PROJECTED INCOME STATEMENT AND BALANCE SHEET

Every corporate house plans for change in funds at the end of current financial year.A finance manager needs to
plan for next financial year as to what would be major heads of expenditure and major sources of funds. This
planning for next financial year is known as “Projection for income statement”.

Income statement includes :

1) A cash flow Statement

2) Projected balance Sheet

Cash Flow Statement

❖ A cash flow statement is a financial statement that summarizes the amount of cash and cash
equivalents entering and leaving a company. 
❖ The cash flow statement measures how well a company manages its cash position, meaning how well
the company generates cash to pay its debt obligations and fund its operating expenses. 

This Statement begins with opening cash balance or bank balance given in the balance sheet of
concluded year on the inflow side. Thereafter major inflows for next financial year are recorded, these
include gross profit as per income statement, sale of fixed assets and investments, borrowing of secured and
unsecured loans and reduction in value of current assets such as debtors, stock and bank receipts.

On the outflow side purchase of fixed assets, Redemption of debentures, repayment of secured or
unsecured loans and decrease in current liabilities such as, creditors, bank payables and outstanding expenses
are recorded.
After this recordfrom the given income statement payment of interest, payment of income tax,
payment of dividend are to be recorded.
The balancing figure in cash flow statement is regarded as company’s balance of cash, which is then
carried to projected balance sheet under title current assets.

Projected Balance Sheet

❖ A projected balance sheet will show how your anticipated earnings or losses play out in terms of
debts, assets and cash on hand. A projected statement of financial position should be based on real
information rather than wishful thinking.
It is based on the given balance statement of current financial year which is just concluded.
 Or A projected Balance sheet is also referred as the pro forma balance sheet. It shows the estimation of the
total assets and total liabilities of any business.
A pro forma balance sheet is a tabulation of future projections. As a result it will help your business manage
your assets better for the future.
On Liability Side:
i) Any increase in share capital, secured and unsecured loan are to be added.
ii) On the other hand repayment of loan has to be reduced.
iii) In reserves and surplus: retained earnings of current years close are to be added.

On Asset Side:
i) Changes with regard to purchase of asset, depreciation and sale of asset are to be
accommodated as per adjustments given.

Following points are to be noted for current assets and liabilities:

1. Any decrease in current assets such as Debtors, B/R & stock –Results in inflow of cash.
2. Any increase in Current Liabilities such as creditors,B/P& outstanding expenses – Results in inflow of cash.
3. Any increase in current asset – Results in outflow of cash.
4. Any decrease in current liability – Results in outflow of cash.

CA and CL ----Outflow

CA and CL ----Inflow

CA increase - outflow
Sum.
Following is the balance sheet of Swaraj Ltd.
Balance sheet as on 31/3/2013.

Liabilities Amount

Share Capital 5,00,000

Reserves / surpluses 4,00,000

Secured loan 4,00,000

Unsecured loan 3,00,000

Current Liabilities 6,00,000

Provision 1,00,000

Total 23,00,000

Assets Amount

Fixed Assets 11,00,000

Investments 50,000

Current Assets

Cash 1,00,000

B/R 4,00,000

Inventory 6,50,000

Total 23,00,000

The projected income statement for the year 2014 is given below

Particulars Amount

Sales 25,00,000

Less Cost of goods sold 19,00,000

Gross profit 6,00,000

Less Depreciation of fixed asset 1,50,000

Earnings Before Interest and Tax 4,50,000

Less Interest 1,00,000

Earnings Before Tax 3,50,000

Less Tax(40%) 1,40,000

Profit After Tax 2,10,000

Less Dividend 1,00,000

Retained earnings 1,10,000

 During the year 2014, The firm plans to raise secure term loan of Rs.1,00,000(I) while repay
the previous term loan to the extent of Rs.50,000(O) Current liabilities andprovision would
increase by 5 %.(I) The firm plans to acquire new fixed assets worth Rs.1,50,000(o) and
increase its investment by 50,000.(o)B/R are expected to increase by 5%(o) whereas
inventories are expected to decrease by 50,000.(I)
Given the above information prepare a projected cash flow Statement and projected
balance sheet for the year 2014.

Solution:

Projected Cash flow Statement for the year 2014

Inflow Amount

Cash Balance 1,00,000

Gross profit for the year 6,00,000

Increase in Secured loan 1,00,000

Increase in Liability

i)Current Liability 30,000

ii)Provision 5,000

Decrease in Inventory 50,000

Total Inflow 8,85,000

Outflow Amount

Repayment of Previous loan 50,000

Purchase of Fixed assets 1,50,000

Increase in investment 50,000

Increase in B/R(5%) 20,000

Interest 1,00,000

Taxes 1,40,000
 Dividend 1,00,000

Closing Balance or Balancing Figure 2,75,000

Total Out flow 8,85,000

Projected Balance Sheet for 2014

Liabilities Amount Amount

Share Capital 5,00,000

Reserves/Surplus 4,00,000

Add Retained earnings 1,10,000 5,10,000

Secured loan 4,00,000

Add Addn Securities 1,00,000

Total 5,00,000

Less repayment of loan 50,000 4,50,000

Unsecured loan 3,00,000

Current liability 6,00,000

Add Increase by 5% in current 30,000 9,30,000

liabilities

Provisions 1,00,000

Add increase by 5% in provision 5,000 1,05,000

 Total Liabilities 24,95,000

Assets Amount Amount

Fixed assets 11,00,000

Add Purchases 1,50,000

Total 12,50,000

Less depreciation 1,50,000 11,00,000

Investments 50,000

Add new investment 50,000 1,00,000

Current assets

Cash(Balancing figure from outflow) 2,75,000

B/R 4,00,000

Increase by 5% in B/R 20,000 4,20,000

Inventory 6,50,000

Less decrease in inventory 50,000 6,00,000

Total assets 24,95,000

CA and CL ----OutflowCA and CL ----Inflow

Sum2.Following is the b/s of Bhavesh enterprises at the end of 2019.

Liabilities Amount

Share capital 10,00,000

Reserves and surplus 2,00,000

Secured loan 8,00,000

Unsecured loan 5,00,000

Current liability 9,00,000

 Provision 2,00,000

Total liabilities 36,00,000

Assets Amount

Fixed assets

Machinery 10,00,000

Equipment 8,00,000

Investment ---

Current assets

Cash 2,00,000

Drs 6,00,000

Stock 8,00,000

B/R 2,00,000

Total assets 36,00,000

The projected income statement and distribution of earnings for the year2020 are given below
Income statement

Particulars Amount

Sales 40,00,000

Cost of Goods sold 30,00,000

Gross profit 10,00,000

Depreciation (machinery-1,20,000
and equipment -80,000) 2,00,000

Earnings before tax 8,00,000

Interest 2,00,000

Profit before tax 6,00,000

Tax 3,00,000
 Profit after tax 3,00,000

Dividend 1,00,000

Retained earnings 2,00,000

During the year 2020, the firm plans to raise additional share capital by issuing e/s worth Rs.2, 00,000. The
company plans to raise secured tem loan also to an extent of Rs.2, 00,000 by repaying previous term loan to an
extent of Rs.1,50,000. Unsecured loan are also expected to increase by Rs.1,00 ,000. Current liabilities are expected
to decrease by 10% whereas provisions are expected to increase by 5%. The firm plans to acquire additional
machinery worth Rs.3, 00,000 and plans to buy investment worth Rs.50,000. Inventories are expected to decrease by
10% whereas Drs are expected to raise by 5%, B/R are expected to be discounted to an extent of Rs.1,00,000.

Given the above information prepare a projected cash flow Statement and projected balance sheet for the
year 2020.

CA and CL ----Inflow

CA and CL ----Outflow

Projected cash flow statement for the year 2020.

Inflow Amount

Cash 2,00,000

Gross Income 10,00,000

Additional Share issue 2,00,000

Increase in Secured loan 2,00,000

Increase in unsecured loan 1,00,000

Increase in Provision 10,000

Decrease in inventories 80,000

 Discounting of Bills 1,00,000

Total 18,90,000

Outflow Amount

Repayment of Previous loan 1,50,000

Decrease in Current 90,000

Liabilities(10%)

Machinery purchase 3,00,000

Buy Investment 50,000

Increase in Debtors (5%) 30,000

Payment of Interest 2,00,000

Taxes 3,00,000

Dividend 1,00,000

Closing balance 6,70,000

Total 18,90,000

Projected Balance Sheet for 2020

Liabilities Amount Amount

Share capital 10,00,000

Addition Share capital 2,00,000 12,00,000

Reserves and surpluses 2,00,000

Add Retained earnings 2,00,000 4,00,000

 Secured loan 8,00,000

Increase in Secured loan 2,00,000

10,00,000

Less Repayment 1,50,000 8,50,000

Unsecured loan 5,00,000

Add U S loan 1,00,000 6,00,000

Current Liability 9,00,000

Less decrease in CL 90,000 8,10,000

Provisions 2,00,000

Add 5% increase 10,000 2,10,000

Total Liabilities 40,70,000

Assets Amount Amount

Fixed assets

Machinery 10,00,000

Add New Purchases 3,00,000

Total 13,00,000

Less depreciation 1,20,000 11,18,000

Equipment 8,00,000

Less depreciation 80,000 7,20,000

 Investments 50,000

Current assets – Cash 6,70,000

Debtors 6,00,000

Add Increase by 5% 30,000 6,30,000

B/R 2,00,000

Less Discount 1,00,000 1,00,000

Stock 8,00,000

Less decrease by 10% 80,000 7,20,000

Total 40,70,000

Sum. 3.
The Balance sheet of Swami Ltd at the end of the year 2021

Liabilities Rs
Share Capital 10,00,000
Reserves and Surplus 8,00,000
Secured loan 8,00,000
Unsecured loan 6,00,000
Current liabilities 12,00,000
Provisions 2,00,000
Total liabilities 46,00,000
Assets Rs
Fixed assets 22,00,000
Investments 1,00,000
Current Assets 23,00,000
Cash - 2,00,000
Receivable - 8,00,000
Inventories- 13,00,000
Total assets 46,00,000

The projected income statement and distribution of earnings is given below:

Rs in Lakhs
 Sales revenue 50,00,000
Less cost of Goods sold 38,00,000
Gross profit 12,00,000
Less Depreciation 3,00.000
PBIT 9,00,000
Less Interest 2,40,000
PBT 6,60,000
Less Tax 3,60,000
PAT 3,00,000
Less Dividends 2,00,000
Retained Earnings 1,00,000

During the year 2021, the firm plans to raise a unsecured loan of Rs.2 lakhs, repays the previous term loan
to the extent of Rs. l lakh. Current liabilities and provisions would increase by 5 %. Further, the firm plans
to acquire fixed assets worth Rs.3 lakhs and raise its inventories by Rs.1 lakh. Receivable are expected to
increase by 5 %. The level of cash would be the balancing amount in the projected balance sheet.

Given the above information, prepare the following:

a)Projected Cash flow Statement
b) Projected Balance Sheet
SOLUTION :

Projected cash flow statement for the year 2021.

Particulars Amount Amount

Opening Cash Balance 2,00,000

Inflow of Cash

Gross Income 12,00,000

Unsecured loan raised 2,00,000

Increase in Current Liabilities &

Provisions

Current Liabilities 60,000

Provisions 10,000
 Total 16,70,000

Outflow of cash

Repayment of term loan 1,00,000

Fixed asset purchase 3,00,000

Increase in Inventory 1,00,000

Increase in receivables 40,000

Interest payment 2,40,000

Tax payment 3,60,000

Dividend Payment 2,00,000 13,40,000

Closing balance 3,30,000

Total 16,70,000

Projected Balance Sheet for the year 2021

Particulars Amount Amount

Equity and liability

Share capital 10,00,000

Reserves and Surpluses 8,00,000

+ Retained earnings 1,00,000 9,00,000

Secured loan 8,00,000

-Repayment of loan 1,00,000 7,00,000

Unsecured loan 6,00,000

+ New loan raised 2,00,000 8,00,000

Current liabilities 12,00,000

+ expected increase of 5% 60,000 12,60,000

Provisions 2,00,000

+ expected increase by 5% 10,000 2,10,000

Total 48,70,000

Assets

Fixed assets 22,00,000

+ New purchase 3,00,000

Total 25,00,000

-Depreciation 3,00,000 22,00,000

Investments 1,00,000

Assets Cash(balancing figure) 3,30,000

Receivables 8,00,000

+ increase by 5% 40,000 8,40,000

Inventories 13,00,000

+ increase in inventories 1,00,000 14,00,000

Total 48,70,000