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 sharesReceipts from customersSale of fixed assets

150900

8,400300

Payment to creditorsPurchase of fixed assetsExpensesWages and salariesTaxDividends Repayment of bank loanBalance as on 31.3.2005

6,000 600600300750150900450

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 creditors Payment of wages and salaries Payment of overhead expenses Cash generated from operations Payment of tax Net flow from operating activitiesii. Cash flow from investing activities Proceeds on sale of fixed assets Acquisition of fixed assets Net flow from investing activitiesiii. 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 period Cash balance at the end of the period

8,400(6,000)

(300)(600)

750

(300)

(150)

1500(750)

300(600)

900(150)(900)

300150

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 6,40,000General Reserve 6,00,000 6,20,000 Investments 1,00,000 1,20,000Profit & loss a/c 1,12,000 1,36,000 Stock 4,80,000 4,20,000Creditors 3,36,000 2,68,000 Debtors 4,20,000 9,10,000

Provision for tax 1,50,000 20,000 Bank 2,98,000 3,94,000Mortgage 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.17,000ii. 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 and the profit was included in Profit and Loss account

iv. Dividends paid amounted to Rs.80,000You 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 Debtors Decrease in Creditors Tax Paid during the year Net flow from operating activitiesii. Cash flow from investing activities Proceeds on sale of investments Proceeds on sale of fixed assets Purchase of investments Net flow from investing activitiesiii. 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)

17,00024,000

(36,000)

5,40,000(80,000)

(3,69,000)

5,000

4,60,00096,000

2,98,0003,94,000

Working Notes: Fixed Assets Account

Particulars Rs. Particulars Rs.To Balance b/d 8,00,000 By Bank 24,000To Profit & loss a/c 4,000 By Depreciation 1,40,000

By Balance c/d 6,40,0008,04,000 8,04,000

Investments AccountParticulars Rs. Particulars Rs.To Balance b/d 1,00,000 By Bank 17,000To Profit & loss a/c 1,000 By Balance c/d 1,20,000To Bank 36,000

1,37,000 1,37,000

Provision for tax AccountParticulars Rs. Particulars Rs.To Bank 1,48,000 By Balance b/d 1,50,000

To Balance c/d 20,000 By Profit & loss a/c 18,0001,68,000 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 20,000 Depreciation 1,40,000 Provision for tax 18,000 2,58,000 3,94,000 Less: Non-operating incomes Profit 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

DebtorsStockLand

3,50,0002,50,0002,00,000

3,84,0002,20,0003,00,000

Loan from Bank 3,00,000 2,50,000 Buildings 5,00,000 5,50,000Capital and Reserves 14,80,000 14,90,000 Machinery 10,70,000 12,20,000Prov.for Depreciation

2,70,000 3,60,000

24,10,000 27,10,000 24,10,000 27,10,000During the year Rs. 2,60,000 were paid as dividends. You are required to prepare a Cash Flow

Statement 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 90,000

Profit from Trading Operations 3,60,000Increase in Sundry Debtors (34,000)Decrease in Stock 30,000Increase 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 ActivitiesLoan from Associated Company 2,00,000Repayment 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 40,000Cash 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, 2006a. 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 by

Rs.43,000. Trade creditors on March 31, 2006 exceede those on March 31st, 2005 by Rs.23,000c. Net profit before tax was Rs.13,80,000. Tax paid amounted to Rs.7,00,000. Depreciation on

fixed 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, 2006

Particulars Rs RsCash flows from operating activities: Cash receipts from customers 96,00,000Cash paid to suppliers and employees (79,16,000)Cash inflow from operations 16,84,000Tax paid (7,00,000)Net cash from operating activities 9,84,000Cash 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 6,50,000Dividends and corporate dividend tax paid (4,07,000)Net cash from financing activities 2,43,000Net increase in cash and cash equivalents 1,99,500Cash and cash equivalents as at March 31, 2005 2,13,800Cash and cash equivalents as at March 31, 2006 4,13,300

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

79,16,000 (b) Indirect Method: Cash flow statement of Sun Ltd for the year ended March 31, 2006

Particulars Rs RsCash flows from operating activities: Net Profit before tax 13,80,000Add: depreciation 3,15,000Operating profit before working capital changes 16,95,000Adjustments for: Increase in inventory Increase in trade creditors Increase in outstanding expenses

(43,000)23,0009,000

Net cash from operating activities 16,84,000Less tax paid (7,00,000) 9,84,000Cash 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 6,50,000Dividends and corporate dividend tax paid (4,07,000)Net cash from financing activities 2,43,000Net increase in cash and cash equivalents 1,99,500Cash and cash equivalents as at March 31, 2005 2,13,800Cash and cash equivalents as at March 31, 2006 4,13,300

5. Pioneer Ltd’s 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 9,00,000Securities premium - 3,50,000 Furniture & fixtures 90,000 81,000General reserve 2,80,000 3,30,000 Stock 4,25,000 6,19,000Profit & loss a/c 60,000 59,750 Debtors 1,20,000 2,30,00013% convertible debentures

3,00,000 - Cash at bankShare issue expenses

2,52,500-

5,80,00020,000

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

5,000 -

Sundry creditors 1,90,000 1,95,000Provision for tax 1,30,000 1,52,500Proposed dividends 75,000 1,02,500Provision 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:

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 59,750Less: Opening balance of profit & loss a/c 60,000Net 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 changesIncrease 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 activitiesIssue of share capital 4,00,000Receipt of share premium 2,00,000Dividends paid (75,000)Dividend tax paid (7,500)Expenses of share issue (20,000)Cash from financing activities 4,97,500Net increase in cash and cash equivalents 3,27,500Add: opening balance of cash and cash equivalents 2,52,500Closing 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) 1,50,00010,00,000 10,00,000

6. From the following information prepare cash flow statement for the year ended 31.12.2004 by Indirect Method:

Balance Sheet as at 31st December

Liabilities 2003 2004 Assets 2003 2004

Share capital 3,00,000 3,50,000 Land & Buildings 2,20,000 3,00,000

Bank overdraft 3,20,000 2,00,000 Machinery 4,00,000 2,80,000

Bills payable 1,00,000 80,000 Stock 1,00,000 90,000

Creditors 1,80,000 2,50,000 Debtors 1,40,000 1,60000

Cash 40,000 50,000

9,00,000 8,80,000 9,00,000 8,80,000

Additional Information

a. Net profit for the year 2004 amounted to Rs.1,20,000

b. During the year, a Machinery costing Rs.50,000 (accumulated depreciation Rs.20,000) was sold for Rs.26,000. The provision for depreciation against Machinery as on 31.12.2003 was Rs.1,00,000 and on 31.12.2004 Rs.1,70,000.

Solution 6:

Cash flow Statement (CFS) for the year ended 31.12.2004

Particulars Amount Amount

a. Cash flow from operating activities (Indirect approach)Profit before tax and extra ordinary items 1,20,000Add: Depreciation [WN (b)] 90,000Add: Loss on sale of asset (WN-1(c)] 4,000

Operating profit before working capital changes 2,14,000Adjustments for WC changesDecrease in stock 10,000Increase in debtors (20,000)Decrease in Bills payable (20,000)Increase in creditors 70,000Decrease in Bank overdraft (1,20,000)

Cash from operating activities 1,34,000b. Cash flows from investing activities

Sale of machinery 26,000Purchase of Land & Buildings (80,000) (54,000)

c. Cash flows from financing activitiesDrawings (WN-2) (70,000)Increase in cash & cash equivalents 10,000

WN-1:

a. Dr. Machinery a/c (at cost) Cr.Particulars Amount Particulars AmountTo Balance b/d (4,00,000 + 1,00,000)

5,00,000 By sale of machinery a/c 50,000

By balance c/d 4,50,0005,00,000 5,00,000

b. Dr. Depreciation Reserves a/c Cr.

Particulars Amount Particulars AmountTo Sale of Machinery a/c 20,000 By balance b/d 1,00,000To Balance c/d 1,70,000 By P&L a/c (c.y. depn.) 90,000

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

Particulars Amount Particulars AmountTo Machinery a/c 50,000 By Depreciation Reserves a/c 20,000

By Bank (sale) 26,000By 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 1,20,0004,20,000

Less: Closing capital 3,50,000Drawings 70,000Reconciliation:Opening cash balance 40,000Closing cash balance 50,000Increase in cash 10,000

7. The following data were provided by the accounting records of Nally Ltd. At the year end March 31¸2004.

Income statement

Particulars Rs.Sales 1,39,600Cost of goods sold 1,04,000Gross Margin 35,600Operating expenses including depreciation exp. of Rs.7,400 29,400Operating Profit 6,200Other expenses/income:Interest expenses paid (4,600)Interest income received 1,200Gain on sale of investments 2,400Loss on sale of plant (600) (1,600)

4,600Income tax (1,400)Profit After tax 3,200

Comparative 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

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

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/cDr. Cr.

Particulars AmountRs.

Particulars AmountRs.

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 13,600To Balance c/d 20,600 By Profit & Loss a/c 7,400

21,000 21,000

Tax a/c

Dr. Cr.

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.

Particulars Rs. Particulars Rs.

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.

Particulars Rs. Particulars Rs.

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 + 28,800–22,000 = 1,10,800

WN-3:

Expenses paid in Cash Rs.

Expd. From P & L a/c Excluding depreciation (29,400–7,400) 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

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 indirect method)

(17,000)

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

13,800

Increase in Cash & Cash equivalents 6,200