VIVEKANANDA EDUCATIONAL SOCIETY

ACCOUNTANCY WORKSHOP

DAY:TUESDAY
DATE:01-11-2022
CASH FLOW
STATEMENT
CLASS XII
CASH FLOW STATEMENT

A cash flow is a statement showing inflow

(receipts) and outflow (payments) of cash
during a particular period.
A cash flow statement includes only those
item which affects cash.
CASH FLOW STATEMENT

The term cash stands here for cash

and cash equivalents.
It can be prepared for past or can
be projected for a future period.
OBJECTIVES
OF
CASH FLOW
1. To ascertain the sources of cash and
STATEMENT
cash equivalents’ from operating,
investing and financing activities
2. To ascertain the application of cash and
cash equivalents under operating,
investing and financing activity
OBJECTIVES
OF
CASH FLOW
3. To ascertain the net changes in cash
STATEMENT
and cash equivalents
4. To highlight major activities that have
provided cash and that have used cash
during a particular period and to show
their effect on the overall cash balance.
 CASH AND CASH EQUIVALENTS
Cash - It comprises of cash in hand and demand deposits with banks
Cash equivalents - It has the following features :
1. Short maturity period (3 months)
2. Highly liquid investment
3. Highly risky
4. Readily convertible into cash
Cash Equivalents comprises of the
following:

1. Cash in hand
2. Cash at bank
3. Current investment
4. Short term investment or marketable securities
5. Cheques and drafts on hand
Note: Bank overdraft and cash credit will not
be considered as cash and cash equivalents
CLASSIFICATION
OF CASH FLOWS
According to AS -3 (revised) a cash flow
statement should be presented in manner that
it reports inflows and outflows of cash by
classifying them into three categories
1. Operating activity
2. Investing activity
3. Financing activity
1. Cash flow from
operating activities:
Operating activities are the main revenue generating
activities of an enterprise.
Eg: 1. Cash receipt from sale of goods and rendering of
services
2. Cash receipts from royalties ,fees, commission and
other revenues
3. Cash receipts from debtors and bills receivables
4. Cash payment for purchase of 1. Cash flow from
goods and services’ operating activities:
5. Cash payments to creditors and
bills payables
6. Cash payment of wages, salaries
and other payments to employees
7. Cash payments or refunds of
income taxes unless they can be
specifically identified with financing
and investing activities
2. Cash flow from
investing activities:
Investing activity include the purchase and sale of long
terms asset, plant and machinery land, buildings etc. not
held for resale.
Eg: 1. Cash payments to acquire fixed assets including
intangible asset
2. Cash receipts from sale of fixed assets including
intangibles
3. Cash payments to acquire share ,warrants or debt
instruments of other enterprises
2. Cash flow from
investing activities:
4. Cash receipts from sale of shares ,warrants or debt
instruments of other enterprises
5. Cash loans and advances made to third parties. In case
of financial enterprises these will be treated as cash flow
from operating activities
6. Cash repayments of advances and loans made to third
parties. In case of financial enterprises these will be
treated a cash flow from operating activities
2. Cash flow from
investing activities:
7. Cash receipts of insurance claim for property involved in
accident
8. Cash receipts of interest and dividend in case of financial
enterprises these will be treated as cash flow from
operating activities.
3. Cash flow from
financing activities
Those activities which result in change in capital and
borrowings of the enterprises.
eg: 1. Cash receipts from issuing shares or other similar
instruments.
2. Cash payment or buyback of equity shares
3. Cash receipts from short term or long term borrowings
such as issuing bonds, debentures, loans(long term as
well as short term)
3. Cash flow from
financing activities

4. Cash payments of interim dividend and previous years

proposed dividend both on preference shares and equity
shares
5. Cash payments for interest on long term borrowings
such as debentures and interest on short term
borrowings such as bank overdraft and cash credits.
6. Change in bank overdraft and cash credit
7. Payment expenses of preliminary expenses(including
share issue expenses)
 ₹ ₹
CASH FLOW STATEMENT for the year ended ………. A. Cash Flows from Operating Activities
Net Profit before Tax (See Note No. 1)
Adjustments for non cash and non operating items ………
Add: Depreciation
Preliminary Expenses Discount on issue of ……….
Debentures written off
Goodwill, Patents and Trademarks Ammortised ……….
Interest paid on short term and ……….
long-term Borrowings
(Indirect Method)

Interest paid on Bank Overdraft/Cash Credit

Loss on Sale of Fixed Assets ……….
Increase in Provision for Doubtful Debts ……….
Less : Interest Income
Dividend Income ……….
Rental Income ……….
______ ……….
Gain (Profit) on Sale of Fixed Assets (………)
Decrease in Provision for Doubtful Debts
(………)
Operating Profit before Working Capital Changes (………)
Add: Decrease in Current Assets (………)
Increase in Current Liabilities (………) (………)
______
Less : Increase in Current Assets ______
Decrease in Current Liabilities
Cash generated from operations ……….
……….
Less: Income Tax paid (Net of Tax Refund received) ……….
______ ……….
Net cash from (or used in) operating activities ______
(………)
(………)
______ (………)
______
……….
(………)
______
………. ……….
 ₹ ₹
B. Cash flows from Investing Activities
Proceeds from Sale of Tangible Fixed Assets ……….
Proceeds from Sale of Intangible Fixed Assets like goodwill
Proceeds from Sale of Non-Current Investments ……….
Interest and Dividend Received ……….
Rent Received ……….
Purchase of Tangible Fixed Assets
Purchase of Intangible Fixed Assets like goodwill ……….
Purchase of Non-Current Investments (………)
(………)
Net cash from (or used in) Investing Activities (………)
______
……….
______ ……….
 ₹ ₹
C. Cash flows from Financing Activities:
Proceeds from issue of Shares and Debentures ……….
Proceeds from Other Long-term Borrowings : ……….
Proceeds from Short-term Borrowings
(i) Increase in the Balance of Bank Overdraft and Cash Credit
(ii) Decrease in the Balance of Bank Overdraft and Cash Credit (……….)
Payment of Interim Dividend (……….)
Payment of Proposed Dividend of Previous Year
Interest paid on Short-term and Long-term Borrowings (……….)
Interest paid on Bank Overdraft/Cash Credit (……….)
Repayment of Loans (Whether short-term or long-term) (……….)
Redemption of Debentures/Preference Shares (……….)
Net cash from (or used in) financing activities (……….)
(……….)
_______
Net Increase (or Decrease) in Cash & Cash Equivalents (A+B+C)
Add: Cash and Cash Equivalents in the beginning of the year ……….
_______ ……….
_______
Cash and Cash Equivalents at the end of the year ……….
……….
_______
……….
_______
_______
 Note No. 1: Calculation of Net Profit before Tax:

Particulars ₹
Net Profit of the current year (after appropriations) ……….
Add: Transfer to Reserves (all transfers to Reserves from balance of the
Statement of Profit & Loss)
Proposed Dividend of Previous Year ……….
Interim Dividend paid during the year ……….
Provision for Tax made during the current year ……….
Less: Refund of Tax ……….
Net Profit before Tax
(………)
_____
……….
_____
_____

Note: Amounts in brackets denote negative items, i.e. amounts that are to be deducted.
CALCULATION OF CASH FLOW FROM INVESTING
ACTIVITY
Investing activity of an enterprise refer to acquisition and disposal of long term assets and other
investment which are not included in cash equivalents.
₹ ₹
B. Cash flows from Investing Activities:
Proceeds from Sale of Tangible Fixed Assets …….....
Proceeds from Sale of Intangible Fixed Assets like goodwill …….....
Proceeds from Sale of Non-Current Investments …….....
Interest and Dividend Received …….....
Rent Received …….....
Purchase of Tangible Fixed Assets (..…....)
Purchase of Intangible Fixed Assets like goodwill (..…....)
Purchase of Non-Current Investments (..…....)
Net cash from (or used in) Investing Activities ……..... …….....
______
EXERCISES
1. QUESTION
From the following information, calculate cash from investing activities:
Purchased Sold
₹ ₹
Plant 6,20,000 2,00,000
Investments 2,40,000 80 000
Goodwill 1,00,000 ----
Patents 1,50,000

Interest received on debentures held as investment ₹8,000.

Interest paid on debentures issued ₹15,000
Dividend received on shares held as investment ₹20,000.
Dividend paid on equity share capital ₹ 25,000.
A plot of land was purchased out of the surplus funds for investment purposes and was let out for
commercial use and rent received ₹30,000.
SOLUTION
CASH FLOW FROM INVESTING ACTIVITIES

Purchase of plant (620000)

Proceeds from sale of plant 200000

Purchase of investment ( 240000)

Interest paid Rs.15,000 and
Proceeds from sale of investments 80000 dividend paid Rs.25,000 will not
be recorded in cash flows from
Purchase of goodwill ( 100000)
investing activities. They will be
Proceeds from sale of patent 150000 recorded in cash flows from
financing activities
Interest received 8000

Dividend received 20000

Rent received 30000

------------------------------------------

(472000)
2.QUESTIONS
The balances in machinery account and accumulated depreciation account as on 31/3/2018
and19 are given below:
Balance as at 31/03/18 31/03/19
Machinery 500000 600000
Accumulated depreciation 164000 180000
During the year a machine costing Rs 100000 accumulated depreciation thereon Rs 44000 was sold
for Rs 30000

Required:
1.compute the amount of machinery purchased ,depreciation charged for the year and loss on sale
of machinery
2.how each of the item related to the machinery will be reported in the statement of cash flows?
 (i) Calculation of machinery purchased :
MACHINERY ACCOUNT
₹ ₹
To Balance b/d 5,00,000 By Bank A/c (Sale proceeds) 30,000
To Bank A/c (balancing figure, By Accumulated Depreciation A/c
being purchase of machinery) 2,00,000 (Dep. on machinery sold) 44,000
By Loss on sale
(₹ 1,00,000 - ₹44,000 - ₹30,000) 26,000
By Balance c/d 6,00,000
7,00,000 7,00,000
__________ _________
_
 Calculation of Current year's depreciation:
ACCUMULATED DEPRECIATION ACCOUNT
₹ ₹
To Machinery A/c (transfer of By Balance b/d 1,64,000
depreciation on sold machinery) 44,000
By Balance c/d By Depreciation A/c (balancing
figure, being current year's
1,80,000 depreciation) 60,000
2,24,000 2,24,000
__________ _________
_
 CASH FLOW STATEMENT
For the year ending 31st March, 2019
Particulars ₹
Cash Flows from Operating Activities :
Net Profit ----
Add: Depreciation charged on Machinery 60,000
Loss on sale of Machinery 26,000
_________
Cash Flows from Investing Activities :
Sale of Machinery 30,000
Purchase of Machinery (2,00,000)
__________
 CALCULATION OF CASH FLOW FROM FINANCING ACTIVITY

Exercise 1. From the following calculate cash flow from financing activity

31.3.2018 31.3.2017
₹ ₹
Equity Share Capital 8,00,000 6,00,000
12% Preference Share Capital ------ 2,00,000
14% Debentures 1,00,000 ------
Additional Information :

(i) Equity Shares were issued at a premium of 15%.

(ii) 12% Preference Shares were redeemed at a premium of 5%.
(iii) 14% debentures were issued at a discount of 1%.
(iv) Dividend paid on old Preference Shares ₹ 24,000.
(v) Interest paid on debentures ₹14,000.
(vi) Underwriting commission of Equity Shares ₹10,000.
(vii) Proposed Dividend on Equity Shares for the year ended 31.3.2018 ₹1,20,000.
(viii)Proposed Dividend on Equity Shares for the year ended 31.3.2017 ₹90,000.
 SOLUTION:

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issue of Equity Share Capital ( ₹2,00,000 + Securities Premium 2,20,000
₹30,000 - Underwriting Commission ₹10,000)
Redemption of Preference Shares (2,10,000)
( ₹2,00,000 + Premium on Redemption ₹10,000)
Proceeds issue of Debentures ( ₹1,00,000-₹1,000) 99,000
Proposed Dividend on Equity Shares for the year ended 31st March, 2017 (90,000)
Dividend paid on Preference Shares (24,000)
Interest paid on Debentures (14,000)
Net Cash used in Financing Activities (19,000)
Notes:
(i) Proposed Dividend for Previous Year i.e., for the
year ended 31st March, 2017 is declared (approved)
in the year ended 31st March 2018. Hence it will be
added back to Net Profit to determine net profit
before tax. It will also be shown under financing
activities as Outflow of Cash.
(ii) Proposed Dividend for Current Year i.e, for the year
ended 31st March 2018 will be declared (approved)
in the next financial year. Hence, it will have no
effect on Cash Flow Statement.
 PROVISION FOR TAX ACCOUNT

TOBANK (TAX PAID) 40000 BY BALANCE B/D 80,000

TO BALANCE C/D 70000 BY PROVISION MADE 30,000

1,10,000 1,10,000
POINTS TO REMEMBER
WHEN THREE DATA ARE GIVEN REGARDINGPROVISION FOR
TAX
PREPARE PROVISION FOR TAX ACCOUNT
WHEN ONLY TWO DATA ARE GIVEN FOR PROVISION FOR
TAX,THEN CURRENT YEAR TO BE TAKEN HAS PROVISION MADE
AND IT SHOULD BE ADDED WITH NET PROFIT BEFORE TAX AND
EXTRAORDINARY ITEMS WORKINGS AND PREVIOUS YEAR
PROVISION TO BE SUBTRACTED AS TAX PAID IN OPERATING
ACTIVITY.
WHEN SALE OF ASSET NOT GIVEN BUT VALUE HAS DECREASED
IN ASSET,THEN IT HAS TO BE TREATED AS DEPRECIATION.
IF PROPOSED DIVIDEND IS GIVEN FOR CURRENT YEAR AND
PREVIOUS YEAR,ONLY PREVIOUS YEAR TO BE TAKEN FOR
CALCULATIONS.
LOAN ADVANCED IS AN INVESTING ACTIVITY
LOAN BORROWED IS A FINANCING ACTIVITY.THE ABOVE TWO
TERMS MUST BE DISTINGUISHED TO THE STUDENTS.
STUDENTS MUST KNOW THE FORMAT THOROUGHLY AND THE
TERMS USED IN DIFFERENT STAGES OF ANSWER,THAT WILL
HELP THEM TO ANSWER THE PART QUESTIONS OR CASE STUDY
BASED QUESTIONS IN THE EXAM
TRY
AN
ACTIVITY
IDENTIFY
WHICH
ACTIVITY
IT
BELONGS
TO
 1.INTEREST RECEIVED
2.RENT RECEIVED
3.DIVIDEND RECEIVED
4.DIVIDEND PAID
5.DEPRECIATION
6.PURCHASE OF MACHINERY
7.INTEREST PAID
8.ISSUE OF DEBENTURES
9.REDEMPTION OF SHARES
10.PROFIT ON SALE OF MACHINERY
ANSWERS
OPERATING ACTIVITY-5,10
INVESTING ACTIVITY-1,2,3,6
FINANCING ACTIVITY-4,7,8,9