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MA. 2.

3Analysis of Financial Statements

Preparation & Analysis of


Cash Flow Statements
Learning Objective

To know how Indian Accounting


Standard (Ind AS-7) is mandatory for
listed and to be listed companies and
entity except OPC, Small Company/ies.
Content of Cash Flow Statement

Ind Accounting Standard-7 deals with


cash flow during the period from
operating, investing and financing
activities
Cash and Cash Equivalents
Cash Cash
Equivalents Currency

 Short-term,
Short-term,highly
highlyliquid
liquidinvestments.
investments.
 Readily
Readilyconvertible
convertibleinto
intocash.
cash.
 So
Sonear
nearmaturity
maturitythat
thatmarket
marketvalue
valueis
is unaffected
unaffectedby
by interest
interestrate
ratechanges.
changes.
Why cash flow analysis?
 Cash flow is not the same thing as
profit, at least, for two reasons:
 First, profit, as measured by an accountant,
is based on accrual concept.
 Second, for computing profit, expenditures
are arbitrarily divided into revenue and
capital expenditures.
Purpose of the Statement of
Cash Flows
 Provides information about the cash receipts and
cash payments of a business entity during the
accounting period.
Helps investors with questions about the
company’s:
 Ability to generate positive cash flows.
 Ability to meet its obligations and to pay
dividends.
 Need for external financing.
 Investing and financing transactions for the
period.
Sources and Uses of Funds and
Cash Flows
 Sources of funds or cash flows:
 funds from operations
 sale of fixed assets
 issue of share capital
 borrowings
 Uses of funds are:
 losses
 purchase of fixed assets
 repayment of borrowings
 payment of dividends
Cash from Operations
 Cash flow from operations
+ PAT (– loss)
+ Depreciation
+ Other non-cash expenses
– Non-cash incomes
+ Loss from the sale of fixed assets
– Gain from the sale of fixed assets
+ Decreases in net working capital
– Increases in net working capital
Cash Flow Analysis

Operating Activity:
Operating activities are the principal
revenue-producing activities that are
not investing or financing activities.
Enterprises should represent cash flow
from operating activities using either
direct method or indirect method.
Investing Activities:

Investing activities refer to acquisition and


disposal of long-term assets and other
investments which are not included in cash
equivalent.
Financing Activities:

Financing activities are those that result in


changes in the size and composition of
owners’ capital and borrowing of the
enterprises.

Ex: changes in share capital and loan fund.


Cash Flow from Different Activities
• Operating : Cash Receipts and Cash
Disbursements from day to day transactions.
These transactions are generally from the
Income Statement and affect Current Assets
and Current Liabilities

• Investing : Cash Receipts and Cash


Disbursements from the purchase and sale of
Long-term assets

• Financing : Cash Receipts and Cash


Disbursements from Long-term Debt and Equity
FORMAT FOR CASHFLOW STATEMENT
Cash Flow Statement for the year ended ……

A. Net Cash flow from operating activities xxx

B. Net Cash flow from investing activities xxx

C. Net cash flow from financing activities xxx


 Total xxx
 Add: opening balance of cash xxx
 Closing balance of cash xxx
Net cash flow - operating
activities
 Net profit/loss before tax xxx
 Add/less: non-cash non operating
Expenses xxx
 Add: increase in CL, decr. in CA xxx
 Less: decr. in CL, incr. In CA xxx
 Net cash flow from op. activities xxx
Net cash flow from investing
activities
 Add : Sale of assets xxx
 Less: Purchase of assets xxx
 Add: Sale of investments xxx
 Less: purchase of investments xxx
 Add: Dividend received xxx
 Add: interest received xxx
 Net cash flow xxx
Net cash flow from financing
activities
 Add: issue of shares xxx
 Less: dividends paid xxx
 Add: issue of Debentures xxx
 Less: interest paid xxx
 Less: Redemption of debentures xxx
 Add: long term borrowings xxx
 Less: Amortization xxx
 Net cash flow xxx
Following information is available from the books
of Standard Co. ltd.

2013 2012
Profit during the year 2,50,000 -
Income received in advance 500 600
Prepaid expenses 1,600 1,400
Debtors 80,000 95,000
Bills receivable 25,000 20,000
Creditors 45,000 40,000
Bills payable 13,000 15,000
Outstanding expenses 2,500 2,000
Accrued income 1,500 1,200
From the following information pertaining
to a company, prepare cash flow
statement.

Liabilities 2018 2019 Assets 2018 2019


Share capital 2,00,000 2,50,000 Goodwill 10,000 2,000
12% debentures 1,00,000 80,000 Land & buildings 2,00,000 2,80,000
General reserves 50,000 70,000 Machinery 1,00,000 1,30,000
Creditors 40,000 60,000 Debtors 40,000 60,000
Bills payable 20,000 1,00,000 Stock 70,000 90,000
Outstanding 25,000 20,000 Cash 15,000 18,000
expenses
4,35,000 5,80,000 4,35,000 5,80,000
Calculate cash from operations
from the following:
I. Profit made during the year Rs. 2,50,000 after considering the
following items:
Rs.
Depreciation on fixed assets 10,000
Amortization of goodwill 5,000
Transfer to General Reserves 7,000
Profit on sale of land 3,000

II. The following is the position of current assets and current liabilities:
2019 2018
Debtors 15,000 12,000
Creditors 10,000 15,000
Bills receivable 8,000 10,000
Prepaid expenses 4,000 6,000
The balance sheet of X Ltd. As on 31st March 2018
and 2019 were as follows:
2018 2019
Assets:

Land & Buildings 80,000 1,20,000


Plant & 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:
Share capital 5,00,000 7,00,000
Profit & loss account 1,00,000 1,60,000
General reserve 50,000 70,000
Sundry creditors 1,63,000 2,00,000
Bills payable 30,000 40,000
Outstanding expenses 7,000 5,000
Additional information:
a. Rs. 50,000 depreciation has been
charged to plant & machinery during
the year.
b. A piece of machinery was sold for Rs.
8,000 during the year. It had cost of
Rs. 12,000, depreciation of Rs. 7,000
has already provided on it.
Following is the balance sheet of AB Ltd. As at 1st January
2012 and 31st December 2012.

1.1.2012 31.12.2012
Liabilities:

Equity share capital 300000 350000


Share premium - 30000
General reserve 45000 65000
Profit & loss 30000 80800
6% debentures - 70000
Sundry creditors 85000 90700
Provision for taxation 22500 40500
Proposed dividend 30000 35000
512500 762000
Assets: 230000 390000
Land & buildings 85400 140000
Plant & machinery 5500 6500
Furniture 82400 95700
stock 75000 85500
Sundry debtors 34200 44300
Bank balance 512500 762000
Additional Information
 Depreciation written off during the
year:
Amt Rs.
Land & building 60000
Plant & machinery 50000
furniture 1200
From the following information as contained in the Income
Statement and Balance sheet of Strong Ltd. Prepare Cash flow
statement as on 31.03.2018
Rs. Rs.

Net Sales 40,32,000


Less: Cost of Sales 31,68,000
Depreciation 96,000
Salaries & wages 3,84,000
Operating expenses 1,28,000
Provision for taxation 1,40,800 (39,16,800)
Net Operating Profit 1,15,200
Non recurring income:
Profit on sale of equipment 19,200
Profit for the year 1,34,400
Retained earning 2,42,880
3,77,280
Dividend paid (1,15,200)
Profit & loss as at 31.03.2018 2,62,080
Comparative B/S.
31.03.2017 31.03.2018
Fixed Assets:
Land 76,800 1,53,600
Buildings & equipment 5,76,000 9,21,600
Current Assets:
Cash 96,000 1,15,200
Debtors 2,68,800 2,97,600
Stock 4,22,400 1,53,600
Advances 12,480 14,400
14,52,480 16,56,000
Capital 5,76,000 7,10,400
P&L Account 2,42,880 2,62,080
Sundry creditors 3,84,000 3,74,400
Outstanding expenses 38,400 76,800
Income tax payable 19,200 21,120
Accumulated depreciation on buildings & equipment 1,92,000 2,11,200
14,52480 16,56,000
Additional information:
 Cost of equipment sold was Rs.
1,15,200
 Thank u!

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