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Problems on cash flow statements 1.

The following is the summary of cash transactions of Anju Ltd. for the year ended March 31, 2005. (Amount in 000) Receipts Balance as on 1.4.2004 Issue of equity shares Receipts from customers Sale of fixed assets Rs. 150 900 8,400 300 Payments Payment to creditors Purchase of fixed assets Expenses Wages and salaries Tax Dividends Repayment of bank loan Balance as on 31.3.2005 Rs. 6,000 600 600 300 750 150 900 450 9,750

9,750

You are required to prepare a Cash flow statement for the year ended March 31, 2005 in accordance with AS-3 (Revised) using direct method. Solution 1: Cash flow statement of Anju Ltd. For the year ended March 31, 2005 (Amount in 000) Particulars Rs. Rs. i. Cash flow from operating activities Receipts from customers 8,400 Payment to creditors (6,000) Payment of wages and salaries (300) Payment of overhead expenses (600) Cash generated from operations 1500 Payment of tax (750) Net flow from operating activities 750 ii. Cash flow from investing activities Proceeds on sale of fixed assets 300 Acquisition of fixed assets (600) Net flow from investing activities (300) iii. Cash flow from financing activities Proceeds on issue of shares 900 Payment of dividends (150) Repayment of bank loan (900) Net flow used in financing activities (150) Net cash flow for the year ended March 31,2005 300 Cash balance at the beginning of the period 150 Cash balance at the end of the period 450

2.

The summarized Balance Sheet of M/s Ankit Ltd as at March 31, 2005 and 2006 are given below. Balance Sheet of M/s Ankit Ltd. as on March 31, 2005 and 2006 Particulars 2005 Rs. 2006 Rs. Particulars 2005 Rs. 2006 Rs. Share Capital 9,00,000 9,00,000 Fixed Assets 8,00,000 6,40,000 General Reserve 6,00,000 6,20,000 Investments 1,00,000 1,20,000 Profit & loss a/c 1,12,000 1,36,000 Stock 4,80,000 4,20,000 Creditors 3,36,000 2,68,000 Debtors 4,20,000 9,10,000

Provision for tax Mortgage loan

20,98,000 24,84,000 Additional Information: i. Investments costing Rs.16,000 were sold during the year for Rs.17,000 ii. Provision for tax during the year Rs.18,000 iii. During the year, a part of the fixed assets costing Rs.20,000 was sold for Rs.24,000 and the profit was included in Profit and Loss account iv. Dividends paid amounted to Rs.80,000 You are required to prepare a Cash Flow Statement in accordance with AS 3 accounting standard Solution 2 Cash flow statement of Ankit Ltd. For the year ended March 31, 2006 Particulars i. Cash flow from operating activities Cash flow from operating activities before working capital changes Decrease in Stock Increase in Debtors Decrease in Creditors Tax Paid during the year Net flow from operating activities ii. Cash flow from investing activities Proceeds on sale of investments Proceeds on sale of fixed assets Purchase of investments Net flow from investing activities iii. Cash flow from financing activities Raising of Mortgage loan Payment of dividends Net flow from financing activities Net cash flow for the year ended March 31,2005 Cash balance at the beginning of the period Cash balance at the end of the period Working Notes: Particulars To Balance b/d To Profit & loss a/c Rs. Fixed Assets Account Particulars 8,00,000 By Bank 4,000 By Depreciation By Balance c/d 8,04,000 Rs. 24,000 1,40,000 6,40,000 8,04,000 Rs. 17,000 1,20,000 1,37,000 Rs. 1,50,000 18,000 Rs. (Amount in 000) Rs.

1,50,000 20,98,000

20,000 5,40,000 24,84,000

Bank

2,98,000

3,94,000

2,77,000 60,000 (4,90,000) (68,000) (1,48,000) (3,69,000) 17,000 24,000 (36,000) 5,000 5,40,000 (80,000) 4,60,000 96,000 2,98,000 3,94,000

Particulars To Balance b/d To Profit & loss a/c To Bank

Investments Account Rs. Particulars 1,00,000 By Bank 1,000 By Balance c/d 36,000 1,37,000 Provision for tax Account Rs. Particulars 1,48,000 By Balance b/d 20,000 By Profit & loss a/c

Particulars To Bank To Balance c/d

1,68,000 Calculation of cash from operations: Closing Balance of Profit & loss a/c Add: Non-operating expenses Dividends General Reserve Depreciation Provision for tax 1,36,000 80,000 20,000 1,40,000 18,000

1,68,000

2,58,000 3,94,000 5,000 1,12,000 2,77,000

Less: Non-operating incomes Profit on sale of investments 1,000 Profit on sale of fixed assets 4,000 Opening Balance of Profit & loss a/c Cash from operations before Working Capital Changes

3.
The financial position of MNR Ltd. on 1st April 2005 and 31st March 2006 was as follows 1-4-2005 Rs. 3,60,000 -3,00,000 14,80,00 0 2,70,000 24,10,00 0 31-3-2006 Rs. 4,10,000 2,00,000 2,50,000 14,90,000 3,60,000 27,10,000 24,10,00 0 1-4-2005 Rs. 40,000 3,50,000 2,50,000 2,00,000 5,00,000 10,70,00 0 31-3-2006 Rs. 36,000 3,84,000 2,20,000 3,00,000 5,50,000 12,20,000

Current Liabilities Loan from associate company Loan from Bank Capital and Reserves Prov.for Depreciation

Cash Debtors Stock Land Buildings Machinery

27,10,00 0

During the year Rs. 2,60,000 were paid as dividends. You are required to prepare a Cash Flow Statement as per Revised AS-3. Solution 3: Cash Flow Statement of MNR Ltd for the year 2005 06 Rs. (A) Cash Flows from Operational Activities Net profit before taxation and extraordinary items (14,90,000 14,80,000 + 2,60,000 dividend) Adjustment for Depreciation Profit from Trading Operations Increase in Sundry Debtors Decrease in Stock Increase in Current Liabilities Net Cash from Operational Activities Cash Flows from Investing Activities Purchase of Building Purchase of Land Purchase of Machinery Net Cash used on investing activities Cash Flows from Financing Activities 2,70,000 90,000 3,60,000 (34,000) 30,000 50,000 4,06,000 (50,000) (1,00,000) (1,50,000) (3,00,000) Rs.

(B)

(C)

Loan from Associated Company Repayment of Bank Loan Payment of Dividend Net decrease in Cash and Cash equivalents Cash and Cash equivalents at the beginning of the period Cash and Cash equivalents at the end of the period

2,00,000 (50,000) (2,60,000) (1,10,000) (4,000) 40,000 36,000

4. Sun Ltd gives you the following information for the year ended March 31, 2006 a. Sales for the year totaled Rs.96,00,000. The company sells goods for cash only. b. Cost of goods sold was 60% of sales. Closing inventory was higher than opening inventory by Rs.43,000. Trade creditors on March 31, 2006 exceede those on March 31st, 2005 by Rs.23,000 c. Net profit before tax was Rs.13,80,000. Tax paid amounted to Rs.7,00,000. Depreciation on fixed assets for the year was Rs.3,15,000 where as other expenses totaled Rs.21,45,000. Outstanding expenses on March 31, 2005 and on March 31st, 2006 were Rs.82,000 and Rs.91,000 respectively. d. New machinery and furniture costing Rs.10,27,500 in all were purchased. e. A rights issue was made of 50,000 equity shares of Rs.10 each at a premium of Rs.3 per share. The entire money was received with applications. f. Dividends paid amounted to Rs.4,07,000. g. Cash in hand and at bank on March 31st, 2005 and March 31st, 2006 are Rs.2,13800 and Rs.4,13,300. You are required to prepare a cash flow statement using (a) direct method and (b) indirect method. Solution 4.

(a) Direct Method


Cash flow statement of Sun Ltd for the year ended March 31, 2006 Particulars Rs Rs Cash flows from operating activities: Cash receipts from customers 96,00,000 Cash paid to suppliers and employees (79,16,000) Cash inflow from operations 16,84,000 Tax paid (7,00,000) Net cash from operating activities 9,84,000 Cash flows from investing activities: Purchase of fixed assets (10,27,500) Net cash used in investing activities (10,27,500) Cash flows from financing activities: Proceeds from issue of share capital 6,50,000 Dividends and corporate dividend tax paid (4,07,000) Net cash from financing activities 2,43,000 Net increase in cash and cash equivalents 1,99,500 Cash and cash equivalents as at March 31, 2005 2,13,800 Cash and cash equivalents as at March 31, 2006 4,13,300 Working notes: (i) Calculation of cash paid to suppliers and employees Cost of sales (60% of Rs.96,00,000) 57,60,000 Add: Expenses incurred 21,45,000 outstanding expenses on March 31, 2005 82,000 closing inventory excess over opening inventory 43,000 80,30,000 Less: Excess of closing creditors over opening creditors 23,000 outstanding expenses as on March 31, 2006 91,000

79,16,000

(b) Indirect Method:


Cash flow statement of Sun Ltd for the year ended March 31, 2006 Particulars Rs Cash flows from operating activities: Net Profit before tax 13,80,000 Add: depreciation 3,15,000 Operating profit before working capital changes 16,95,000 Adjustments for: Increase in inventory (43,000) Increase in trade creditors 23,000 Increase in outstanding expenses 9,000 Net cash from operating activities 16,84,000 Less tax paid (7,00,000) Cash flows from investing activities: Purchase of fixed assets (10,27,500) Net cash used in investing activities Cash flows from financing activities: Proceeds from issue of share capital 6,50,000 Dividends and corporate dividend tax paid (4,07,000) Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents as at March 31, 2005 Cash and cash equivalents as at March 31, 2006 Rs

9,84,000

(10,27,500)

2,43,000 1,99,500 2,13,800 4,13,300

5. Pioneer Ltds summarized balance sheets as at March 31, 2005 and March 31, 2006 are given below Balance Sheet of Pioneer Ltd. as on March 31, 2005 and 2006 Particulars 2005 Rs. 2006 Rs. Particulars 2005 Rs. 2006 Rs. Equity share capital 5,00,000 12,00,000 Plant & machinery 7,00,000 9,00,000 Securities premium 3,50,000 Furniture & fixtures 90,000 81,000 General reserve 2,80,000 3,30,000 Stock 4,25,000 6,19,000 Profit & loss a/c 60,000 59,750 Debtors 1,20,000 2,30,000 13% convertible 3,00,000 - Cash at bank 2,52,500 5,80,000 debentures Share issue expenses 20,000 Bills payable 50,000 30,000 Cost of issue of 5,000 debentures Sundry creditors 1,90,000 1,95,000 Provision for tax 1,30,000 1,52,500 Proposed dividends 75,000 1,02,500 Provision for 7,500 10,250 corporate dividend tax 15,92,500 24,30,000 15,92,500 24,30,000 The following additional information is provided for you: i. On April1st, 2005 13% convertible debentures of the face value of Rs.3,00,000 were converted into 20,000 equity shares of Rs.10 each issued at a premium of Rs.5 each. ii. Plant was purchased during the year for Rs.3,00,000; half of the consideration was discharged by issue to the vendor 10,000 equity shares of Rs.10 each at a premium of Rs.5 each while the balance was paid in cash. iii. Tax liability for the accounting year 2004-05 Rs.1,30,000 was discharged in May, 2005. iv. Proposed dividend and corporate dividend tax thereon for 2004-05 was paid in August, 2005. You are required to prepare a cash flow statement for the year ended March 31st, 2006. Solution 5:

Cash flow Statement (CFS) for the year ended 31.3.2006 a. Particulars Cash flow from operating activities (Indirect approach) Closing balance of profit and loss a/c Less: Opening balance of profit & loss a/c Net decrease in profit & loss a/c Add: non-cash and non-operating expenses Depreciation on plant & machinery Depreciation on furniture Cost of issue of debentures written off Transfer to general reserve Proposed dividends Dividend tax on proposed dividends Provision for tax Cash from operations before tax Less tax paid Cash from operations before working capital changes Adjustments for WC changes Increase in stock Increase in debtors Decrease in Bills payable Increase in creditors Cash used in operating activities Cash flows from investing activities Purchase of machinery Cash used in investing activities Cash flows from financing activities Issue of share capital Receipt of share premium Dividends paid Dividend tax paid Expenses of share issue Cash from financing activities Net increase in cash and cash equivalents Add: opening balance of cash and cash equivalents Closing balance of cash and cash equivalents Dr. Particulars To Balance b/d Plant & Machinery a/c Amount Particulars 7,00,000 By depreciation 1,50,000 By balance c/d 1,50,000 10,00,00 0 Amount 59,750 60,000 (250) 1,00,000 9,000 5,000 50,000 1,02,500 10,250 1,52,500 4,29,000 (1,30,000) 2,99,000 (1,94,000) (1,10,000) (20,000) 5,000 (20,000) (1,50,000) (1,50,000) 4,00,000 2,00,000 (75,000) (7,500) (20,000) 4,97,500 3,27,500 2,52,500 5,80,000 Cr. Amount 1,00,000 9,00,000 Amount

b.

c.

WN-1: a.

To purchase of machinery (cash) To purchase of plant (shares)

10,00,000

6.

From the following information prepare cash flow statement for the year ended 31.12.2004 by Indirect Method: Balance Sheet as at 31st December Liabilities Share capital Bank overdraft Bills payable Creditors 2003 3,00,000 3,20,000 1,00,000 1,80,000 9,00,000 Additional Information a. b. Net profit for the year 2004 amounted to Rs.1,20,000 During the year, a Machinery costing Rs.50,000 (accumulated depreciation Rs.20,000) was sold for Rs.26,000. The provision for depreciation against Machinery as on 31.12.2003 was Rs.1,00,000 and on 31.12.2004 Rs.1,70,000. 2004 Assets 2003 2,20,000 4,00,000 1,00,000 1,40,000 40,000 9,00,000 2004 3,00,000 2,80,000 90,000 1,60000 50,000 8,80,000 3,50,000 Land & Buildings 2,00,000 Machinery 80,000 Stock 2,50,000 Debtors Cash 8,80,000

Solution 6: Cash flow Statement (CFS) for the year ended 31.12.2004 a. Particulars Cash flow from operating activities (Indirect approach) Profit before tax and extra ordinary items Add: Depreciation [WN (b)] Add: Loss on sale of asset (WN-1(c)] Operating profit before working capital changes Adjustments for WC changes Decrease in stock Increase in debtors Decrease in Bills payable Increase in creditors Decrease in Bank overdraft Cash from operating activities Cash flows from investing activities Sale of machinery Purchase of Land & Buildings Cash flows from financing activities Drawings (WN-2) Increase in cash & cash equivalents Dr. Particulars To Balance b/d (4,00,000 + 1,00,000) Amount 1,20,000 90,000 4,000 2,14,000 10,000 (20,000) (20,000) 70,000 (1,20,000) 1,34,000 26,000 (80,000) Amount

b.

(54,000) (70,000) 10,000 Cr. Amount 50,000 4,50,000 5,00,000

c.

WN-1: a. Machinery a/c (at cost) Amount Particulars 5,00,00 By sale of machinery a/c 0 By balance c/d 5,00,00 0

b.

c.

Dr. Depreciation Reserves a/c Particulars Amount Particulars To Sale of Machinery a/c 20,000 By balance b/d To Balance c/d 1,70,00 By P&L a/c (c.y. depn.) 0 1,90,00 0 Dr. Sale of Machinery a/c Particulars Amount Particulars To Machinery a/c 50,000 By Depreciation Reserves a/c By Bank (sale) By P&L a/c Loss on sale 50,000 Rs. 3,00,000 1,20,000 4,20,000 3,50,000 70,000 40,000 50,000 10,000

Cr. Amount 1,00,000 90,000 1,90,000 Cr. Amount 20,000 26,000 4,000 50,000

WN-2: Opening capital Profit during the year Closing capital Drawings Reconciliation: Opening cash balance Closing cash balance Increase in cash

Add: Less:

7.

The following data were provided by the accounting records of Nally Ltd. At the year end March 312004. Income statement Particulars Sales Cost of goods sold Gross Margin Operating expenses including depreciation exp. of Rs.7,400 Operating Profit Other expenses/income: Interest expenses paid Interest income received Gain on sale of investments Loss on sale of plant Income tax Profit After tax Comparative Balance Sheet Liabilities Share capital Reserves & Surplus Bonds 31.03.2004 31.03.2003 Rs. Rs. 93,000 28,000 59,000 Assets 31.03.2004 31.03.2003 Rs. Rs. 1,43,000 20,600 1,22,400 1,01,000 13,600 87,400 Rs. 1,39,600 1,04,000 35,600 29,400 6,200 (4,600) 1,200 2,400 (600)

(1,600) 4,600 (1,400) 3,200

63,000 Plant 26,400 Less: Accumulated Dep. 49,000

Current Liabilities: Accounts payable Liabilities Income-tax payable

10,000 2,400 600

Investments 8,600 Current assets: 1,800 Inventory 1,000 Debtors Cash Prepaid expenses 1,49,800

23,000 28,800 9,400 9,200 200 1,93,000

25,400 22,000 11,000 3,000 1,000 1,49,800

1,93,000 i. ii. iii. iv. vi. vii. viii. Solution 7:

Analysis of selected accounts and transaction during 2003-04 Purchased investments for Rs.15,600. Sold investments for Rs.20,400. These investments cost Rs.18,000. Purchased plant for Rs.24,000. Sold plant that cost Rs.2,000 with accumulated depreciation of Rs.400 for Rs.1,000. On maturity, bonds of Rs.10,000 repaid at face value. Issued 3,000 shares of Rs.10 each. Paid cash dividend Rs.1,600

v. Issued Rs.20,000 worth Bonds at face value in exchange for plant purchased on 31st March, 2004.

Prepare cash flow statement as per AS-3 (indirect method), and direct method.

Cash Flow Statement for the year ended 31.3.2004 Particulars A. Cash from operating activities (Indirect Method) 1. 2. Profit before tax and extra ordinary items Adjustments for a. b. c. d. e. Depreciation Loss on sale of Plant Less: Gain on Sale of Investments Less: Interest income received Interest expenses paid Particulars 3. Adjustment for working capital changes a. b. c. d. e. Increase in Inventory Decrease in debtors Decrease in Prepaid Expenses Increase in Accounts Payable Increase in accrued liabilities (6,800) 1,600 800 1,400 600 11,200 (1,800) 9,400 Rs. 4,600 7,400 600 (2,400) (1,200) 4,600 13,600 Rs. Rs. Rs.

Operating profit before working capital changes

Cash generated from operations Taxes Paid Cash flow before extraordinary items

Add/Less: Extraordinary Cash flow from operating activities B. Cash flow from investing activities 1. 2. 3. 4. 5. C. Purchase of Plants Sale proceeds of plant Purchase of investments Sale proceeds of investments Int. income received (24,000) 1,000 (15,600) 20,400 1,200

Nil 9,400

(17,000) Cash flow from financing activities 1. 2. 3. 4. 1. Issue of shares Repayment of funds Interest paid Dividend paid 30,000 (10,000) (4,600) (1,600) 13,800 Reconciliation Opening balance Closing Balance Increase Indirect Method WN-1: 3,000 9,200 6,200

Plant A/c
Dr. Particulars To Balance b/d Bank Bonds Amount Rs. 87,400 24,000 20,000 1,31,400 Particulars By Bank (Sale) Profit & Loss a/c Depreciation Balance c/d Cr. Amount Rs. 1,000 600 7,400 1,22,400 1,31,400 Cr. Amount Rs. 13,600 7,400 21,000

Accumulated Depreciation a/c


Dr. Particulars To Plant a/c To Balance c/d Amount Rs. 400 20,600 21,000 Particulars By Balance b/d By Profit & Loss a/c

Tax a/c
Dr. Cr.

Particulars To Bank a/c To Balance c/d Direct Method WN-1: Collection from Debtors

Amount Rs. 1,800 600 2,400

Particulars By Balance b/d By Profit & Loss a/c

Amount Rs. 1,000 1,400 2,400

Debtors A/c
Dr. Particulars To Balance To Sales Rs. 11,000 1,39,600 1,50,600 WN-2: Payment for Purchases Dr. Particulars To Bank (bal figure) To Balance c/d Rs. 1,09,400 10,000 1,19,400 Note: Opening Stock + Purchases Closing Stock 22,000 + Purchases 28,800 Purchases WN-3: Expenses paid in Cash Expd. From P & L a/c Excluding depreciation (29,4007,400) Less: Increases in accrued liabilities (Outstanding Expenses) Less: Decrease in prepaid Expenses Rs. 22,000 (600) (800) 20,600 = 1,04,000 + 28,80022,000 = Cost of Goods sold. = 1,04,000 = 1,10,800 Creditors A/c Particulars By Balance b/d By Purchases Cr. Rs. 8,600 1,10,800 1,19,400 Particulars By Bank (balance figure) By Balance Cr. Rs. 1,41,200 9,400 1,50,600

Cash Flow Statement for the year ended 2004 Particulars


A. Cash flow from operating activities (Direct Method) a. b. c. Collection from debtors (WN-1) Less: Payment for Purchases (WN-2) Less: Payment for Expenses (WN-3) Cash generated from operations 1,41,200 (1,09,400) (20,600) 11,200 Rs.

d. e.

Less: Taxes paid Cash flow before extraordinary items Less: Extraordinary items

1,800 9,400 NIL 9,400 (17,000) 13,800 6,200

Cash flow from operating activities Cash flow from investing activities (same as in the case of indirect method) Cash flow from financing activities (same as in the case of indirect method) Increase in Cash & Cash equivalents