35884227 problems on cash flow statements

8/3/2019 35884227 Problems on Cash Flow Statements

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Problems on cash flow statements

1. The following is the summary of cash transactions of Anju Ltd. for the year ended March 31, 2005.(Amount in 000)

Receipts Rs. Payments Rs.

Balance as on 1.4.2004Issue of equity shares

Receipts from customers

Sale of fixed assets

150900

8,400

300

Payment to creditorsPurchase of fixed assets

Expenses

Wages and salaries

Tax

Dividends

Repayment of bank loan

Balance as on 31.3.2005

6,000600

600

300

750

150

900

450

9,750 9,750

You are required to prepare a Cash flow statement for the year ended March 31, 2005 in

accordance with AS-3 (Revised) using direct method.

Solution 1:

Cash flow statement of Anju Ltd. For the year ended March 31, 2005

(Amount in 000)

Particulars Rs. Rs.

i. Cash flow from operating activities

Receipts from customers

Payment to creditorsPayment of wages and salaries

Payment of overhead expenses

Cash generated from operations

Payment of tax

Net flow from operating activities

ii. Cash flow from investing activities

Proceeds on sale of fixed assets

Acquisition of fixed assetsNet flow from investing activities

iii. Cash flow from financing activities

Proceeds on issue of shares

Payment of dividends

Repayment of bank loan

Net flow used in financing activities

Net cash flow for the year ended March 31,2005

Cash balance at the beginning of the periodCash balance at the end of the period

8,400

(6,000)(300)

(600)

750

(300)

(150)

1500

(750)

300

(600)

900

(150)

(900)

300

150

450

2. The summarized Balance Sheet of M/s Ankit Ltd as at March 31, 2005 and 2006 are given below.Balance Sheet of M/s Ankit Ltd.as on March 31, 2005 and 2006

Particulars 2005 Rs. 2006 Rs. Particulars 2005 Rs. 2006 Rs.

Share Capital 9,00,000 9,00,000 Fixed Assets 8,00,000 6,40,000

General Reserve 6,00,000 6,20,000 Investments 1,00,000 1,20,000

Profit & loss a/c 1,12,000 1,36,000 Stock 4,80,000 4,20,000

Creditors 3,36,000 2,68,000 Debtors 4,20,000 9,10,000


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Provision for tax 1,50,000 20,000 Bank 2,98,000 3,94,000

Mortgage loan - 5,40,000

20,98,000 24,84,000 20,98,000 24,84,000

Additional Information:

i. Investments costing Rs.16,000 were sold during the year for Rs.17,000

ii. Provision for tax during the year Rs.18,000

iii. During the year, a part of the fixed assets costing Rs.20,000 was sold for Rs.24,000 andthe profit was included in Profit and Loss account

iv. Dividends paid amounted to Rs.80,000

You are required to prepare a Cash Flow Statement in accordance with AS 3 accounting standard

Solution 2

Cash flow statement of Ankit Ltd. For the year ended March 31, 2006(Amount in 000)

Particulars Rs. Rs.

i. Cash flow from operating activities

Cash flow from operating activities before

working capital changes

Decrease in Stock

Increase in DebtorsDecrease in CreditorsTax Paid during the year

Net flow from operating activities

ii. Cash flow from investing activities

Proceeds on sale of investments

Proceeds on sale of fixed assets

Purchase of investments

Net flow from investing activities

iii. Cash flow from financing activities

Raising of Mortgage loan

Payment of dividends

Net flow from financing activities

Net cash flow for the year ended March 31,2005

Cash balance at the beginning of the period

Cash balance at the end of the period

2,77,000

60,000

(4,90,000)(68,000)(1,48,000)

17,000

24,000

(36,000)

5,40,000

(80,000)

(3,69,000)

5,000

4,60,000

96,000

2,98,000

3,94,000

Working Notes:

Fixed Assets Account

Particulars Rs. Particulars Rs.

To Balance b/d 8,00,000 By Bank 24,000

To Profit & loss a/c 4,000 By Depreciation 1,40,000

By Balance c/d 6,40,000

8,04,000 8,04,000

Investments Account


To Balance b/d 1,00,000 By Bank 17,000

To Profit & loss a/c 1,000 By Balance c/d 1,20,000

To Bank 36,000

1,37,000 1,37,000

Provision for tax Account


To Bank 1,48,000 By Balance b/d 1,50,000

To Balance c/d 20,000 By Profit & loss a/c 18,000


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1,68,000 1,68,000

Calculation of cash from operations:

Closing Balance of Profit & loss a/c 1,36,000

Add: Non-operating expenses

Dividends 80,000

General Reserve 20,000Depreciation 1,40,000

Provision for tax 18,000 2,58,000

3,94,000

Less: Non-operating incomesProfit on sale of investments 1,000

Profit on sale of fixed assets 4,000 5,000

Opening Balance of Profit & loss a/c 1,12,000

Cash from operations before Working Capital Changes 2,77,000

3.

The financial position of MNR Ltd. on 1st April 2005 and 31st March 2006 was as follows

1-4-2005Rs.

31-3-2006Rs.

1-4-2005Rs.

31-3-2006Rs.

Current Liabilities 3,60,000 4,10,000 Cash 40,000 36,000Loan from

associate

company

--

2,00,000

Debtors

Stock

Land

3,50,000

2,50,000

2,00,000

3,84,000

2,20,000

3,00,000

Loan from Bank 3,00,000 2,50,000 Buildings 5,00,000 5,50,000

Capital and Reserves 14,80,00

0

14,90,000 Machinery 10,70,00

0

12,20,000

Prov.for

Depreciation

2,70,000 3,60,000

24,10,00

0

27,10,000 24,10,00

027,10,00

0

During the year Rs. 2,60,000 were paid as dividends. You are required to prepare a Cash FlowStatement as per Revised AS-3.

Solution 3:

Cash Flow Statement of MNR Ltd for the year 2005 06

Rs. Rs.

(A) Cash Flows from Operational Activities

Net profit before taxation and extraordinary items 2,70,000

(14,90,000 14,80,000 + 2,60,000 dividend)

Adjustment for Depreciation 90,000Profit from Trading Operations 3,60,000

Increase in Sundry Debtors (34,000)

Decrease in Stock 30,000

Increase in Current Liabilities 50,000

Net Cash from Operational Activities 4,06,000(B) Cash Flows from Investing Activities

Purchase of Building (50,000)

Purchase of Land (1,00,000)

Purchase of Machinery (1,50,000)

Net Cash used on investing activities (3,00,000)(C) Cash Flows from Financing Activities


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Loan from Associated Company 2,00,000

Repayment of Bank Loan (50,000)

Payment of Dividend (2,60,000)

Net decrease in Cash and Cash equivalents (1,10,000)

(4,000)

Cash and Cash equivalents at the beginning of the period 40,000

Cash and Cash equivalents at the end of the period 36,000

4. Sun Ltd gives you the following information for the year ended March 31, 2006

a. Sales for the year totaled Rs.96,00,000. The company sells goods for cash only.

b. Cost of goods sold was 60% of sales. Closing inventory was higher than opening inventory byRs.43,000. Trade creditors on March 31, 2006 exceede those on March 31st, 2005 by Rs.23,000

c. Net profit before tax was Rs.13,80,000. Tax paid amounted to Rs.7,00,000. Depreciation onfixed assets for the year was Rs.3,15,000 where as other expenses totaled Rs.21,45,000.

Outstanding expenses on March 31, 2005 and on March 31st, 2006 were Rs.82,000 and

Rs.91,000 respectively.

d. New machinery and furniture costing Rs.10,27,500 in all were purchased.

e. A rights issue was made of 50,000 equity shares of Rs.10 each at a premium of Rs.3 per share.The entire money was received with applications.

f. Dividends paid amounted to Rs.4,07,000.g. Cash in hand and at bank on March 31st, 2005 and March 31st, 2006 are Rs.2,13800 and

Rs.4,13,300.

You are required to prepare a cash flow statement using (a) direct method and (b) indirect method.

Solution 4.(a) Direct Method

Cash flow statement of Sun Ltd for the year ended March 31, 2006Particulars Rs Rs

Cash flows from operating activities:

Cash receipts from customers 96,00,000

Cash paid to suppliers and employees (79,16,000)

Cash inflow from operations 16,84,000Tax paid (7,00,000)

Net cash from operating activities 9,84,000

Cash flows from investing activities:

Purchase of fixed assets (10,27,500)

Net cash used in investing activities (10,27,500)

Cash flows from financing activities:

Proceeds from issue of share capital 6,50,000

Dividends and corporate dividend tax paid (4,07,000)

Net cash from financing activities 2,43,000

Net increase in cash and cash equivalents 1,99,500

Cash and cash equivalents as at March 31, 2005 2,13,800


Working notes: (i) Calculation of cash paid to suppliers and employees

Cost of sales (60% of Rs.96,00,000) 57,60,000

Add: Expenses incurred 21,45,000

outstanding expenses on March 31, 2005 82,000

closing inventory excess over opening inventory 43,000

80,30,000

Less: Excess of closing creditors over opening creditors 23,000

outstanding expenses as on March 31, 2006 91,000


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79,16,000

(b) Indirect Method: Cash flow statement of Sun Ltd for the year ended March 31, 2006

Particulars Rs Rs

Cash flows from operating activities:

Net Profit before tax 13,80,000

Add: depreciation 3,15,000Operating profit before working capital changes 16,95,000

Adjustments for:

Increase in inventory

Increase in trade creditors

Increase in outstanding expenses

(43,000)

23,000

9,000

Net cash from operating activities 16,84,000

Less tax paid (7,00,000) 9,84,000

Cash flows from investing activities:

Purchase of fixed assets (10,27,500)

Net cash used in investing activities (10,27,500)

Cash flows from financing activities:

Proceeds from issue of share capital 6,50,000

Dividends and corporate dividend tax paid (4,07,000)Net cash from financing activities 2,43,000




5. Pioneer Ltds summarized balance sheets as at March 31, 2005 and March 31, 2006 are given belowBalance Sheet of Pioneer Ltd.as on March 31, 2005 and 2006

Particulars 2005 Rs. 2006 Rs. Particulars 2005 Rs. 2006 Rs.

Equity share capital 5,00,000 12,00,000 Plant & machinery 7,00,000 9,00,000

Securities premium - 3,50,000 Furniture & fixtures 90,000 81,000

General reserve 2,80,000 3,30,000 Stock 4,25,000 6,19,000

Profit & loss a/c 60,000 59,750 Debtors 1,20,000 2,30,000

13% convertible

debentures

3,00,000 - Cash at bank

Share issue expenses

2,52,500

-

5,80,000

20,000

Bills payable 50,000 30,000 Cost of issue of

debentures

5,000 -

Sundry creditors 1,90,000 1,95,000

Provision for tax 1,30,000 1,52,500

Proposed dividends 75,000 1,02,500

Provision for

corporate dividend

tax

7,500 10,250

15,92,500 24,30,000 15,92,500 24,30,000

The following additional information is provided for you:i. On April1st, 2005 13% convertible debentures of the face value of Rs.3,00,000 were converted

into 20,000 equity shares of Rs.10 each issued at a premium of Rs.5 each.

ii. Plant was purchased during the year for Rs.3,00,000; half of the consideration was discharged by

issue to the vendor 10,000 equity shares of Rs.10 each at a premium of Rs.5 each while the

balance was paid in cash.

iii. Tax liability for the accounting year 2004-05 Rs.1,30,000 was discharged in May, 2005.

iv. Proposed dividend and corporate dividend tax thereon for 2004-05 was paid in August, 2005.

You are required to prepare a cash flow statement for the year ended March 31st, 2006.

Solution 5:


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Cash flow Statement (CFS) for the year ended 31.3.2006

Particulars Amount Amount

a. Cash flow from operating activities (Indirect approach)

Closing balance of profit and loss a/c 59,750

Less: Opening balance of profit & loss a/c 60,000

Net decrease in profit & loss a/c (250)Add: non-cash and non-operating expenses

Depreciation on plant & machinery 1,00,000

Depreciation on furniture 9,000

Cost of issue of debentures written off 5,000

Transfer to general reserve 50,000

Proposed dividends 1,02,500

Dividend tax on proposed dividends 10,250

Provision for tax 1,52,500

Cash from operations before tax 4,29,000

Less tax paid (1,30,000)

Cash from operations before working capital changes 2,99,000Adjustments for WC changes

Increase in stock (1,94,000)

Increase in debtors (1,10,000)

Decrease in Bills payable (20,000)

Increase in creditors 5,000

Cash used in operating activities (20,000)

b. Cash flows from investing activities

Purchase of machinery (1,50,000)

Cash used in investing activities (1,50,000)

c. Cash flows from financing activities

Issue of share capital 4,00,000Receipt of share premium 2,00,000

Dividends paid (75,000)

Dividend tax paid (7,500)

Expenses of share issue (20,000)

Cash from financing activities 4,97,500


Add: opening balance of cash and cash equivalents 2,52,500

Closing balance of cash and cash equivalents 5,80,000

WN-1:

a. Dr. Plant & Machinery a/c Cr.

Particulars Amount Particulars AmountTo Balance b/d 7,00,000 By depreciation 1,00,000

To purchase of machinery

(cash)

1,50,000 By balance c/d9,00,000

To purchase of plant (shares) 1,50,000

10,00,00

010,00,000


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b. Dr. Depreciation Reserves a/c Cr.

Particulars Amount Particulars Amount

To Sale of Machinery a/c 20,000 By balance b/d 1,00,000

To Balance c/d 1,70,00

0

By P&L a/c (c.y. depn.)90,000

1,90,00

0 1,90,000c. Dr. Sale of Machinery a/c Cr.

Particulars Amount Particulars Amount

To Machinery a/c 50,000 By Depreciation Reserves a/c 20,000

By Bank (sale) 26,000

By P&L a/c Loss on sale 4,000

50,000 50,000

WN-2:

Rs.

Opening capital 3,00,000

Add: Profit during the year 1,20,000

4,20,000

Less: Closing capital 3,50,000

Drawings 70,000

Reconciliation:

Opening cash balance 40,000

Closing cash balance 50,000

Increase in cash 10,000

7. The following data were provided by the accounting records of Nally Ltd. At the year end March312004.

Income statement

Particulars Rs.Sales 1,39,600

Cost of goods sold 1,04,000

Gross Margin 35,600

Operating expenses including depreciation exp. of Rs.7,400 29,400

Operating Profit 6,200

Other expenses/income:

Interest expenses paid (4,600)

Interest income received 1,200

Gain on sale of investments 2,400

Loss on sale of plant (600) (1,600)

4,600

Income tax (1,400)

Profit After tax 3,200Comparative Balance Sheet

Liabilities31.03.2004

Rs.

31.03.2003

Rs.Assets

31.03.2004

Rs.

31.03.2003

Rs.

Share capital 93,000 63,000 Plant 1,43,000 1,01,000

Reserves & Surplus 28,000 26,400 Less: Accumulated Dep. 20,600 13,600

Bonds 59,000 49,000 1,22,400 87,400


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Current Liabilities: Investments 23,000 25,400

Accounts payable 10,000 8,600 Current assets:

Liabilities 2,400 1,800 Inventory 28,800 22,000

Income-tax payable 600 1,000 Debtors 9,400 11,000

Cash 9,200 3,000

Prepaid expenses 200 1,000

1,93,000 1,49,800 1,93,000 1,49,800

Analysis of selected accounts and transaction during 2003-04

i. Purchased investments for Rs.15,600.

ii. Sold investments for Rs.20,400. These investments cost Rs.18,000.

iii. Purchased plant for Rs.24,000.

iv. Sold plant that cost Rs.2,000 with accumulated depreciation of Rs.400 for Rs.1,000.

v. Issued Rs.20,000 worth Bonds at face value in exchange for plant purchased on 31st March, 2004.

vi. On maturity, bonds of Rs.10,000 repaid at face value.

vii. Issued 3,000 shares of Rs.10 each.

viii. Paid cash dividend Rs.1,600

Prepare cash flow statement as per AS-3 (indirect method), and direct method.

Solution 7:

Cash Flow Statement for the year ended 31.3.2004

Particulars Rs. Rs.

A. Cash from operating activities (Indirect Method)

1. Profit before tax and extra ordinary items 4,600

2. Adjustments for

a. Depreciation 7,400

b. Loss on sale of Plant 600

c. Less: Gain on Sale of Investments (2,400)

d. Less: Interest income received (1,200)

e. Interest expenses paid 4,600

Operating profit before working capital changes 13,600

Particulars Rs. Rs.

3. Adjustment for working capital changes

a. Increase in Inventory (6,800)

b. Decrease in debtors 1,600

c. Decrease in Prepaid Expenses 800

d. Increase in Accounts Payable 1,400

e. Increase in accrued liabilities 600

Cash generated from operations 11,200

Taxes Paid (1,800)

Cash flow before extraordinary items 9,400


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Add/Less: Extraordinary Nil

Cash flow from operating activities 9,400

B. Cash flow from investing activities

1. Purchase of Plants (24,000)

2. Sale proceeds of plant 1,000

3. Purchase of investments (15,600)

4. Sale proceeds of investments 20,400

5. Int. income received 1,200

(17,000)

C. Cash flow from financing activities

1. Issue of shares 30,000

2. Repayment of funds (10,000)

3. Interest paid (4,600)

4. Dividend paid (1,600)

13,800

1. Reconciliation

Opening balance 3,000

Closing Balance 9,200

Increase 6,200

Indirect Method

WN-1:

Plant A/c

Dr. Cr.

Particulars Amount

Rs.

Particulars Amount

Rs.

To Balance b/d 87,400 By Bank (Sale) 1,000

Bank 24,000 Profit & Loss a/c 600

Bonds 20,000 Depreciation 7,400

Balance c/d 1,22,400

1,31,400 1,31,400

Accumulated Depreciation a/c

Dr. Cr.

Particulars Amount

Rs.

Particulars Amount

Rs.To Plant a/c 400 By Balance b/d 13,600

To Balance c/d 20,600 By Profit & Loss a/c 7,400

21,000 21,000

Tax a/c

Dr. Cr.


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Particulars Amount

Rs.

Particulars Amount

Rs.

To Bank a/c 1,800 By Balance b/d 1,000

To Balance c/d 600 By Profit & Loss a/c 1,400

2,400 2,400

Direct Method

WN-1: Collection from Debtors

Debtors A/c

Dr. Cr.


To Balance 11,000 By Bank (balance figure) 1,41,200

To Sales 1,39,600 By Balance 9,400

1,50,600 1,50,600

WN-2: Payment for Purchases

Dr. Creditors A/c Cr.


To Bank (bal figure) 1,09,400 By Balance b/d 8,600

To Balance c/d 10,000 By Purchases 1,10,800

1,19,400 1,19,400

Note: Opening Stock + Purchases Closing Stock = Cost of Goods sold.

22,000 + Purchases 28,800 = 1,04,000

Purchases = 1,04,000 + 28,80022,000 = 1,10,800

WN-3:

Expenses paid in Cash Rs.

Expd. From P & L a/c Excluding depreciation (29,4007,400) 22,000

Less: Increases in accrued liabilities (Outstanding Expenses) (600)

Less: Decrease in prepaid Expenses (800)

20,600

Cash Flow Statement for the year ended 2004

Particulars Rs.

A. Cash flow from operating activities (Direct Method)

a. Collection from debtors (WN-1) 1,41,200

b. Less: Payment for Purchases (WN-2) (1,09,400)

c. Less: Payment for Expenses (WN-3) (20,600)

Cash generated from operations 11,200


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d. Less: Taxes paid 1,800

Cash flow before extraordinary items 9,400

e. Less: Extraordinary items NIL

Cash flow from operating activities 9,400

Cash flow from investing activities (same as in the case of indirectmethod)

(17,000)

Cash flow from financing activities (same as in the case of indirect

method)

13,800

Increase in Cash & Cash equivalents 6,200

35884227 problems on cash flow statements

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