Problems on Cash Flow Statement

01. The Balance Sheets of Sri Venkatesh Ltd as on 1st April 2015 and 31st March
2016 are as follows:

Capital and Liabilities

Particulars 01.04.2015 (₹) 31.03.2016 (₹)

Equity share capital 2,50,000 2,50,000
6% Debentures 1,00,000 80,000
Creditors 1,15,000 90,000
Profit and Loss A/c 20,000 27,000
Depreciation Fund on P & M 40,000 44,000
General Reserve 70,000 80,000
O/S Expenses 15,000 24,000
Total 6,10,000 5,95,000
Property and Assets

Particulars 01.04.2015 (₹) 31.03.2016 (₹)

Land and Building 1,50,000 1,50,000
Machinery 82,000 97,000
Stock-in-trade 1,00,000 1,14,000
Debtors 85,000 81,000
Cash in hand 60,000 55,000
Temporary investments 1,31,000 95,000
Prepaid expenses 2,000 3,000
Total 6,10,000 5,95,000
Additional Information:

 (a) New machinery was purchased for cash ₹30,000, but old machinery costing ₹15,000 was
sold for ₹5,000 (accumulated depreciation was ₹8,000).

 (b) ₹20,000 6% debentures were redeemed by purchase in the open market @ ₹97.

 (c) 15% dividend was paid in cash.

Cash Flow Statement (as per AS-3 by Indirect method) is required.

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 1

 Depreciation Fund (Provision for Depreciation) Account

Particulars Amount Particulars Amount

(₹) (₹)
To Machinery A/c (Accumulated 8,000 By Balance b/d 40,000
Dep. on sold machinery)
To Balance c/d 44,000 By Depreciation (P&L A/c - 12,000
Current Year's Depreciation)
Total 52,000 Total 52,000

Machinery Account

Particulars Amount Particulars Amount

(₹) (₹)
To Balance b/d 82,000 By Depreciation Fund A/c 8,000
(Accumulated Dep. on sold
machinery)
To Bank A/c (New 30,000 By Bank A/c (Sale of Old Machinery) 5,000
Machinery Purchased)
By Profit & Loss A/c (Loss on Sale: 2,000
15000 - 8000- 5000)
By Balance c/d 97,000
Total 112,000 Total 112,000

Cash Flow Statement for the year ended 31st March 2016 (AS-3 Indirect Method)
Particulars Amount (₹) Amount (₹)
A. Cash Flow from Operating Activities:
Net Profit before tax and extraordinary items
Profit & Loss A/c Closing Balance 27,000
Less: Profit & Loss A/c Opening Balance (20,000)
Net Profit for the year 7,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 2

Add: Proposed Dividend (15% of Equity Share Capital) 37,500
Add: Transfer to General Reserve (80,000 - 70,000) 10,000
Net Profit before Tax and Extraordinary Items 54,500
Adjustments for Non-Cash and Non-Operating Items:
Depreciation on P & M 12,000
Loss on Sale of Machinery 2,000
Interest paid on Debentures (6% of 1,00,000/80,000) 6,000
(Assumed opening balance for interest for full year for
simplicity unless specified)
Operating Profit before Working Capital Changes 74,500
Adjustments for Working Capital Changes:
Increase in Stock-in-trade (1,14,000 - 1,00,000) (14,000)
Decrease in Debtors (85,000 - 81,000) 4,000
Decrease in temporary investments (1,31,000-95,000) 36,000
Increase in Prepaid Expenses (3,000 – 2,000) (1,000)
Decrease in Creditors (1,15,000 – 90,000) (25,000)
Increase in Outstanding expenses (24,000 -15,000) 9,000 9,000
Cash Generated from Operations 83,500
Less: Income Tax Paid (Assumed Nil, as no provision for tax -
is given)
Net Cash from Operating Activities 83,500

B. Cash Flow from Investing Activities:

Purchase of Machinery (30,000)
Sale of Old Machinery 5,000
Net Cash Used in Investing Activities (25,000)
C. Cash Flow from Financing Activities:
Redemption of 6% Debentures (1,00,000 - 80,000) (20,000)
Dividend Paid (15% of 2,50,000) (Assumed paid from (37,500)
proposed dividend)
Interest paid on Debentures (6,000)

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 3

 Net Cash Used in Financing Activities (63,500)
D. Net Decrease in Cash and Cash Equivalents (A+B+C) (5,000)
E. Cash and Cash Equivalents at the beginning of the 60,000
year:
F. Cash and Cash Equivalents at the end of the year: 55,000

2. The balance sheets of M.N. Roy Ltd. for the years ending March 31, 2018, and March 31,
2019, along with additional information, and asks to prepare a cash flow statement using
the indirect method as per AS-3. Below is a structured presentation of the provided data:

Balance Sheet

Liabilities 2018 (₹) 2019 (₹) Assets 2018 (₹) 2019 (₹)
Capital 4,00,000 5,20,000 Cash 5,000 5,400
Creditors 79,000 82,270 Debtors 1,70,350 1,45,250
Bills payable 67,560 23,050 Advances 4,630 1,470
BOD 1,19,020 - Stock 2,22,080 1,94,740
Tax provision 80,000 1,00,000 Buildings 2,97,000 2,88,500
Reserves 1,00,000 1,00,000 Machinery 2,25,900 2,32,400
P/L A/C 79,380 82,440 Goodwill - 40,000
Total 9,24,960 9,07,760 Total 9,24,960 9,07,760
Additional Information:

 Dividend Paid: ₹52,000

 Income Tax Paid: ₹50,000

 Acquisition of Assets via Shares: Assets (Stock ₹43,280, Machinery ₹36,720, Goodwill
₹40,000) acquired for ₹1,20,000 in shares.

 Cash Purchase of Machinery: ₹11,300

 Net Profit Before Tax: ₹1,25,060

To prepare the cash flow statement under the indirect method:

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 4

 Machinery Account

Particulars Amount Particulars Amount

(₹) (₹)
To Balance b/d (01.04.2018) 2,25,900 By Depreciation (Bal. Fig.) 41,520
To Share Capital A/c (Acquisition for 36,720 By Balance c/d 2,32,400
shares) (31.03.2019)
To Bank A/c (Cash purchase) 11,300
Total 2,73,920 Total 2,73,920

Buildings Account

Particulars Amount (₹) Particulars Amount (₹)

To Balance b/d (01.04.2018) 2,97,000 By Depreciation (Bal. Fig.) 8,500
By Balance c/d (31.03.2019) 2,88,500
Total 2,97,000 Total 2,97,000

Tax Provision Account

Particulars Amount Particulars Amount

(₹) (₹)
To Bank A/c (Tax Paid - 50,000 By Balance b/d (01.04.2018) 80,000
given)
To Balance c/d (31.03.2019) 1,00,000 By P&L A/c (Provision for Tax - 70,000
Bal. Fig.)
Total 1,50,000 Total 1,50,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 5

Cash Flow Statement of M.N. Roy Ltd. for the year ended 31st March 2019 , As per
AS-3 (Indirect Method)
Particulars Amount Amount
(₹) (₹)
A. Cash Flow from Operating Activities:
Net Profit before tax and extraordinary items (Given) 1,25,060

Adjustments for Non-Cash and Non-Operating Items:

Add: Depreciation on Machinery (WN 1) 41,520
Add: Depreciation on Buildings (WN 2) 8,500
(Goodwill amortization not applicable as it was acquired during -
the year by share issue and no further decrease indicated)
Operating Profit before Working Capital Changes 1,75,080
Adjustments for Working Capital Changes:
Decrease in Debtors (₹1,70,350 - ₹1,45,250) 25,100
Decrease in Advances (₹4,630 - ₹1,470) 3,160
Decrease in Stock (₹2,22,080 - ₹1,94,740) 27,340
Increase in Creditors (₹82,270 - ₹79,000) 3,270
Decrease in Bills Payable (₹67,560 - ₹23,050) (44,510)
Decrease in BOD (1,19,020) (1,04,660)
Cash Generated from Operations 70,420
Less: Income Tax Paid (WN 4) (50,000)
Net Cash from Operating Activities 20,420
B. Cash Flow from Investing Activities:
Purchase of Machinery (for cash) (WN 1) (11,300)
Net Cash Used in Investing Activities (11,300)
C. Cash Flow from Financing Activities:
Dividend Paid (Given) (52,000)
Issue of Shares against Stock 43,280
Net Cash Used in Financing Activities (8720)
D. Net Decrease in Cash and Cash Equivalents (A+B+C) 400
E. Cash and Cash Equivalents at the beginning of the year: 5,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 6

 F. Cash and Cash Equivalents at the end of the year: 5,400

3.

Cash Flow Statement for Neha Ltd. for the year ended 31st March 2019 (AS-3 Direct
Method)

Particulars Amount (₹) Amount (₹)

A. Cash Flow from Operating Activities:
Cash Receipts from Customers 5,60,000
Cash Paid to Suppliers (4,00,000)
Cash Paid for Wages & Salaries (60,000)
Cash Paid for Tax (50,000)
Net Cash from Operating Activities 50,000
B. Cash Flow from Investing Activities:
Purchase of Fixed Assets (40,000)
Sale of Fixed Assets 20,000
Net Cash Used in Investing Activities (20,000)

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 7

 C. Cash Flow from Financing Activities:
Issue of Shares 60,000
Payment of Bank Loan (60,000)
Dividend Paid (10,000)
Net Cash Used in Financing Activities (10,000)
D. Net Increase in Cash and Cash Equivalents (A+B+C) 20,000
E. Cash and Cash Equivalents at the beginning of the year: 10,000
F. Cash and Cash Equivalents at the end of the year (D+E): 30,000

4. Balance sheet of Sanjeevini Ltd. for the years ending December 31, 2020, and December
31, 2021, along with additional information, and asks to prepare a cash flow statement as
per AS-3.

Liabilities

31/12/2020 (₹) 31/12/2021 (₹)

Share capital 4,50,000 5,50,000
Mortgage loan - 1,00,000
Profit & Loss Account (P&L A/c) 56,000 68,000
General reserve 3,00,000 3,10,000
Creditors 1,68,000 1,34,000
Provision for tax 75,000 80,000
Total 10,49,000 12,42,000
Assets

31/12/2020 (₹) 31/12/2021 (₹)

Fixed Assets 4,00,000 3,20,000
Investments 50,000 C 60,000
Stock 2,40,000 2,10,000
Debtors 2,10,000 4,55,000
Bank Balance 1,49,000 1,97,000
Total 10,49,000 12,42,000
Additional Information:

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 8

 Provision made for tax during the year: ₹60,000

 Dividend paid during the year: ₹40,000

 Investment sold during the year: ₹8,500 (costing ₹8,000)

 Fixed assets sold during the year: ₹12,000 (costing ₹10,000), and the profit was included in
the P&L A/c.
To prepare the cash flow statement as per AS-3,

Fixed Assets Account

Particulars Amount (₹) Particulars Amount (₹)

To Balance b/d 4,00,000 By Bank A/c (Sale of Fixed Assets) 12,000
By Depreciation (Bal. Fig.) 68,000
By Balance c/d 3,20,000
Total 4,00,000 Total 4,00,000

Investments Account

Particulars Amount Particulars Amount

(₹) (₹)
To Balance b/d 50,000 By Bank A/c (Sale of 8,500
Investments)
To Profit on sale of investment 500 By Balance c/d 60,000
To Bank A/c (Purchase of 18,000
Investments - Bal. Fig.)
Total 68,500 Total 68,500

Provision for Tax Account

Particulars Amount Particulars Amount

(₹) (₹)
To Bank A/c (Tax Paid - Bal. 55,000 By Balance b/d 75,000
Fig.)
To Balance c/d 80,000 By P&L A/c (Provision for 60,000
Tax)

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 9

Total 1,35,000 Total 1,35,000

Cash Flow Statement of Sanjeevini Ltd. for the year ended 31st December 2021 As per AS-
3 (Indirect Method)
Particulars Amount (₹) Amount (₹)
A. Cash Flow from Operating Activities:
Net Profit before Tax and Extraordinary Items
Profit & Loss A/c Closing Balance 68,000
Less: Profit & Loss A/c Opening Balance (56,000)
Net Profit for the year 12,000
Add: Dividend paid 40,000
Add: Transfer to General Reserve (3.10,000 – 3.00,000) 10,000
Add: Provision for tax 60,000 1,22,000
Adjustments for Non-Cash and Non-Operating Items:
Add: Depreciation on Fixed Assets 68,000
Less: Profit on Sale of Investments (500) 67,500
Operating Profit before Working Capital Changes 1,89,500
Adjustments for Working Capital Changes:
Decrease in Stock (₹2,40,000 - ₹2,10,000) 30,000
Increase in Debtors (₹4,55,000 - ₹2,10,000) (2,45,000)
Decrease in Creditors (₹1,68,000 - ₹1,34,000) (34,000) (2,47,000)
Cash Generated from Operations (59,500)
Less: Income Tax Paid (55,000)
Net Cash Used in Operating Activities (1,14,500)
B. Cash Flow from Investing Activities:
Sale of Fixed Assets 12,000
Purchase of Investments (18,000)
Sale of Investments 8,500
Net Cash Used in Investing Activities 2,500
C. Cash Flow from Financing Activities:
Issue of Share Capital 1,00,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 10

 Proceeds from Mortgage Loan 1,00,000
Dividend Paid (40,000)
Net Cash from Financing Activities 1,60,000
D. Net Increase in Cash and Cash Equivalents (A+B+C) 48,000
E. Cash and Cash Equivalents at the beginning of the year: 1,49,000
F. Cash and Cash Equivalents at the end of the year: 1,97,000

5. The balance sheets of Evergreen Ltd. for the years ending March 31, 2016, and March 31,
2017, along with additional information, and requests the preparation of a cash flow
statement under the indirect method.

Balance Sheets (Evergreen Ltd.)

Assets 31/03/2016 31/03/2017

Plant & Machinery 2,00,000 2,80,000
Buildings 1,60,000 2,40,000
Investments - 40,000
B/R 2,80,000 2,00,000
Stock 80,000 1,60,000
Cash in hand 80,000 80,000
Total Assets 8,00,000 10,00,000
Liabilities 31/03/2016 31/03/2017
Share capital 3,20,000 4,00,000
Reserves 60,000 80,000
P/L A/c 24,000 40,000
Debentures - 80,000
Provision for tax 28,000 40,000
Proposed Dividend 40,000 80,000
Creditors 3,28,000 2,80,000
Total Liabilities 8,00,000 10,00,000
Additional Information:

 a): Depreciation @ 25% was charged on plant & machinery.

 b): Rs. 20,000 was paid as income tax.

 c): Old machinery costing Rs. 20,000 (WDV Rs. 8,000) was sold for Rs. 14,000.

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 11

 Plant & Machinery Account

Particulars Amount Particulars Amount

(₹) (₹)
To Balance b/d 2,00,000 By Bank A/c (Sale of Machinery) 14,000
To Bank A/c (Purchase - Bal. 1,38,000 By Depreciation (25% on opening 50,000
Fig.) balance)
By P&L A/c (Profit on Sale) 6,000 By Balance c/d 2,80,000
Total 3,06,000 Total 3,44,000

Buildings Account

Particulars Amount (₹) Particulars Amount (₹)

To Balance b/d 1,60,000 By Balance c/d 2,40,000
To Bank A/c (Purchase - Bal. Fig.) 80,000
Total 2,40,000 Total 2,40,000

Provision for Tax Account

Particulars Amount Particulars Amount

(₹) (₹)
To Bank A/c (Tax Paid) 20,000 By Balance b/d 28,000
To Balance c/d 40,000 By P&L A/c (Provision for Tax - Bal. Fig.) 32,000
Total 60,000 Total 60,000
Proposed Dividend Account
Particulars Amount (₹) Particulars Amount (₹)
To Bank A/c (Dividend Paid) 0 By Balance b/d 40,000
To Balance c/d 80,000 By P&L A/c (Proposed for the year 40,000
- Bal. Fig.)
Total 80,000 Total 80,000

Cash Flow Statement of Evergreen Ltd. For the year ended 31st March 2017 As per AS-3
(Indirect Method)
Particulars Amount (₹) Amount (₹)
A. Cash Flow from Operating Activities:
Net Profit before Tax and Extraordinary Items
Profit & Loss A/c Closing Balance 40,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 12

Less: Profit & Loss A/c Opening Balance (24,000)
Net Profit for the year 16,000
Transfer to reserve 20,000
Provision for tax 32,000
Provision for proposed dividend 40,000 1,08,000
Adjustments for Non-Cash and Non-Operating Items:
Add: Depreciation on Plant & Machinery 50,000
Less: Profit on Sale of Machinery (6,000) 44,000
Operating Profit before Working Capital Changes 1,52,000

Adjustments for Working Capital Changes:

Decrease in Bills Receivable (B/R) (₹2,80,000 - ₹2,00,000) 80,000
Increase in Stock (₹1,60,000 - ₹80,000) (80,000)
Decrease in Creditors (₹3,28,000 - ₹2,80,000) (48,000) (48,000)
Cash Generated from Operations 1,04,000
Less: Income Tax Paid (20,000)
Net Cash from Operating Activities 84,000

B. Cash Flow from Investing Activities:

Purchase of Plant & Machinery (WN1) (1,38,000)
Purchase of Buildings (WN2) (80,000)
Purchase of Investments (40,000)
Sale of Old Machinery 14,000 (2,44,000)
Net Cash Used in Investing Activities (1,60,000)

C. Cash Flow from Financing Activities:

Issue of Share Capital 80,000
Issue of Debentures 80,000
Net Cash from Financing Activities 1,60,000
D. Net Increase in Cash and Cash Equivalents (A+B+C) 0
E. Cash and Cash Equivalents at the beginning of the year: 80,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 13

F. Cash and Cash Equivalents at the end of the year: 80,000

DR. SUNIL KUMAR M N, GOVERNMENT FIRST GRADE COLLEGE, ARSIKERE 14