Ans.1.
CASH FLOW STATEMENT (Indirect Method)
Particulars Rs. Rs. Impact on Cash Flow
(A) CASH FLOW FROM OPERATING ACTIVITIES Current Assets INCREASE -
Profit balance as per BS (15,300 - 15,250) 50 Current Assets DECREASE +
Add: Transfer to General Reserve (30,000 - 25,000) 5,000 Current Liabilities INCREASE +
Add: Tax 18,000 Current Liabilities DECREASE -
Add: Dividend paid 5,000
Add: Depreciation on building 29,000
Add: Loss on sale of machinery 1,800
Add: Depreciation on Machinery 25,000 Dr. Provision for tax A/c Cr.
Operating profit before Working Capital changes /
Funds From Operations (FFO) 83,850 Particulars Rs. Particulars Rs.
Decrease in stock 8,000 To Cash A/c 15,000 By balance b/d 15,000
Increase in debtors -5,000 (tax paid) By Profit & Loss A/c 18,000
Increase in prepaid exps -5,000 To Balance c/d 18,000 (Balancing figure)
Decrease in creditors -3,000 33,000 33,000
Gross cash generated from operating activities 78,850
Less: Tax paid -15,000 Dr. Building A/c Cr.
Net cash generated from operating activities (A) 63,850 Particulars Rs. Particulars Rs.
To Balance b/d 1,05,000 By depreciation 29,000
(B) CASH FLOW FROM INVESTING ACTIVITIES To Cash / Bank A/c 20,000
Purchase of furniture -3,000 (Balancing figure) By Balance c/d 96,000
Purchase of Building -20,000 1,25,000 1,25,000
Purchase of machinery -20,000
Sale of Machinery 3,200 Dr. Machinery A/c Cr.
Cash used in Investing activties (B) -39,800 Particulars Rs. Particulars Rs.
To Balance b/d 70,000 By cash 3,200
(C) CASH FLOW FROM FINANCING ACTIVITIES To Cash A/c 20,000 By loss on sale 1,800
Issue of shares 25,000 (Balancing figure) By Depreciaion A/c 25,000
Term loan repaid -40,000 By Balance c/d 60,000
dividends paid -5,000 90,000 90,000
Cash used for financing activities (C) -20,000
Net increase in Cash & Cash Equivalents (A + B + C) 4,050
Add: Opening balance of cash and cash equivalents 250
Closing balance of cash and cash equivalents 4,300
Q.2.
CASH FLOW STATEMENT (Indirect Method)
Particulars Rs. Rs.
A) CASH FLOW FROM OPERATING ACTIVITIES
Profit as per Balance sheet (4,800 - 3,000) 1,800
Add: Transfer to General reserve 3,000
Add: Preference dividend # 1,350
Add: Equity final dividend 5,500
Add: Interim dividend 2,000
Add: Provision for tax (Current Year) 4,500
Add: Amortisation of goodwill 2,000
Add: Depreciation on machinery 1,000
Add: Loss on sale of machinery 200
Add: Prelimnary expenses written off 500
Operating profit before Working Capital changes /
Funds From Operations (FFO) 21,850
Increase in stock -3,200
Increase in net debtors (after deducting RDD) -400
Increase in creditors 2,800
Increase in outstanding expenses 800
Gross cash generated from operating activities 21,850
Less: Tax paid -3,500
Net cash generated from operating activities (A) 18,350
B) CASH FLOW FROM INVESTING ACTIVITIES
Sale of machinery 1,000
Purchase of Machinery -14,200
Invested in trade investments -2,000
Cash used in Investing activties (B) -15,200
C) CASH FLOW FROM FINANCING ACTIVITIES
Issue of equity share capital 10,000
Redemption of preference share capital -5,000
Interim dividend paid -2,000
Final dividend paid -5,500
Preference dividend paid * -1,350
Cash used for financing activities (C) -3,850
Net Decrease in cash and cash equivalents (A + B + C) -700
Add: Opening balance of cash and cash equivalents 2,500
Closing balance of cash and cash equivalents 1,800
Working notes:
Net Debtors
2001 2000
Debtors 15,000 15,000
Less: RDD 1,600 2,000
Net Debtors 13,400 13,000
Dr. Machinery A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 8,000 By Cash 1,000
To Cash / Bank A/c 14,200 By P&L A/c (loss on sale) 200
(Balancing figure) By Depreciation 1,000
By Balance c/d 20,000
22,200 22,200
Dr. Provision for tax A/c Cr.
Particulars Rs. Particulars Rs.
To Cash 3,500 By Balance b/d 4,000
To Balance c/d 5,000 By P&L A/c 4,500
(Balancing figure)
8,500 8,500
* It is assumed that preference shares are redeemed at the end of the year.
Hence Preference Dividend to be provided and to be paid for on Rs 15,000 (Opening Balance)
Amount of preference Dividend = (15,000 x 9% = 1,350)
Hidden Adjustment : Preference Dividend (Same as Fund Flow Statement)
* Company must have paid Preference Dividend (15,000 x 7% = 1,050) - Application of Funds
# After appropriating it from Profits (means they must have deducted this from profits), hence Added
back in FFO
Q.3.
CASH FLOW STATEMENT
PARTICULARS Rs. Rs.
A) CASH FLOW FROM OPERATING ACTIVITIES
Profit as per Balance Sheet (68,000 - 56,000) 12,000
Add: Transfer to General reserve 10,000
Add: Provision for tax for the Current Year 9,000
Add: Dividends paid 40,000
Add: Dereciation on Fixed assets 70,000
Less: Profit on sale of FA -2,000
Less: Profit on sale of investments -500
Operating profit before Working Capital changes /
Funds From Operations (FFO) 1,38,500
Increase in debtors -2,45,000
Decrease in stock 30,000
Decrease in creditors -34,000
Gross cash utilised for operating activities -1,10,500
Less: Tax paid -74,000
Net cash generated from operating activities (A) -1,84,500
B) CASH FLOW FROM INVESTING ACTIVITIES
Sale of Fixed assets 12,000
Purchased investments -18,000
Sale of Investments 8,500
Cash used in Investing activties (B) 2,500
C) CASH FLOW FROM FINANCING ACTIVITIES
Mortgage loan taken 2,70,000
Dividend paid -40,000
Cash generated for financing activities (C) 2,30,000
Net increase in Cash & Cash Equivalents (A + B + C) 48,000
Add: Opening balance of cash and cash equivalents (bank) 1,49,000
Closing balance of cash and cash equivalents (bank) 1,97,000
Dr. Fixed Assets A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 4,00,000 By Bank 12,000
To P&L (profit) 2,000 By Depreciation 70,000
(Balancing figure)
By Balance c/d 3,20,000
4,02,000 4,02,000
Dr. Provision for tax A/c Cr.
Particulars Rs. Particulars Rs.
To Cash paid 74,000 By Balance b/d 75,000
(Balancing figure) By P&L A/c (given) 9,000
To Balance c/d 10,000
84,000 84,000
Dr. Investments A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 50,000 By Bank 8,500
To P&L (profit) 500
(Balancing figure)
To Bank 18,000 By Balance c/d 60,000
68,500 68,500
Note: Mortgage loan is assumed to be taken on the last day of the year, hence interest is
ignored. Interest rate is also not given. Hence, anyway it is not feasible to calculate the
amount of Interest.
Ans.4.
CASH FLOW STATEMENT (Indirect Method)
Particulars Rs. Rs.
A) CASH FLOW FROM OPERATING ACTIVITIES
Net Profit or Loss as per Balance Sheet (4,800 - 3,000) 1,800
Add: Preference Dividend 1,050 #
Add: Trf to General Reserve (5,000 - 4,000) 1,000
Add: Tax Provision 4,500
Add: Amortization of Goodwill (w/off) (10,000 - 8,000) 2,000
Add: Loss on sale of plant -3,600
Add: Depreciation on Plant 4,000
Less: Profit on sale of Investment -300
Add: Misc Exp w/off (1,500 - 1,000) 500
Add: Interim Dividend paid 2,000
Operating profit before Working Capital changes / Funds
from Operations 12,950
Add: Increase in Creditors (4,700 - 2,500) 2,200
Add: Increase in Bills Payables (6,600 - 6,200) 400
Add: Increase in Liabilities for Expenses (3,600 - 3,000) 600
Less: Increase in debtors (17,000 - 14,000) -3,000
Less: Increase in Stock (10,900 - 7,700) -3,200
Less: Increase in Bills Receivables (3,000 - 2,000) -1,000
Gross cash generated from operating activities 8,950
Less: Taxes paid -3,500
Net cash generated from operating activities (A) 5,450
B) CASH FLOW FROM INVESTING ACTIVITIES
Sale of Land 5,000
Purchase of Plant -21,120
Sale of Plant 3,600
Purchase of Investment -1,500
Sale of Investment 800
Cash used in Investing activties (B) -13,220
C) CASH FLOW FROM FINANCING ACTIVITIES
Issue of Eq Shares 10,000
Redemption of Pref shares -5,000
Preference Dividend Paid -1,050 *
Interim Dividend paid -2,000
Cash generated from financing activities (C) 1,950
Net Increase / Decrease in Cash & Cash Equivalents (A + B + C) -5,820
Opening balance of cash and cash equivalents
Cash 1,500
Bank 1,000 2,500
Closing balance of cash and cash equivalents
Cash 1,000
Bank 800 1,800
* It is assumed that preference shares are redeemed at the end of the year. Hence, preference dividend to be
provided and to be paid for on Rs 15,000 (Opening Balance)
Amount of preference Dividend = (15,000 x 7%) = 1,050
Hidden Adjustment: Preference Dividend (same as Fund Flow Statement)
* Company must have paid Preference dividend (15,000 x 7% = 1,050) - Application of Funds.
# After appropriating it from Profits (means they must have deducted this from profits) Hence Add back in FFO
Dr. Land A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 20,000 By Bank A/c (Balancing figure) 5,000
To Capital Reserve A/c 2,000 By Balance c/d 17,000
22,000 22,000
Bank A/c Dr. 5,000
To Land A/c 3,000
To Cap Reserve A/c 2,000
Dr. Capital Reserve A/c Cr.
Particulars Rs. Particulars Rs.
By Balance b/d -
To Balance c/d 2,000 By Profit on sale of land 2,000
2,000 2,000
Dr. Provision for tax A/c Cr.
Particulars Rs. Particulars Rs.
To Bank Ac 3,500 By Balance b/d 4,000
To Balance c/d 5,000 By P&L A/c 4,500
(Balancing figure)
8,500 8,500
Dr. Plant & Machinery A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 8,000 By Bank ac 3,600
By P&L A/c (Loss) -3,600
To Bank A/c 16,000 By Depreciation A/c 4,000
(Balancing Figure) By Balance c/d 20,000
24,000 24,000
Dr. Investment A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 2,000 By Bank A/c 800
To P&L A/c (profit on sale) 300
To Bank A/c 1,500 By Balance c/d 3,000
3,800 3,800
Bank A/c Dr. 800
To Investment A/c (cost) 500
To P&L A/c (profit on sale) 300
Ans.5.
CASH FLOW STATEMENT (Indirect Method) (Rs '000)
Particulars Rs. Rs.
A) CASH FLOW FROM OPERATING ACTIVITIES
Net Profit or Loss as per balance sheet 11
Add: Dividend Paid 29
Add: Loss on sale of machinery 5
Add: Depreciation (80 + 50) 130
Less: Dividend Received from investment -15
Less: Profit on sale of Investment -12
Op profit before WC changes / FFO 148
Increase in Creditors 25
Increase in Bills Payable 25
Increase in Inventory (95 - 70) -25
Increase in Debtors (150 - 125) -25
Gross cash generated from operating activities 148
Less: Tax paid -
Net cash generated from operating activities (A) 148
B) CASH FLOW FROM INVESTING ACTIVITIES
Sale of Machinery 15
Purchase of Machinery -225
Dividend Received from investment 15
Sale of Investment 52
Sale of Land (85-35) 50
Purchase of Building (600-200) -400
Cash used in Investing activties (B) -493
C) CASH FLOW FROM FINANCING ACTIVITIES
Dividend Paid -29
Issue of Shares (550 - 400) 150
Issue of Debentures (500 - 250) 250
Share Premium received 60
Cash generated for financing activities (C) 431
Net increase in Cash & Cash Equivalents (A + B + C) 86
Opening balance of cash and cash equivalents:
Cash 285
Marketable securities (Cash Equivalent) 50 335
Closing balance of cash and cash equivalents:
Cash 315
Marketable securities (Cash Equivalent) 106 421
Important points to be noted:
1) Interest rate on Debentures is not given hence adjustment for Interest is not feasible.
2) If Interest rate on Debentures would have been mentioned then we would have
calculated Interest on the Opening balance Rs 250 (assuming new Debentures were
issued at the end of the year)
3) Amount of Interest should be Added back while calculating FFO (as it is not the
operating Expense) and to be shown as Financing Activity Outflow.
Working notes:
Dr. Investment A/c Cr.
Particulars Rs. Particulars Rs.
To Op Bal b/d 110 By Bank (Sale of Investment) 52
To P & L A/c 12 By Bal c/d 70
(Profit on sale of Investment)
122 122
Investment (Cost) 40 Net Credit
Profit on Sale of Investment 12
Bank (Sale Proceeds) 52
Dr. Depreciation A/c Cr.
To PFD A/c 130 By P & L A/c 130
Depr on Machinery (50)
Depr on Building (80)
130 130
Dr. Accumulated Depreciation A/c Cr.
Particulars Rs. Particulars Rs.
To Asset A/c (Dep on 5 By Balance b/d 150
asset sold) (Bal Fig) By Depreciation A/c 130
To Balance c/d 275 (Depreciation for the year)
280 280
Dr. Machinery A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 300 By PFD 5
To Bank (Bal Fig) 225 By P & L A/c 5
(machinery purchased) (Loss on sale of machinery)
(Balancing figure) By Bank A/c 15
By Balance c/d 500
525 525
Bank A/c Dr. 15
PFD A/c Dr. 5
P&L A/c Dr. 5
To Machinery A/c 25
Buildings A/c
Particulars Rs. Particulars Rs.
To bal b/d 200
To Bank (Bal Fig) 400 By Bal c/d 600
(New Machinery Purchased)
600 600
Bank A/c Dr 210
To Share Capital Ac 150
To Share Premium Ac 60
Ans.6.
CASH FLOW STATEMENT (Indirect Method)
Particulars Rs. Rs.
(A) CASH FLOW FROM OPERATING ACTIVITIES
Net Profit or Loss as per balance sheet (25,732 - 23,814) 1,918
Add: Transfer to Reserves 5,000
Add: Provision for Tax 21,000
Add: Depreciation on Buidling 2,550
Add: Depreciation on Plant & Machinery 12,456
Add: Interim Dividend Declared & paid 16,000
Operating profit before Working Capital changes / FFO 58,924
Decrease in Creditors [(23,700 + 2,000) - 19,681] -6,019
Decrease in Bills Payable -14,353
Decrease in Debtors 7,530
Decrease in Advances 948
Decrease in Stock [(66,624 + 14,984) - 58,422] 23,186
Gross cash generated from operating activities 70,216
Less: Taxes paid -15,000
Net cash generated from operating activities (A) 55,216
(B) CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Plant -3,390
Cash used in Investing activties (B) -3,390
(C) CASH FLOW FROM FINANCING ACTIVITIES
Interim Dividend Paid -16,000
Cash used for financing activities (C) -16,000
Net increase in Cash & Cash Equivalents (A + B + C) 35,826
Opening balance of cash and cash equivalents:
(a) Cash 1,500
(b) Bank Overdraft -35,706 -34,206
Closing balance of cash and cash equivalents:
(a) Cash 1,620
(b) Bank Overdraft - 1,620
Dr. Provision for tax A/c Cr.
Particulars Rs. Particulars Rs.
To cash 15,000 By balance b/d 24,000
(paid) By P&L A/c 21,000
To balance c/d 30,000 (Provision for the current year)
(Balancing figure)
45,000 45,000
Dr. Plant & Machinery A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 67,770 By Depreciaion A/c 12,456
To Equity Share Capital A/c 11,016 (Balancing figure)
To Cash / Bank A/c 3,390 By Balance c/d 69,720
82,176 82,176
Journal entry for takeover of Business:
Stock A/c Dr. 14,984
Machinery A/c Dr. 11,016
Goodwill A/c Dr. 12,000
To Creditors A/c -2,000
To Equity Share Capital A/c 36,000
Note: Equity shares issued for consideration otherthan cash.
Ans.7.
CASH FLOW STATEMENT (Indirect Method)
Particulars Rs. Rs.
A) CASH FLOW FROM OPERATING ACTIVITIES
Net Profit or Loss as per Balance Sheet (11,25,000 - 7,50,000) 3,75,000
Add: Transfer to Dividend Equalisation Reserve (2,12,500 - 1,50,000) 62,500
Add: Provision for Tax 2,32,500
Add: Interim Dividend Declared (Closing balance in Balance sheet) 1,95,000
Add: Final Dividend Declared 1,82,500
Add: Goodwill written off 2,25,000
Add: Discount on issue of shares written off 42,500
Add: Interest on Debentures 40,000 #
Operating profit before Working Capital changes / FFO 13,55,000
Decrease in Creditors -3,32,500
Increase in Short Term Advances -60,750
Increase in Stock -1,04,500
Decrease in Debtors 32,250
Increase in Prepaid Expenses -14,000
Gross cash generated from operating activities 8,75,500
Less: Taxes paid -1,62,500
Net cash generated from operating activities (A) 7,13,000
B) CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Building -7,25,000
Purchase of Plant & Machinery -1,75,000
Cash used in Investing activities (B) -9,00,000
C) CASH FLOW FROM FINANCING ACTIVITIES
Issue of Equity Share Capital 4,10,000
Issue of Debentures 2,00,000
Premium on Issue of Debentures 40,000
Interest on Debentures -40,000 #
Interim Dividend paid -1,62,500
Final Dividend paid -1,82,500
Cash used for financing activities (C) 2,65,000
Net increase in Cash & Cash Equivalents (A + B + C) 78,000
Add: Opening balance of cash and cash equivalents 1,49,250
Closing balance of cash and cash equivalents 2,27,250
Dr. Provision for tax A/c Cr.
Particulars Rs. Particulars Rs.
To Cash 1,62,500 By Balance b/d 1,35,000
(paid given) By P&L A/c 2,32,500
To Balance c/d 2,05,000 (declared for the current year)
(Balancing figure)
3,67,500 3,67,500
Dr. Interim Dividend A/c Cr.
Particulars Rs. Particulars Rs.
To Bank A/c 1,62,500 By Balance b/d 1,62,500
(assumed as paid) By P&L A/c 1,95,000
To Balance c/d 1,95,000 (declared for the current year)
(Balancing figure)
3,57,500 3,57,500
Dr. Final Dividend A/c Cr.
Particulars Rs. Particulars Rs.
To Bank A/c 1,82,500 By Balance b/d -
(Balancing figure) By P&L A/c 1,82,500
(Given)
To Balance c/d - (declared for the current year)
1,82,500 1,82,500
# Note: Interest on Debentures is calculated on the Opening balance Rs. 5,00,000
(assuming new Debentures were issued at the end of the year)
Interest is Added back while calculating FFO (as it is not the operating Expense)
and it is shown as Financing Activity Outflow.
