cash flow
Content
From the following Financial statement you are required to prepare cash flow Dolphin Ltd. for the year ended 31st March, 2006: statemeLiabilities 2005 Rs. Share Capital Secured Loan Profit & Loss A/c Creditors Tax Payable 14,000 28,000 2,000 1,40,000 2006 Rs. 1,40,000 80,000 20,000 78,000 6,000 Plant & Machinery Inventory Debtors Cash Preliminary Expenses 1,84,000 3,24,000 4,000 1,84,000 4,000 1,84,000 1,00,000 30,000 10,000 40,000 1,82,00C 80,000 40,000 18,000 Assets 2005 Rs. 2006 Rs.
Revenue Statement for the year ended 31st March 2006 Rs. To Opening Inventory To Purchases To Gross Profit c/d 30,000 1,96,000 54,000 2,80,000 To General Expenses To Depreciation To Provision for Tax To Net Profit c/d 22,000 16,000 8,000 8,000 54,000 To Dividend paid 2,000 By Balance b/d 54,000 14,000 By Gross Profit b/d 2,80,000 54,000 By Sales By Closing Inventory Rs. 2,00,000 80,000
To Balance c/d
20,000 22,000
By Net Profit b/c
8,000 22,000
Solution Worksheet Balance S 2005 Rs. Assets Plant & Machinery Preliminary Expenses Current Assets Inventory Debtors Cash 30,000 10,000 40,000 1,84,000 Liabilities Share Capital Secured Loan Profit & loss A/c Tax Payable Current Liabilities Creditors 28,000 1,84,000 Calculation of Net Profit before Tax Rs. 78,000 3,24,000 -1,62,000 50,000 1,62,000 1,40,000 14,000 2,000 1,40,000 80,000 20,000 6,000 80,000 6,000 4,000 80,000 40,000 18,000 3,24,000 50,000 30,000 22,000 1,00,000 4,000 1,82,000 4,000 82,000 leet as on 2006 Rs. Change Column Dr. Rs. Cr. Rs.
Net Profit before Appropriation Add : Provision for Tax Net Profit before Tax Tax Payable A/c Dr. Rs. To Bank A/c To Balance c/d 4,000 6,000 10,000
8,000 8,000 16,000
Cr. Rs. By Balance b/d By Profit & Loss A/c 2,000 8,000 10,000
Plant & Machinery A/c Dr. Rs. To Balance b/d To Bank A/c 1,00,000 98,000 By Profit & Loss A/c (Depreciation) By Balance c/d 1,98,000 Dolphin Ltd. Cash Flow Statement For the year ended 31st March, 2006 Rs. Cash flows from Operating Activities Net Profit before Tax Adjustment for Depreciation written off Operating Profit before Working Capital Changes Working Capital Changes Increase in Inventory (50,000) 16,000 32,000 16,000 Rs. Rs. Rs.
Cr.
16,000 1,82,000 1,98,000
Increase in Debtors Increase in Creditors Cash generated from Operations Less: Tax Paid Net Cash from Operating Activities Cash flows from investing activities Plant & Machinery purchased Cash flows from financing activities Secured Loan raised Dividend paid Net Cash Flow from Financing Activities Net decrease in Cash & Cash Equivalent Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the Cash
(30,000) 50,000 2,000 (4,000) (2,000)
(98,000)
80,000 (2,000) 78,000 (22,000)
40,000 18,000
Illustration 2 Prepare Cash Flow Statement from the following Balance Sheets as on 31st December 2004 and 31st December 2005 of Swarangi Limited. (Rs. in thousands) Liabilities 2004 Rs. Share Capital 4,300 2005 Rs. 5,000 Plant Assets 2004 Rs. 6,250 2005 Rs. 7,450
Reserves Loan Creditors Outstanding Exps. for Administration & selling Exps. Provision for Depreciation
3,000 375 1,375
3,850 625 1125
Investment Stock Debtors Cash
125 1,625 1,000 375
375 2,000 750 325
125
50
200 9,375
250 10,900 9,375 10,900
Income Statement for 2005 Rs. Sales Cost of Sales (including Depreciation Rs. 50) 5,000 3,750 1,250 Less: Selling and Administration Expenses Other Expenses Interest on loan 250 125 Net Profit 25
400
Rs.
850
Worksheet Balance Sheet as on Change Column
2004 Rs. Assets Plant Investments Current Assets Stock Debtors Cash 1,625 1,000 375 9,375 Liabilities Share Capital Reserves Loan Provision for Depreciation Current Liabilities Creditors Outstanding Expenses for Administration & Selling Exps. 125 9,375 1,375 4,300 3,000 375 200 6,250 125
2005 Rs.
Dr. Rs.
Cr. Rs.
7,450 375
1,200 250
2,000 750 325 10,900
375 250 50
5,000 3,850 625 250 700 850 250 50 1,125 250
50 10,900
75 2,150 2,150
Swarangi Ltd. Cash Flow Statement For the year ended 31st December, 2005 Rs. Cash flows from Operating Activities Net Profit before Tax 850 Rs. Rs.
Adjustment for Depreciation on Plant & Machinery Interest on loan Operating Profit before Working Capital Changes Changes in Working Capital Decrease in Debtors Increase in Stock Decrease in Creditors Decrease in outstanding expenses Net Cash from Operating Activities m Cash Flows from Investing Activities Purchase of Plant & Machinery Purchase of Investments Net Cash Flow from Investing Activities Cash Flows from financing activities Issue of Shares Loan Taken Interest on loan paid Net Cash Flow from Financing Activities Net decrease in Cash & Cash Equivalent Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the 375 700 250 (25) 925 (50) (1,200) (250) (1,450) 250 (375) (250) (75) 475 50 25 925
Cash
325
Illustration 3 Prepare Cash Flow Statement for 2006 from the comparative Balance Sheets of Manavasi Ltd. Liabilities 2005 Rs. Equity Share Capital General Reserves Profit & Loss A/c 7% Debentures Creditors Proposed Dividend 25,000 32,500 2,50,000 50,000 25,000 1,00,000 1,00,000 3,25,000 75,000 75,000 1,00,000 1,00,000 2006 Rs. Fixed Assets Depreciation written off Investment Stock Debtors Cash Miscellaneous Expenses 5,50,000 7,07,500 25,000 5,50,000 7,07,500 50,000 1,00,000 1,00,000 75,000 (25,000) 50,000 1,25,000 1,50,000 1,57,500 Assets 2005 Rs. 2,00,000 2006 Rs. 2,50,000
Solution Worksheet Balance Sheet as on 2005 Rs. Assets Fixed Assets Investments 2,00,000 50,000 2,50,000 50,000 50,000 2006 Rs. Change Column Dr. Rs. Cr. Rs.
Miscellaneous Expenses Current Assets Stock Debtors Cash
25,000
--
25,000
1,00,000 1,00,000 75,000 5,50,000
1,25,000 1,50,000 1,57,500 7,32,500
25,000 50,000 82,500
Liabilities
Equity Share Capital
2,50,000 50,000 25,000 1,00,000 25,000
3,25,000 75,000 75,000 1,00,000 32,500 25,000
75,000
General Reserves
25,000
Profit & Loss A/c
50,000
7% Debentures
Proposed dividend
7,500
Depreciation written off
25,000
Current Liabilities
Creditors
1,00,000 5,50,000
1,00,000 7,32,500
--
2,07,500
2,07,500
Calculation of Net Profit before Tax Rs. Closing Balance of Profit & Loss A/c Add: Transfer to General Reserve Proposed Dividend 75,000 25,000 32,500 1,32,500 Less: Opening Balance of Profit & Loss A/c Net Profit before Tax (25,000) 1,07,500
Proposed Dividend A/c Dr. Rs. To Bank A/c To Balance c/d 25,000 32,500 57,500 By Balance b/d By Profit & Loss A/c Rs. 25,000 32,500 57,500 Cr.
Manvasi Ltd. Cash Flow Statement For the year ended 31st December 2006 Rs. Cash flows from Operating Activities Net Profit before Tax Adjustment for Miscellaneous Expenses written off Depreciation written off Operating Profit before Working Capital Changes Working Capital Changes Increase in Stock Increase in Debtors (25,000) (50,000)
82,500
Rs.
Rs.
1,07,500
25,000 25,000 -1,57,500
Net Cash from Operating Activities Cash Flows from Investing Activities Fixed Assets Purchases Cash Flows from Financing Activities Issue of Share Capital Dividend paid 75,000 (25,000)
(50,000)
50,000
Net Cash Flow from Financing Activities Net Increase in Cash & Cash Equivalents Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the Cash
82,500
75,000
1,57,500
ustration4 Prepare Cash Flow Statement from the following Balance Sheets as on 31st December, m'.S and 31st December 2006 of Nandini Limited. . abilities 2005 Rs. !-are Capital leneral Reserves
;
2006 Rs. 6,000 1,250 625 2,000 1,250 2,760
Assets
2005 Rs.
2006 Rs. 14,000
5,000 1,125 550 2,500 1,000 3,300
Fixed Assets Less: Depreciation Provision
12,500
e:ained Earnings
Debentures
2,500
3,000
: nk Loan
10,000
11,000
:-editors
Stock Debtors
2,000
2,250
I -tstanding
1,500
1,250
: oenses
50 700
150 1,300
Bank Balance Prepaid Expenses Preliminary Expenses
550
700
: ovision for Tax
25
35
150
14,225
15,335
14,225
15,335
Statement of Income & Reconciliation of Retained Earnings for the year ending 31st December, 2006
Rs. Net Sales Less: Cost of goods Sold Gross Profit Sundry Expenses Depreciation Preliminary Expenses written off Net Profit Less: Provision for Tax Less: Transfer to General Reserve Dividend paid Add: Retained Earnings Retained Earnings on 31.12.06 19,750 15,750 4,000 1,500 2,500 1,300 1,200 1,125 75 550 625 Solution Worksheet Balance Sheet as on 2005 Rs. 2006 Rs.
Change Column Dr. Rs. Cr. Rs Assets Fixed Assets Less: Depreciation Provision Preliminary Expenses Current Assets Stock Debtors Bank Balance Prepaid Expenses Liabilities Share Capital General Reserves Earnings 10% Debentures Bank Loan Provision for Taxation Current Liabilities Creditors Outstanding Expenses 12,500 2,500 14,000 3,000 10,000 150 2,000 1,500 550 25 11,000 100 2,250 1,250 700 35 1,000 250 150 10 50 250 14,225 15,335 5,000 1,125 550 2,500 1,000 700
3,300 50 6,000 1,250 625 2,000 1,250 1,300 2,760 150 500 540 1,000 125 75 250 600 100 14,225 15,335 2,450 2,450 Fixed Assets A/c Dr. Rs. To Balance b/d To Bank 12,500 1,500 14,000 Provision for Depreciation A/c Dr. Rs. To Balance c/d 3,000 By Balance b/d By Profit & Loss A/c 3,000 Rs. 2,500 500 3,000 Cr. 14,000 By Balance c/d Rs. 14,000 Cr.
Provision for Taxation A/c Dr. Rs. To Bank To Balance c/d 700 1,300 2,000 Nandini Ltd. Cash Flow Statement for the year ended 31st December 2006 Rs. Cash flows from Operating Activities Net Profit before Tax Add: Adjustment for Depreciation Preliminary Expenses Net Operating Profit before Working Capital Changes Working Capital Changes Decrease in Debtors Increase in Outstanding Expenses Increase in Stock Increase in Prepaid Expenses Increase in Creditors Cash generated from Operations Less: Tax paid Net Cash from Operating Activities Cash Flows from Investing Activities
(1,500)
Cr. Rs. By Balance b/d By Profit & Loss A/c 700 1,300 2,000
Rs.
Rs.
2,500
500 50 3050
250 100 (250) (10) (540) 2,600 700
1,900
Purchase of Fixed Assets Cash Flows from Financing Activities Proceeds from Issue of Share Capital Redemption of Debentures Payment of Dividend Proceeds from Bank Loan Net Cash Flow from Financing Activities Net Increase in Cash & Cash Equivalents Cash & Cash Equivalent at the beginning of the year Bank Cash & Cash Equivalent at the end of the Bank
700 550 (250)
1,000 (500) (1,000) 250
150
Illustration 5 The following are the comparative Balance Sheets of Walt Disney Ltd. for the year ende: 31st December, 2005 and 31st December 2006. Rs. Cash Prepaid Expenses Debtors Stock Investment (Long Term) 4,300 200 8,000 3,200 5,000 Rs. 5,800 200 9,000 4,000 3,000
Machinery (at cost) Buildings (at cost)Land
2,500 7,500 1,000 31,700
4,000 9,000 1,000 36,000
Accumulated Depreciation: Machinery Buildings Creditors Outstanding Expenses Debentures Equity Share Capital Profit & Loss A/c Provision for Doubtful Debts 300 1,200 3,300 350 4,000 20,000 2,350 200 31,700 750 1,800 4,000 450 3,500 20,000 5,200 300 36,000
Additional Information (1) Dividend paid during 2006 was Rs. 2,650. (2) Investments costing Rs. 2,000 were sold in 2006 lor Rs. 2,500. (3) Machinery costing Rs. 500 on which Rs. 100 depreciation has been accumulated, was sold for Rs. 600 in the year 2006. Prepare a Cash Flow Statement for the year 2006. Solution Worksheet Balance Sheet as on 2005 Rs. 2006 Rs. Change Column Dr. Rs. Cr. Rs.
Assets: Land Building (at cost) Machinery (at cost) Investment (Long Term) Current Assets: Cash Prepaid Expenses Debtors Stock 4,300 200 8,000 3,200 31,700 Liabilities: Equity Share Capital Profit & Loss A/c Debentures Accumulated Depreciation: Machinery Buildings Current Liabilities: Creditors Outstanding Expenses Provision for Doubtful Debts 3,300 350 200 31,700 4,000 450 300 36,000 6,800 -700 100 100 6,800 300 1,200 750 1,800 -450 600 20,000 2,350 4,000 20,000 5,200 3,500 500 -2,850 5,800 200 9,000 4,000 36,000 1,000 800 1,500 1,000 7,500 2,500 5,000 1,000 9,000 4,000 3,000 1,500 1,500 2,000
Investment A/c
Dr. Rs. To Balance b/d To Profit & Loss A/c 5,000 500 5,500 Machinery A/c Dr. Rs. To Balance b/d To Profit & Loss A/c To Bank 2,500 200 2,000 4,700 Provision for Depreciation - Machinery Dr. Rs. To Machinery A/c To Balance c/d 100 750 850 Provision for Depreciation - Buildings Dr. Rs. To Balance c/d 1,800 By Balance b/d By Profit & Loss A/c 1,800 By Balance b/d By Profit & Loss A/c By Bank By Bank By Balance c/d
Cr. Rs. 2,500 3,000 5,500
Cr. Rs. 600
By Provision for Depreciation 100 By Balance c/d 4,000 4,700
Cr. Rs. 300 550 850
Cr. Rs. 1,200 600 1,800
Walt Disney Ltd. Cash Flow Statement for the year ended 31st December 2006 Rs. Cash flows from Operating Activities Net Profit Adjustment for: Provision for depreciation on Machinery Profit on sale of Machinery Profit on sale of Investments Provision for depreciation on Building Dividend paid Net Operating Profit before Working Capital Changes Working Capital Changes Increase in Creditors Increase in Outstanding Expenses Increase in Debtors (Net) Increase in Stock Net Cash from Operating Activities Cash Flows from Investing Activities Purchase of Machinery Purchase of Building Sale of Machinery Sale of Investment Net Cash Flow from Investing Activities Cash Flows from Financing Activities (2,000) (1,500) 600 2,500 (400) 700 100 (900) (800) 5,050 5,950 550 " (200) (500) 600 2,650 2,850 Rs. Rs.
Dividend Paid Redemption of Debentures Net Cash Flow from Financing Activities Net increase in Cash & Cash Equivalent Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the Cash
(2,650)
(500)
(3,150)
1,500
4,300
5,800
Illustration 16.1 Classify the following activities as (a) Operating Activities, (b) Investing Activities, (c Activities, and (d) Cash equivalents. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Purchase of fixed assets Issue of fixed share capital Receipts from sales Proceeds from long-term borrowings Proceeds from sale of fixed assets Cash receipts from debtors Commission received Interim dividend paid on equity shares Proceeds from sale of patents Interest received on debentures held as investments. Income tax paid Dividend paid on preference shares Undenvriting commission paid
(14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29)
Bank overdraft Cash credit Short-term deposits Marketable securities Salary paid Brokerage paid on issue of shares Brokerage paid on purchase of investments Refund of income tax received Interest paid on long term borrowings Dividend received on shares held as investments Rent received on property held as investments Purchase of investment Redemption of preference shares Cash purchases Proceeds from sale of investments Purchase of goodwill for cash
Operating Activities : 3, 6, 7, 27, 17, 11, 13, 18, 21 Investing Activities : 1, 5, 23, 24, 25, 28, 29, 9, 10, 20 Financing Activities : 2, 4, 22, 26, 8, 12, 19 Cash Equivalents : 14, 15, 16, 17. ion 16.2 'late cash from operations from the following Particulars 2006 (Rs.) 2007 (Rs.) Profit and Loss Appropriation A/c Bills Receivable
Provision for Depreciation Outstanding Rent payable Prepaid Insurance Goodwill Stock 30,000 15,000 40,000 2,600 1,400 20,000 14,000 40,000 19,000 42,000 4,000 1,200 16,000 18,000 ion Net profit before taxation : Increase in retained earnings Rs. 10,000 10,000 Cash Flow Statement for the year ended. ....... Particulars Amount (Rs.) Amount (Rs.) Cash Flows from Operating Activities : Net Profit Adjusted for : Depreciation Goodwill written off Operating profit before working capital changes Adjusted for : -I- Decrease in prepaid insurance (+) Increase in outstanding rent payable (- ) Increase in bills receivable (-) Increase in stock Net cash from operating activities Cash Flows from Investing Activities : Cash Flows from Financing Activities : Net increase in cash and cash equivalents 10,000 2,000 4,000 16,000 200 1400 (4000) (6400)
9.600
r
at ion 16.3
Ltd. made a profit of Rs. 6,00,000 after considering the following items (i) Depreciation on Fixed Assets Rs. 20,000; iii) Writing off Preliminary Expenses Rs. 10,000; 608 Accounting for Business Ma (iii) (iv) (v) (vi) Loss on Sale of Furniture Rs. 800; Provision for Taxation Rs.60,000; Transfer to General Reserve Rs. 10,000; Profit on Sale of Machinery Rs. 5,000.
The following additional information is also supplied to you : Bills Payable Outstanding Expenses Prepaid Expenses Bills Receivable Creditors Debtors 10,000 5,000 200 4000 30,000 33,000 Solution : Net profit before taxation : Increase in retained earnings Add: Preliminary Expenses written off Provision for taxation Rs. 6,00,000 10,000 60,000 11,000 4,000 300 2,500 35,000 36,000
Transfer to General Reserve
10,000 6.80.000
Cash Flow Statement
for the year ended... Particulars Amount (Rs.) Cash Flows From Operating Activities : Net Profit Adjusted for : (+) Depreciation (+) Loss on sale of furniture (-) Profit on sale of machinery Operating profit before working capital changes Adjusted for : (+) Decrease in bills receivable (+) Increase in creditors (+) Increase in bills payable (-) Decrease in outstanding expenses (-) Increase in debtors (-) Increase in prepaid expenses Net cash from operating activities Cash Flows From Investing Activities : Cash Flows From Financing Activities : Increase in cash and cash equivalents 6,99,20| -3,40 1,500 5,000 1,000 (1,000) (3,000) (100) 20,000 800 (5,000) 15,81 6,95,8( 6,80,000 Amoi (Rs.
Revenue Statement for the year ended 31st March 2006 Rs. To Opening Inventory To Purchases To Gross Profit c/d 30,000 1,96,000 54,000 2,80,000 To General Expenses To Depreciation To Provision for Tax To Net Profit c/d 22,000 16,000 8,000 8,000 54,000 To Dividend paid 2,000 By Balance b/d 54,000 14,000 By Gross Profit b/d 2,80,000 54,000 By Sales By Closing Inventory Rs. 2,00,000 80,000
To Balance c/d
20,000 22,000
By Net Profit b/c
8,000 22,000
Solution Worksheet Balance S 2005 Rs. Assets Plant & Machinery Preliminary Expenses Current Assets Inventory Debtors Cash 30,000 10,000 40,000 1,84,000 Liabilities Share Capital Secured Loan Profit & loss A/c Tax Payable Current Liabilities Creditors 28,000 1,84,000 Calculation of Net Profit before Tax Rs. 78,000 3,24,000 -1,62,000 50,000 1,62,000 1,40,000 14,000 2,000 1,40,000 80,000 20,000 6,000 80,000 6,000 4,000 80,000 40,000 18,000 3,24,000 50,000 30,000 22,000 1,00,000 4,000 1,82,000 4,000 82,000 leet as on 2006 Rs. Change Column Dr. Rs. Cr. Rs.
Net Profit before Appropriation Add : Provision for Tax Net Profit before Tax Tax Payable A/c Dr. Rs. To Bank A/c To Balance c/d 4,000 6,000 10,000
8,000 8,000 16,000
Cr. Rs. By Balance b/d By Profit & Loss A/c 2,000 8,000 10,000
Plant & Machinery A/c Dr. Rs. To Balance b/d To Bank A/c 1,00,000 98,000 By Profit & Loss A/c (Depreciation) By Balance c/d 1,98,000 Dolphin Ltd. Cash Flow Statement For the year ended 31st March, 2006 Rs. Cash flows from Operating Activities Net Profit before Tax Adjustment for Depreciation written off Operating Profit before Working Capital Changes Working Capital Changes Increase in Inventory (50,000) 16,000 32,000 16,000 Rs. Rs. Rs.
Cr.
16,000 1,82,000 1,98,000
Increase in Debtors Increase in Creditors Cash generated from Operations Less: Tax Paid Net Cash from Operating Activities Cash flows from investing activities Plant & Machinery purchased Cash flows from financing activities Secured Loan raised Dividend paid Net Cash Flow from Financing Activities Net decrease in Cash & Cash Equivalent Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the Cash
(30,000) 50,000 2,000 (4,000) (2,000)
(98,000)
80,000 (2,000) 78,000 (22,000)
40,000 18,000
Illustration 2 Prepare Cash Flow Statement from the following Balance Sheets as on 31st December 2004 and 31st December 2005 of Swarangi Limited. (Rs. in thousands) Liabilities 2004 Rs. Share Capital 4,300 2005 Rs. 5,000 Plant Assets 2004 Rs. 6,250 2005 Rs. 7,450
Reserves Loan Creditors Outstanding Exps. for Administration & selling Exps. Provision for Depreciation
3,000 375 1,375
3,850 625 1125
Investment Stock Debtors Cash
125 1,625 1,000 375
375 2,000 750 325
125
50
200 9,375
250 10,900 9,375 10,900
Income Statement for 2005 Rs. Sales Cost of Sales (including Depreciation Rs. 50) 5,000 3,750 1,250 Less: Selling and Administration Expenses Other Expenses Interest on loan 250 125 Net Profit 25
400
Rs.
850
Worksheet Balance Sheet as on Change Column
2004 Rs. Assets Plant Investments Current Assets Stock Debtors Cash 1,625 1,000 375 9,375 Liabilities Share Capital Reserves Loan Provision for Depreciation Current Liabilities Creditors Outstanding Expenses for Administration & Selling Exps. 125 9,375 1,375 4,300 3,000 375 200 6,250 125
2005 Rs.
Dr. Rs.
Cr. Rs.
7,450 375
1,200 250
2,000 750 325 10,900
375 250 50
5,000 3,850 625 250 700 850 250 50 1,125 250
50 10,900
75 2,150 2,150
Swarangi Ltd. Cash Flow Statement For the year ended 31st December, 2005 Rs. Cash flows from Operating Activities Net Profit before Tax 850 Rs. Rs.
Adjustment for Depreciation on Plant & Machinery Interest on loan Operating Profit before Working Capital Changes Changes in Working Capital Decrease in Debtors Increase in Stock Decrease in Creditors Decrease in outstanding expenses Net Cash from Operating Activities m Cash Flows from Investing Activities Purchase of Plant & Machinery Purchase of Investments Net Cash Flow from Investing Activities Cash Flows from financing activities Issue of Shares Loan Taken Interest on loan paid Net Cash Flow from Financing Activities Net decrease in Cash & Cash Equivalent Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the 375 700 250 (25) 925 (50) (1,200) (250) (1,450) 250 (375) (250) (75) 475 50 25 925
Cash
325
Illustration 3 Prepare Cash Flow Statement for 2006 from the comparative Balance Sheets of Manavasi Ltd. Liabilities 2005 Rs. Equity Share Capital General Reserves Profit & Loss A/c 7% Debentures Creditors Proposed Dividend 25,000 32,500 2,50,000 50,000 25,000 1,00,000 1,00,000 3,25,000 75,000 75,000 1,00,000 1,00,000 2006 Rs. Fixed Assets Depreciation written off Investment Stock Debtors Cash Miscellaneous Expenses 5,50,000 7,07,500 25,000 5,50,000 7,07,500 50,000 1,00,000 1,00,000 75,000 (25,000) 50,000 1,25,000 1,50,000 1,57,500 Assets 2005 Rs. 2,00,000 2006 Rs. 2,50,000
Solution Worksheet Balance Sheet as on 2005 Rs. Assets Fixed Assets Investments 2,00,000 50,000 2,50,000 50,000 50,000 2006 Rs. Change Column Dr. Rs. Cr. Rs.
Miscellaneous Expenses Current Assets Stock Debtors Cash
25,000
--
25,000
1,00,000 1,00,000 75,000 5,50,000
1,25,000 1,50,000 1,57,500 7,32,500
25,000 50,000 82,500
Liabilities
Equity Share Capital
2,50,000 50,000 25,000 1,00,000 25,000
3,25,000 75,000 75,000 1,00,000 32,500 25,000
75,000
General Reserves
25,000
Profit & Loss A/c
50,000
7% Debentures
Proposed dividend
7,500
Depreciation written off
25,000
Current Liabilities
Creditors
1,00,000 5,50,000
1,00,000 7,32,500
--
2,07,500
2,07,500
Calculation of Net Profit before Tax Rs. Closing Balance of Profit & Loss A/c Add: Transfer to General Reserve Proposed Dividend 75,000 25,000 32,500 1,32,500 Less: Opening Balance of Profit & Loss A/c Net Profit before Tax (25,000) 1,07,500
Proposed Dividend A/c Dr. Rs. To Bank A/c To Balance c/d 25,000 32,500 57,500 By Balance b/d By Profit & Loss A/c Rs. 25,000 32,500 57,500 Cr.
Manvasi Ltd. Cash Flow Statement For the year ended 31st December 2006 Rs. Cash flows from Operating Activities Net Profit before Tax Adjustment for Miscellaneous Expenses written off Depreciation written off Operating Profit before Working Capital Changes Working Capital Changes Increase in Stock Increase in Debtors (25,000) (50,000)
82,500
Rs.
Rs.
1,07,500
25,000 25,000 -1,57,500
Net Cash from Operating Activities Cash Flows from Investing Activities Fixed Assets Purchases Cash Flows from Financing Activities Issue of Share Capital Dividend paid 75,000 (25,000)
(50,000)
50,000
Net Cash Flow from Financing Activities Net Increase in Cash & Cash Equivalents Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the Cash
82,500
75,000
1,57,500
ustration4 Prepare Cash Flow Statement from the following Balance Sheets as on 31st December, m'.S and 31st December 2006 of Nandini Limited. . abilities 2005 Rs. !-are Capital leneral Reserves
;
2006 Rs. 6,000 1,250 625 2,000 1,250 2,760
Assets
2005 Rs.
2006 Rs. 14,000
5,000 1,125 550 2,500 1,000 3,300
Fixed Assets Less: Depreciation Provision
12,500
e:ained Earnings
Debentures
2,500
3,000
: nk Loan
10,000
11,000
:-editors
Stock Debtors
2,000
2,250
I -tstanding
1,500
1,250
: oenses
50 700
150 1,300
Bank Balance Prepaid Expenses Preliminary Expenses
550
700
: ovision for Tax
25
35
150
14,225
15,335
14,225
15,335
Statement of Income & Reconciliation of Retained Earnings for the year ending 31st December, 2006
Rs. Net Sales Less: Cost of goods Sold Gross Profit Sundry Expenses Depreciation Preliminary Expenses written off Net Profit Less: Provision for Tax Less: Transfer to General Reserve Dividend paid Add: Retained Earnings Retained Earnings on 31.12.06 19,750 15,750 4,000 1,500 2,500 1,300 1,200 1,125 75 550 625 Solution Worksheet Balance Sheet as on 2005 Rs. 2006 Rs.
Change Column Dr. Rs. Cr. Rs Assets Fixed Assets Less: Depreciation Provision Preliminary Expenses Current Assets Stock Debtors Bank Balance Prepaid Expenses Liabilities Share Capital General Reserves Earnings 10% Debentures Bank Loan Provision for Taxation Current Liabilities Creditors Outstanding Expenses 12,500 2,500 14,000 3,000 10,000 150 2,000 1,500 550 25 11,000 100 2,250 1,250 700 35 1,000 250 150 10 50 250 14,225 15,335 5,000 1,125 550 2,500 1,000 700
3,300 50 6,000 1,250 625 2,000 1,250 1,300 2,760 150 500 540 1,000 125 75 250 600 100 14,225 15,335 2,450 2,450 Fixed Assets A/c Dr. Rs. To Balance b/d To Bank 12,500 1,500 14,000 Provision for Depreciation A/c Dr. Rs. To Balance c/d 3,000 By Balance b/d By Profit & Loss A/c 3,000 Rs. 2,500 500 3,000 Cr. 14,000 By Balance c/d Rs. 14,000 Cr.
Provision for Taxation A/c Dr. Rs. To Bank To Balance c/d 700 1,300 2,000 Nandini Ltd. Cash Flow Statement for the year ended 31st December 2006 Rs. Cash flows from Operating Activities Net Profit before Tax Add: Adjustment for Depreciation Preliminary Expenses Net Operating Profit before Working Capital Changes Working Capital Changes Decrease in Debtors Increase in Outstanding Expenses Increase in Stock Increase in Prepaid Expenses Increase in Creditors Cash generated from Operations Less: Tax paid Net Cash from Operating Activities Cash Flows from Investing Activities
(1,500)
Cr. Rs. By Balance b/d By Profit & Loss A/c 700 1,300 2,000
Rs.
Rs.
2,500
500 50 3050
250 100 (250) (10) (540) 2,600 700
1,900
Purchase of Fixed Assets Cash Flows from Financing Activities Proceeds from Issue of Share Capital Redemption of Debentures Payment of Dividend Proceeds from Bank Loan Net Cash Flow from Financing Activities Net Increase in Cash & Cash Equivalents Cash & Cash Equivalent at the beginning of the year Bank Cash & Cash Equivalent at the end of the Bank
700 550 (250)
1,000 (500) (1,000) 250
150
Illustration 5 The following are the comparative Balance Sheets of Walt Disney Ltd. for the year ende: 31st December, 2005 and 31st December 2006. Rs. Cash Prepaid Expenses Debtors Stock Investment (Long Term) 4,300 200 8,000 3,200 5,000 Rs. 5,800 200 9,000 4,000 3,000
Machinery (at cost) Buildings (at cost)Land
2,500 7,500 1,000 31,700
4,000 9,000 1,000 36,000
Accumulated Depreciation: Machinery Buildings Creditors Outstanding Expenses Debentures Equity Share Capital Profit & Loss A/c Provision for Doubtful Debts 300 1,200 3,300 350 4,000 20,000 2,350 200 31,700 750 1,800 4,000 450 3,500 20,000 5,200 300 36,000
Additional Information (1) Dividend paid during 2006 was Rs. 2,650. (2) Investments costing Rs. 2,000 were sold in 2006 lor Rs. 2,500. (3) Machinery costing Rs. 500 on which Rs. 100 depreciation has been accumulated, was sold for Rs. 600 in the year 2006. Prepare a Cash Flow Statement for the year 2006. Solution Worksheet Balance Sheet as on 2005 Rs. 2006 Rs. Change Column Dr. Rs. Cr. Rs.
Assets: Land Building (at cost) Machinery (at cost) Investment (Long Term) Current Assets: Cash Prepaid Expenses Debtors Stock 4,300 200 8,000 3,200 31,700 Liabilities: Equity Share Capital Profit & Loss A/c Debentures Accumulated Depreciation: Machinery Buildings Current Liabilities: Creditors Outstanding Expenses Provision for Doubtful Debts 3,300 350 200 31,700 4,000 450 300 36,000 6,800 -700 100 100 6,800 300 1,200 750 1,800 -450 600 20,000 2,350 4,000 20,000 5,200 3,500 500 -2,850 5,800 200 9,000 4,000 36,000 1,000 800 1,500 1,000 7,500 2,500 5,000 1,000 9,000 4,000 3,000 1,500 1,500 2,000
Investment A/c
Dr. Rs. To Balance b/d To Profit & Loss A/c 5,000 500 5,500 Machinery A/c Dr. Rs. To Balance b/d To Profit & Loss A/c To Bank 2,500 200 2,000 4,700 Provision for Depreciation - Machinery Dr. Rs. To Machinery A/c To Balance c/d 100 750 850 Provision for Depreciation - Buildings Dr. Rs. To Balance c/d 1,800 By Balance b/d By Profit & Loss A/c 1,800 By Balance b/d By Profit & Loss A/c By Bank By Bank By Balance c/d
Cr. Rs. 2,500 3,000 5,500
Cr. Rs. 600
By Provision for Depreciation 100 By Balance c/d 4,000 4,700
Cr. Rs. 300 550 850
Cr. Rs. 1,200 600 1,800
Walt Disney Ltd. Cash Flow Statement for the year ended 31st December 2006 Rs. Cash flows from Operating Activities Net Profit Adjustment for: Provision for depreciation on Machinery Profit on sale of Machinery Profit on sale of Investments Provision for depreciation on Building Dividend paid Net Operating Profit before Working Capital Changes Working Capital Changes Increase in Creditors Increase in Outstanding Expenses Increase in Debtors (Net) Increase in Stock Net Cash from Operating Activities Cash Flows from Investing Activities Purchase of Machinery Purchase of Building Sale of Machinery Sale of Investment Net Cash Flow from Investing Activities Cash Flows from Financing Activities (2,000) (1,500) 600 2,500 (400) 700 100 (900) (800) 5,050 5,950 550 " (200) (500) 600 2,650 2,850 Rs. Rs.
Dividend Paid Redemption of Debentures Net Cash Flow from Financing Activities Net increase in Cash & Cash Equivalent Cash & Cash Equivalent at the beginning of the year Cash Cash & Cash Equivalent at the end of the Cash
(2,650)
(500)
(3,150)
1,500
4,300
5,800
Illustration 16.1 Classify the following activities as (a) Operating Activities, (b) Investing Activities, (c Activities, and (d) Cash equivalents. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Purchase of fixed assets Issue of fixed share capital Receipts from sales Proceeds from long-term borrowings Proceeds from sale of fixed assets Cash receipts from debtors Commission received Interim dividend paid on equity shares Proceeds from sale of patents Interest received on debentures held as investments. Income tax paid Dividend paid on preference shares Undenvriting commission paid
(14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29)
Bank overdraft Cash credit Short-term deposits Marketable securities Salary paid Brokerage paid on issue of shares Brokerage paid on purchase of investments Refund of income tax received Interest paid on long term borrowings Dividend received on shares held as investments Rent received on property held as investments Purchase of investment Redemption of preference shares Cash purchases Proceeds from sale of investments Purchase of goodwill for cash
Operating Activities : 3, 6, 7, 27, 17, 11, 13, 18, 21 Investing Activities : 1, 5, 23, 24, 25, 28, 29, 9, 10, 20 Financing Activities : 2, 4, 22, 26, 8, 12, 19 Cash Equivalents : 14, 15, 16, 17. ion 16.2 'late cash from operations from the following Particulars 2006 (Rs.) 2007 (Rs.) Profit and Loss Appropriation A/c Bills Receivable
Provision for Depreciation Outstanding Rent payable Prepaid Insurance Goodwill Stock 30,000 15,000 40,000 2,600 1,400 20,000 14,000 40,000 19,000 42,000 4,000 1,200 16,000 18,000 ion Net profit before taxation : Increase in retained earnings Rs. 10,000 10,000 Cash Flow Statement for the year ended. ....... Particulars Amount (Rs.) Amount (Rs.) Cash Flows from Operating Activities : Net Profit Adjusted for : Depreciation Goodwill written off Operating profit before working capital changes Adjusted for : -I- Decrease in prepaid insurance (+) Increase in outstanding rent payable (- ) Increase in bills receivable (-) Increase in stock Net cash from operating activities Cash Flows from Investing Activities : Cash Flows from Financing Activities : Net increase in cash and cash equivalents 10,000 2,000 4,000 16,000 200 1400 (4000) (6400)
9.600
r
at ion 16.3
Ltd. made a profit of Rs. 6,00,000 after considering the following items (i) Depreciation on Fixed Assets Rs. 20,000; iii) Writing off Preliminary Expenses Rs. 10,000; 608 Accounting for Business Ma (iii) (iv) (v) (vi) Loss on Sale of Furniture Rs. 800; Provision for Taxation Rs.60,000; Transfer to General Reserve Rs. 10,000; Profit on Sale of Machinery Rs. 5,000.
The following additional information is also supplied to you : Bills Payable Outstanding Expenses Prepaid Expenses Bills Receivable Creditors Debtors 10,000 5,000 200 4000 30,000 33,000 Solution : Net profit before taxation : Increase in retained earnings Add: Preliminary Expenses written off Provision for taxation Rs. 6,00,000 10,000 60,000 11,000 4,000 300 2,500 35,000 36,000
Transfer to General Reserve
10,000 6.80.000
Cash Flow Statement
for the year ended... Particulars Amount (Rs.) Cash Flows From Operating Activities : Net Profit Adjusted for : (+) Depreciation (+) Loss on sale of furniture (-) Profit on sale of machinery Operating profit before working capital changes Adjusted for : (+) Decrease in bills receivable (+) Increase in creditors (+) Increase in bills payable (-) Decrease in outstanding expenses (-) Increase in debtors (-) Increase in prepaid expenses Net cash from operating activities Cash Flows From Investing Activities : Cash Flows From Financing Activities : Increase in cash and cash equivalents 6,99,20| -3,40 1,500 5,000 1,000 (1,000) (3,000) (100) 20,000 800 (5,000) 15,81 6,95,8( 6,80,000 Amoi (Rs.
