purchase) (B.F.) 3,55,000 By Balance c/d
8,00,000
8,58,000
8,58,000
Caslt Flow Statenent
17.15

CASH FLOW STATEMENT

for the year ending 31st March 2012
(i) Cash from Operating Activities
Profit during the year (1,60,000 - 1,00,000 60,000
Add: Depreciation on machinery 50,000
General reserve (70,000- 50,000) 20,000
Decrease in stock (C.A.) 25,000
Decrease in prepaid expenses (C.A) 2,000
Increase in creditors (C.L.) 37,000
Increase in bills payable (C.L.) 10,000
2,04,000
Less : Gain on sale of machinery (-) 3,000
Increase in debtors (C.A.) (-) 10,00o
Decrease in outstanding exp. (C.L.) (-) 2,00
1,89,000
Cash inflow from operating activities
(ii) Cash from Investing Activities 8,000
Add: Sale of machinery (-) 3,55,000
Less: Purchase of machinery ( 40,000
Less: Purchase of land and building (-) 3,87,000
Cash outflow from investing activities
(i) Cash from Financing Activities 2,00,000|
Issue of shares 2,00,000
Cash inflow from financing activities 2,000
Net increase in cash 16,000
beginning
Add : Cash balance in the 18,000
end
Cash balance at the

Problem 17.6
the balance sheets of IVRL & Sons.
Given below are 1Jan. 2012 31 Dec. 2012
2012 Assets
1Jan 2012 31 Dec.
Liabilities
10,000 7,000
44,000 Cash 50,000
40,000 30,000
Creditors Debtors 25,000
25,000 50,000 Stock 35,000
Mrs. A's Loan 40,000 80,000| 55,000
Loans from Bank 1,53,000 Machinery
1,25,000 40,000 50,000
Land 60,000
Capital 35,000
Building 2,47,000
2,30,000
2,30,000 2,47,000
depreciation R 3,000) sold for 5.000
(accumulated was ? 25,000 and
on
machine costing? 10,000 January, 2012
a on 1
During the year depreciation against Machinery as
amount to 45,000.
The provisions for40,000. Net profit for the year
Statement.
31 December 2012 to prepare Cash Flow
You are required
 17.19
Problem17.8
The following Balance Sheets are given :
Liabilities 2009 2010 Assets
2009 2010
Equity Share Capital
Redeemable Pref. Capital 3,00,000 4,00,000 Goodwill
1,50,000 1,00.000 Land and 1,15,000 90,000
General Reserve 40,000 70,000 Plant Building 2,00,000 1,70,000
Pofit and Loss Account 30,000 80,000
Proposed Dividend 48,000 Debtors 2,00,000
42,000 50,000 Stock 1,60,000 2,00,000
Creditors 55,000 83,000 Bills Receivable 77,000 1,09,000
Bills Payable 20,000 16,000 Cash in Hand 20,000 30,000
Provision for Taxation 40,000 15,000 10,000
50,000 Cash at Bank 10,000 8,000
6,77,000 8,17,000 6,77,000 8,17,000
It is also given that :
(a) Depreciation of ? 20,000 on land and building and
(b) Interim dividend of 20,000 has been paid in 10,000 on plant has been charged in 2010
2010
(c) Income tax 35,000 has been paid during 2010
Prepare Cash Flow Statement for the year 2010.
(B. Com.)
Solution:
Cash Flow Statement for the year 2010
(i) Cash from Operating Activities
Profit during the year (48,000- 30,000) 18,000
Add: Depreciation on plant 10,000
Depreciation on building 20,000
Goodwill written off 25,000
Proposed dividend 50,000
Interim dividend 20,000
General reserve 30,000
Provision for taxation 45,000
28,000
Increase in creditors (C.L.) 2,46,000
() 4,000
Less: Decrease in bills payable (C.L.) (-) 40,000
Increase in debtors (C.A.) (-) 32,000
Increase in stock (C.A.) ( 10,000
Increase in bills receivable (C.A.) 1,60,000
35,000
Income tax paid 1,25,000
Cash inflow from operating activities
() Cash from Inyesting Activities () 1,30,000
Purchase of plant 10,000
Sale of building (-) 1,20,000
Cash outflow from investing activities
(ii) Cash from Financing Activities 1,00,000
Issue of share capital (-) 50,000
Redemption of pref. shares () 42,000
Dividend paid (-) 20,000
Interim dividend paid (-) 12,000
Cash outflow from financing activities () 7,000
25,000
Net decrease in cash
(15,000 + 10,000) 18,000
vdsn balance in the beqinning
Cash balance at the end (10,000 + 8000)
17.20
ost and Management Accounting

Problem 17.9
ending 31-12-2011 and 31-12-2012, prenare
From the following Balance Sheet of PK Ltd. for the year
cash flow statement.
2011 2012
2012 Assets
Liabilities 2011

Equity share capital 2,15,000 2,75,000 Goodwill 20,000

Plant & Mach. 1,12,950 1,16,200
Reserves 40,000 40,000
Land and Building 1,48,500 1,44,250
Profit &Loss A/c 39,690 41,220
Provision for tax 40,000 50,000 Current assets 1,98,530 1,70,730
Bank loan 59,510 Cash 7,500 7,700
Current liabilities 73,280 52,660
4,67,480 4,58,880
4,67,480 4,58,880

The following information is also provided :

1. Adividend of 26,000 was paid during the year 2012.
2. Profit before tax for the year was 62,530.
3. During the year 2012, the company paid tax of 25,000.
4. During the year, the company purchased another company and paid 60,000 in share capital.
It acquired stock 21,640 and plant 18,360.
5. It purchases machinery costing 5,650 during the year.
Solution
Cash Flow Statement for the year ending 31-12-2012
(i) Cash Flow for Operating Activities
Profit during the year 62,530
Add : Deprecation on:
Land and building (1,48,500- 1,44,250) 4,250
Plant and machinery 20,760
Decrease in current assets 27,800
Stock acquired on purchase of business 21,640
1.36,980
Less: Tax paid (-) 25,000
Decrease in current liabilities () 20,620
Cash inflow from operating activities 91,360
(iü) Cash flow from investing activities.
Purchase of plant and machinery (-) 5,650
(ii) Cash flows from financing activities
Payment of dividend () 26,000
Re-payment of bank loan () 59,510
Net Increase in cash 200
Add cash balance in the beginning 7,500
Cash balance at the end of the year 7,700

Working Notes.
1. Issue of share capital for R 60,000 for purchasing another company is a non-cash transaction and
thus has not entered in cash flow statement.
 Caslt Flow Statement
17.23
Problem17.11
the following condensed comparative Balance
information, prepare a Cash Flow Statement for the year Sheets of Bangalore Mills Ltd. and
2012. additional
Liabilities 2011 2012 Assets
2011 2012
Share Capital 70,000 80,000 Plant &Machinery
Share Premium 9,000 62,000 66,000
11,000 Accumulation Dep. on
Retained earnings 23,820
plant and much. (37,000) (26,200)
7% Mortgage loan 30,820 Building 95,000 1,16,000
20,000 Accumulation dep. on building (43,000)
Creditors 6,900 6,000 Land
(45,000)
Outstanding salaries 2,000 10,000 12,000
1,400 Stock 10,220
Piovision for taxation 9,620
1,000 1,400| Debtors 8,600 7,600
Prepaid expenses 720 800
Cash 6,180 9,800
1,12,720 1,50,620 1,12,720 1,50,620

Additional information
1. Plant costing 16,000 (accumulated depreciation ? 14,800) was sold during the year for
1,200.
2. Building was acquired during the year at a cost of 21,000. In addition to cash payment of
1,000, a 7% mortgage loan was raised for the balance.
3. Dividend of 8,000 was paid during the year.
4. Asum of ? 13,900 was transfered to provision for taxation account in 2012.

Solution
Cash Flow Statement for the year 2012

() Cash flow from operating activities : payment and 28,900

profit during the year (before divided
Net
provision for tax) 2,000
Add: Depreciation -Building 4,000
Plant 600
Decrease in stock (C.A.) 1,000
Decrease in debtors (C.A.) 7,600
() 900
Less: Decrease in creditors (-) 600
Decrease in outstanding salaries (-) 80
Increase in prepaid expenses (- 13,500 (7,480
Income tax paid 21,420
operating activities
Net cash inflow from