Cash Flow Statement

What is Cash Flow Statement?

1. Summary of sources and application of cash for a particular period of time.
2. Reasons for the changes in cash position of the firm through comparative
analysis of two years balance sheet (position statement).
3. Components of cash flow statement :-
(a) Operating Activities,
(b) Investing Activities, and
(c) Financing Activities.
4. Applicable Standard – Accounting Standard -3 (AS-3) , mandated for
all the listed companies to prepare and present a cash flow statement
along with other financial statements on an annual basis.
5. Also, provides information about cash inflows and cash outflows
during a period through classification of activities under different
heads.

Supportive Information Required for Preparation of Cash Flow

Statement

1. Comparative balance sheets- balances at the beginning and at the end to

indicate changes in the values of assets, liabilities and capital.
2. Profit & Loss Account – net profit/loss for the current year with other items
of operating activities
3. Additional information – payment of dividend , sale or purchase of assets
for cash etc.

Advantages of Cash Flow Statement

1. Ascertain net cash flows

2. Summarising a large number of transactions
3. Predicting future cash flows
4. Evaluating managerial decisions.
5. Predict ability to repay debts and dividends.
6. Helpful in planning.
7. Helpful in comparative study.
8. Helpful for prospective investors.
9. Basis of Budgeting.

Limitations of Cash Flow Statement

1. Historic in nature
2. Chances of manipulation
3. Limited Scope
4. Cannot be a tool of comparison
5. Supplement of other tools of analysis
6. Ignores accrual basis of accounting

Difference b/w Cash Flow Statement and Income

Statement
Difference b/w Cash Book and Cash flow Statement
Difference b/w Cash Budget and Cash Flow Statement

Terms used in Cash Flow Statement

1. Cash & Cash Equivalents
2. Cash Flows
3. Operating Activities – cash from this activity affects Current
Accounts.
4. Investing Activities – cash from this activity affects Long – term
Assets.
5. Financing Activities – cash from this activity affects Long -term
liabilities and Owners Equity.

Treatment of sale of plant & machinery and depreciation in

Cash Flow Statement

Example : Sale of plant & machinery costing Rs. 1,00,000 for

Rs. 1,20,000.
Cash A/c Dr. 1,20,000
To Plant A/c 1,00,000
To Profit on sale A/c (P&L A/c) 20,000
This will reduces long- term assets (plant) by Rs. 1,00,000
Cash balance will increase with Rs. 1,20,000
Profit of the year will increase to the extent of Rs. 20,000
Gain is deducted from net income in operating activities.
Since, Depreciation is a non- cash expense , as it does not result into
outflow of cash hence it has to be added back to the net income while
calculating cash flow from operating activities.

Transactions to be Classified under :

(a) Operating Activities
(b) Investing Activities
(c) Financing Activities
(d) Cash & Cash Equivalent

1. Cash Purchase of goods – Operating

2. Sale/Purchase of non-current investment – Investing
3. Purchase of Goodwill – Investing
4. Issue of bonus shares out of reserve- Non Cash
5. Cash paid to Supplier- Operating
6. Interim dividend paid on equity shares – Financing
7. Employee benefits expenses paid – Operating
8. Proceeds from sale of patents/copyrights – Investing
9. Interest received on debentures held as investments –
Investing
10.Purchase of shares/debentures for consideration other
than cash – Non – cash
11.Interest paid on long-term borrowings – Financing
12.Proceeds from issuance of equity shares/preference
share capital – Financing
13.Conversion of debentures/preference shares to shares –
Non cash
14.Cash revenue from operations – Operating
15.Bank overdraft/cash credit – Cash & cash equivalents
16.Short – term deposit – Cash & cash equivalents
17.Marketable securities – Cash & cash equivalents
 Computation of Cash Flows from Operating Activities:
a) Indirect Method : As per, Clause 32 of the listing Agreement specified ,
by SEBI , it is mandated for listed companies to use this method only.
• Under this some adjustments are made to Net Profit/Loss (Income
Statement) to find out cash from operating activities in other words
in this Net profit/loss will be adjusted for non-cash transactions and
items of income or expenses related to investing and financing
activities.
• Non- Cash charges and incomes like Depreciation , Provisions ,
Goodwill/Patent /Preliminary expenses written off, added back to
the profit as this will not result into any outflow/inflow of cash.
• Changes in Working Capital .i.e., current assets & current
liabilities (other than cash & cash equivalent)
• Non- operating items like Interest received, Dividend Received
needs to be eliminated from Operating Activities.
 Format of Cash Flow from Operating Activities (Indirect Method)
as per Accounting Standard -3 (Revised)
Particulars Rs.
A. Cash Flows from Operating Activities
Net Profit as per Profit & Loss A/c or Difference b/w closing and opening balance of ***
Profit &Loss A/c
Add : Transfer to general reserve ***
Equity/Preference dividend for the previous year, declared in the present year ***
Interim dividend paid during the year ***
Provision for tax made during the current year ***
Extraordinary items, if any, debited to Profit and Loss A/c ***

Less :
Transfer from general reserve (***)
Extraordinary items, if any , credited to P &L A/c (***)
Refund of tax credited to P&L A/c (***)
Net Profit before taxation and Extraordinary items ***
Adjustment for non-cash and non-operating items:
Add :
Depreciation ***
Preliminary expenses written off ***
Discount/Loss on issue of debentures written off ***
Interest on borrowings and debentures ***
Loss on sale of fixed assets ***
Less :
Interest Received (***)
Dividend Received (***)
Rental income received (***)
Profit on sale of fixed asset (***)
Operating Profit before Working Capital changes ***
Adjustment for changes in working capital :
Add : Decrease in current assets ***
Add : Increase in current liabilities ***
Less : Increase in current assets (***)
Less : Decrease in current liabilities (***)
Cash generated from operations ***
Less : Income tax paid (Including advance tax but excluding refund of tax) (***)
Cash flow before extraordinary items ***
Adjusted extraordinary items (+/-) ***
Net Cash flow from Operating Activities ***

Effects of Changes taking place in Balance Sheet items

Cash Inflow Cash Outflow

Decrease in Asset A/c Increase in Asset A/c

Increase in Liability A/c Decrease in Liability A/c
Increase in Equity A/c Decrease in Equity A/c

Question 1 : Calculate cash Flow from Operating Activities from the

following information:
Particulars Rs.
 Profit for the year 2020-2021 70,000
Transfer to General Reserve during the year 15,000
Depreciation provided during the year 20,000
Profit on Sale of Furniture 5,000
Loss on sale of Machine 10,000
Preliminary expenses written off 7,000
Premium payable on redemption of debentures 3,000

Additional Information:
Particulars 31.03.2020 (Rs.) 31.03.2021(Rs.)
Debtors 10,000 15,000
Bills Receivable 7,000 5,000
Stock 15,000 18,000
Prepaid Expenses 2,000 3,000
Creditors 20,000 18,000
Bills Payable 15,000 25,000
Outstanding Expenses 3,000 4,000

Solution :
Statement Showing Cash Flow from Operating Activities
Particulars (Rs.) (Rs.)
Net Profit for the year 70,000
Add : Transfer to General Reserve 15,000
Net Profit before Tax 85,000
Adjustment for Non- Cash and Non- Operating Items :
Add : Depreciation 20,000
Loss on sale of machine 10,000
Preliminary expenses written off 7,000
Premium payable on redemption on debentures 3,000 40,000
1,25,000
Less : Profit on Sale of Furniture (5,000)
Operating Profit before Working Capital Changes 1,20,000
Adjustment for changes in Working Capital :
Add: Decrease in Bills Receivable 2,000
Increase in Bills Payable 10,000
Increase in Outstanding Expenses 1,000 13,000
1,33,000
Less : Increase in Debtors 5,000
Increase in Stock 3,000
Increase in Prepaid Expenses 1,000
Decrease in Creditors 2,000 (11,000)
Cash Flow from Operating Activities 1,22,000
Question 2: ABC Ltd. made a profit of Rs. 1,00,000 after charging depreciation of Rs.
20,000 on assets and a transfer of General Reserve of Rs. 30,000. The Goodwill written
off was Rs. 7,000 and the gain on sale of Machinery was Rs. 3,000. The other information
available to you is as follows:
At the end of the year Debtors showed an increase of Rs. 6,000; Creditors an increase
of Rs. 10,000; Prepaid Expenses an increase of Rs. 200; Bills Receivable a decrease of Rs.
3,000; Bills payable a decrease of Rs. 4,000 and Outstanding expenses a decrease of Rs.
2,000. Ascertain the Cash Flow from Operating Activities.
Statement Showing Cash Flow from Operating Activities
Particulars (Rs.) (Rs.)
Net Profit 1,00,000
Add : Transfer to General Reserve 30,000
Net Profit before Tax 1,30,000
Adjustment for non-cash and non-operating items:
Add : Depreciation 20,000
Goodwill written off 7,000
27,000
Less : Gain on sale of Machinery (3,000) 24,000
Operating Profit before Working Capital changes 1,54,000
Adjustment for changes in Working Capital :
Add : Decrease in Current Assets and Increase in Current Liabilities:
Increase in Creditors 10,000
Decrease in Bills Receivable 3,000 13,000
1,67,000
Less : Increase in Current Assets and Decrease in Current Liabilities:
Increase in Debtors 6,000
Increase in Prepaid Expenses 200
Decrease in Bills Payable 4,000
Decrease in Outstanding Expenses 2,000 (12,200)
Cash Flow from Operating Activities 1,54,800

Important Adjustments in Cash Flow Statements

(1) Tax Paid and Provision for Taxation
• Provision created for current year is debited in P &L A/c.
• Calculated by applying % on profit before tax.
• Appears on liability side of the balance sheet under the head ‘Provisions’.
Dr. Provision for Taxation A/c Cr.
Particulars (Rs.) Particulars (Rs.)
To Bank A/c (paid) *** By Balance b/d ***
To Balance c/d *** By P & L A/c (Provision) ***
Question 3: Calculate cash flows from operating activities from the following
information.
Statement of Profit and
Loss
For the year ended 31st March, 2021
Particulars Note No. (Rs.)
(i) Revenue from Operations 60,000
(ii) Other Income 1 5,000
(iii) Total Revenue (i + ii) 65,000
(iv) Expenses :
Cost of Materials Consumed (15,000)
Employees Benefit Expenses (10,000)
Depreciation and Amortisation Expenses 2 (7,000)
Other Expenses 3 (21,000)
(v) Profit (Total Revenue Less Expenses) 12,000

Notes :
(1) Other Income = Profit on Sale of Machinery (Rs. 2,000) + Income Tax Refund( Rs.
3,000) = Rs. 5,000
(2) Depreciation & Amortisation Expenses = Depreciation (Rs. 5,000) + Goodwill
Amortised (Rs. 2,000) = Rs. 7,000
(3) Other Expenses = Rent (Rs. 10,000) + Loss on Sale of Equipment (Rs. 3,000) +
Provision for Taxation (Rs. 8,000) = Rs. 21,000
Additional Information:
01.04.2020 (Rs.) 31.03.2021(Rs.)
Provision for Taxation 11,000 14,000
Rent Payable 4,000 5,000
Trade Payables 32,000 37,000
Trade Receivables 28,000 35,000
Inventories 37,000 33,000

Solution :
Statement Showing Cash Flow from Operating Activities
Particulars (Rs.) (Rs.)
Cash Flows from Operating Activities
Net Profit as per Profit & Loss A/c 12,000
Add : Provision for Taxation 8,000
Net Profit before Taxation & Extraordinary Items 20,000
Adjustments for Non cash and Non- Operating Activities:
Add: Depreciation 5,000
Loss on Sale of Equipment 3,000
 Goodwill Amortised 2,000

Less : Profit on sale of machinery (2,000)

Income Tax Refund (3,000) 5,000
Operating Profit before Working Capital Changes 25,000
Adjustment for Changes in Working Capital :
Less : Increase in Trade Receivables (7,000)
Add : Decrease in Inventories 4,000
Add : Increase in Trade Payables 5,000
Add : Increase in Rent Payable 1,000 3,000
Cash generated from Operations 28,000
Income Tax Paid (WN 1) (5,000)
Income Tax Refund 3,000 (2,000)
Net Cash from Operating Activities 26,000

Working Notes :

(1)
Dr. Provision for Taxation A/c Cr.
Particulars (Rs.) Particulars (Rs.)
To Cash A/c (b/f) 5,000 By Balance b/d 11,000
(Tax paid during the year) By Profit & Loss A/c (Provision 8,000
To Balance c/d 14,000 made during current year)
19,000 19,000

(2) Treatment of Depreciation and Amortisation

(a) Asset Account, but Provision for Depreciation A/c is not maintained

Dr. Fixed Asset Account Cr.

Particulars (Rs.) Particulars (Rs.)
To Balance b/d *** By Depreciation A/c ***
To P & L A/c (Gain on sale ) *** By Bank A/c (Sale) ***
To Bank A/c (Purchase) *** By P & L A/c (Loss on ***
To Share capital/Debentures A/c *** sale )
By Balance c/d ***

(b) Asset Account (at cost) & Provision for Depreciation A/c/ Accumulated
Depreciation A/c

Dr. Asset Account Cr.

Particulars (Rs.) Particulars (Rs.)
To Balance b/d *** By Bank A/c (Sale) ***
To P & L A/c (Gain on sale ) *** By P &L A/c (Loss on ***
To Bank A/c (Purchase) *** sale) ***
To Share capital/Debentures A/c *** By Provision for
Depreciation A/c ***
By Balance c/d
 Dr. Provision for Depreciation A/c Cr.
Particulars (Rs.) Particulars (Rs.)
To Asset A/c (Depreciation on *** By Balance b/d ***
asset sold) By P&L A/c (Depreciation ***
To Balance c/d *** charged during the current year)

(c) Asset Account + Provision for Depreciation A/c + Asset Disposal A/c

Dr. Asset A/c Cr.

Particulars (Rs.) Particulars (Rs.)
To Balance b/d *** By Asset Disposal A/c (Transfer ***
To Bank A/c (Purchase) *** of cost of asset sold)
By Balance c/d ***

Dr. Provision for Depreciation A/c Cr.

Particulars (Rs.) Particulars (Rs.)
To Asset Disposal A/c (Depreciation *** By Balance b/d ***
on asset sold) By P&L A/c (Depreciation ***
To Balance c/d *** charged during the current
year)

Dr. Asset Disposal A/c Cr.

Particulars (Rs.) Particulars (Rs.)
To Asset A/c (Cost of asset sold) *** By Provision for Depreciation A/c ***
To Profit & Loss A/c (Gain on *** By Bank A/c (Sale of Asset) ***
sale of asset) By P&L A/c (Loss on sale of asset) ***

(d) Discarding of Fully Depreciated Asset

(i) Transfer the cost of the asset discarded from Fixed Asset A/c to Asset
Discarded A/c
(ii) Transfer the Accumulated Depreciation of the fixed asset from Provision for
Depreciation A/c to Asset Discarded A/c

Question 4: The following information is given in the books of Prakash Ltd. –

Balances as at 31.03.2020 (Rs.) 31.03.2021 (Rs.)
Plant & Machinery A/c 17,79,000 26,55,450
 Accumulated Depreciation A/c 3,40,795 4,75,690
Additional Information :
Plant & Machinery Costing Rs. 2,65,000 on which accumulated depreciation was Rs. 1,00,000
was sold for Rs. 75,000. You are required to calculate the amount of machinery purchased,
depreciation charged for the year and loss on sale of machinery and show the relevant figures
in Cash Flow Statement.

Answers : Purchase of Plant & Machinery = Rs. 11,41,450 ; Accumulated depreciation

(transfer) = Rs. 1,00,000 ; Depreciation charged = Rs. 2,34,895 & Loss on Sale of Machinery
= Rs. 90,000.

Format of Cash Flow from Investing Activities

as per Accounting Standard -3 (Revised)
Particulars Rs.
(a) Add: Inflows of Cash
Proceeds from sale of tangible Non- current assets (Plant, Machinery, Furniture, etc.) ***
Proceeds from sale of investments ***
Proceeds from sale of intangible Non- current assets (Goodwill/Patent/Copyright) ***
Interest and Dividend Received ***
Rent received from property held as investment ***
Total Cash Inflows ***
(b) Less : Outflows of Cash
Purchase of tangible Non- current assets (***)
Purchase of investment (***)
Purchase of intangible Non- current assets like goodwill (***)

Total Cash Outflows ***

Net cash from [ if (a) > (b) ] OR used in [ if (a) < (b)] Investing Activities ***

Question 5: Extract of Balance Sheet

Particulars 31.03.2020(Rs.) 31.03.2021(Rs.)
Patent 2,80,000 1,60,000
Machinery 1,70,000 1,90,000
Additional Information :
(i) Patent written off to the extent of Rs. 40,000 and some patents were sold at a profit of Rs.
20,000.
 (ii) Depreciation charged on Machinery Rs. 10,000.
(iii) Dividend received on shares held as investments Rs. 14,000.
(iv) Dividend paid on equity share capital Rs. 10,500.
(v) Interest received on debentures as investments Rs. 1,750.
(vi) Interest paid on debentures issued Rs. 4,200.
(vii) Building was purchased as investment out of surplus fund. It was let out for commercial
purpose and rent received for the same was Rs. 8,750. You are required to calculate cash
flow from Investing Activities.

Solution : Cash Flow from Investing Activities

Particulars (Rs.)
Sale of Patent (WN1) 1,00,000
Dividend received on shares held as Investment 14,000
Interest received on debentures 1,750
Rent Received from building held as investment 8,750
Purchase of Machinery (WN2) (30,000)
Cash Flow from Investing Activities 94,500

Working Notes :
(1)

Dr. Patents A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 2,80,000 By Bank A/c (Sale) (bal.fig.) 1,00,000
To Profit & Loss A/c (Profit) 20,000 By P&L A/c (written off) 40,000
By Balance c/d 1,60,000

3,00,000 3,00,000

(2)

Dr. Machinery A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 1,70,000 By Depreciation A/c 10,000
To Bank A/c (Purchases)(bal.fig.) 30,000 By Balance c/d 1,90,000

2,00,000 2,00,000
 Format of Cash Flow from Financing Activities
as per Accounting Standard -3 (Revised)
Particulars Rs.
Add: Inflows of Cash
Proceeds from issue of shares and debentures (Including securities premium but excluding discount and expenses on ***
issue)
Proceeds from other long-term borrowings ***

Total Cash Inflows (a) ***

Less : Outflows of Cash

Final/Interim dividend on shares (***)
Interest on debentures and loans (***)
Repayment of loans (***)
Redemption of debentures/preference shares (including securities premium but excluding discount) (***)
Buy-back of equity shares (including premium but excluding discount) (***)

Total Cash Outflows (b) (***)

Net cash flow from [ if (a) > (b) ] OR used in [ if (a) < (b)] Financing Activities ***

Important points :
(a) Increase/Decrease in Unpaid Interest on Debentures/Loans.
(b) Increase/Decrease in Unclaimed Dividend.
(c) Increase in Securities Premium added to increased amount of share/debentures.
(d) Decrease in Securities Premium shows utilisation of securities premium account for different
purpose as per Section 52 of Companies Act, 2013.
(i) Preliminary Expenses
(ii) Discount on Issue of Debentures
(iii) Underwriting Commission A/c
(e) Increase in Discount on Issue of Debentures is deducted from the value of debentures.
(f) Increase in Underwriting commission, cash used in financing activities.
(g) Non-cash transactions like acquisition of asset by issue of share/debenture, conversion of
debentures into shares.
Question 6: From the following information calculate cash flow from financing activities:
(a) Issue of equity shares Rs. 5,00,000.
(b) Above shares were issued at premium of 12%.
(c) 10% debentures issued at Rs. 2,00,000.
(d) Above debentures issued at a discount of 5%.
(e) 15% preference shares were redeemed for Rs. 4,00,000.
(f) Underwriting commission on issue of equity shares Rs. 20,000.
(g) Interim dividend paid on equity shares Rs. 1,85,000.
(h) 15% preference shares were redeemed at a premium of 5%.
(i) Dividend paid on preference shares Rs. 1,20,000.
(j) Interest paid on debentures Rs. 40,000.
 Cash Flow from Financing Activities

Particulars (Rs.)
Issue of Equity Shares [ 5,00,000+ 60,000 – 20,000] 5,40,000
Issue of Debentures [2,00,000 – 10,000] 1,90,000
Redemption of Preference Share (4,00,000+20,000) (4,20,000)
Payment of Interest on Debentures (40,000)
Interim Dividend paid on Equity Shares (1,85,000)
Preference Dividend Paid (1,20,000)

Cash Flow used in Financing Activities (35,000)

(3) Preliminary Expenses

• Professional fee, legal expenses, stamp duty.
Dr. Preliminary Expenses A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d *** By P&L A/c (written off) ***
To Bank A/c (paid) *** By Securities Premium A/c ***
By Balance c/d ***

*** ***
• Add back to current year’s profit
• Cash used in investing activities
• The amount of Preliminary expenses written off against the securities premium account
should not be added back to the profit.

Example : Balance sheet

As on 31st March (Extract)
Liabilities 2020(Rs.) 2021(Rs.) Assets 2020 (Rs.) 2021
(Rs.)
Profit & Loss A/c 8,00,000 9,85,000 Preliminary 4,70,000 2,85,000
General Reserve 70,000 85,000 Expenditure
Additional Information:
Preliminary expenses to the extent of Rs.55,000 has been written off against securities
premium account.
Solution : Computation of Cash Flow from Operating Activities

Particulars (Rs.)
Net Profit as per Profit & Loss A/c 1,85,000
Add: Transfer to General reserve 15,000
2,00,000
Add: Preliminary expenses written off 1,30,000

Cash Flow from Operating Activities 3,30,000

 (4) Underwriting Commission

• Payment made in issue of shares/debentures , cash used in financing activities.

• Add back to current year’s profit.
• Amount of commission written off against securities premium account should not be
added to current year profit.

Dr. Underwriting Commission A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d *** By P&L A/c (written off) ***
To Bank A/c (paid) *** By Securities Premium A/c ***
(written off) ***
By Balance c/d

*** ***

(4) Equity/Preference share capital(Issue/Redemption/Buy-back)

Dr. Share capital A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Bank A/c (Redemption/Buy- *** By Balance b/d ***
back) By Bank A/c (Issue for cash) ***
To Balance c/d *** By Vendor A/c (Issue for assets)
***

*** ***

Important points:
• Shares/debentures issued against purchase of any asset as consideration other
than cash not to be shown in CFS.
• Shares/debentures issued in consideration of acquiring stock of goods, amount of
securities issued to be deducted from the closing stock to determine working
capital changes w.r.t stock.

(5) Debenture A/c

Dr. x% Debentures A/c Cr.

Particulars Particulars (Rs.)

(Rs.)
To Debentureholders A/c (Redemption) *** By Balance b/d ***
To Balance c/d By Bank A/c (Issue for cash ) ***
*** By Vendor A/c (Issue for assets) ***
By Discount on Issue of Debentures ***
A/c

*** ***
 (6) Discount on Issue of Debentures

Dr. Discount on Issue of Debentures A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d *** By P &L A/c (written off) ***
To x% Debentures A/c (Discount *** By Securities Premium A/c ***
Allowed) (written off)
By Balance c/d ***

*** ***

Points to be noted:
• Add back to current year profit as it is debited in Profit & Loss A/c.
• Discount written off against the securities premium will not be added to current
year profit.
• Discount Allowed will lead to less inflow of cash , to be deducted from total
proceeds from issue of debentures to arrive at net proceeds.

Example : Prepare Cash flow statement as per AS-3 from the following information:
Balance sheet
As on 31st March,….(Extract)

Liabilities 2020(Rs.) 2021 (Rs.) Assets 2020 (Rs.) 2021 (Rs.)

Equity Share Capital 1,20,000 1,50,000 Discount on Issue of 1,00,000 70,000
(Rs. 10) shares
10% Debentures 2,00,000 1,50,000
(Rs.100)
Securities Premium A/c 55,000 35,000
Unpaid Interest on --- 3,000
debentures
P & L A/c 1,15,000 2,75,000

Additional Information:
(a) Equity shares were issued at par.
(b) 500, 10% Debentures were redeemed on 31.03.2021 at a premium of 5%.
(c) Discount on issue of Debentures amounting to Rs. 10,000 has been written off against P &L
A/c.

Solution : : Cash Flow Statement (Extract)

Particulars (Rs.)
Cash Flow from Operating Activities :
Net Profit as per Profit & Loss A/c 1,60,000
Add: Discount on Issue of Debentures written off 10,000
Premium on redemption of debentures (5% of 50,000) 2,500
 Interest on Debentures (10% 2,00,000) 20,000
1,92,500
Net Cash Flows from Operating Activities
Cash Flow from Financing Activities:
Cash Proceeds from issue of 3,000 Equity Shares 30,000
Redemption of 10% Debentures (52,500)
Payment of Interest on Debentures (20,000 – 3,000) (17,000)
Net Cash used in Financing Activities (39,500)

(7) Proposed Dividend/Interim Dividend/Dividend Payable and Treatment can be done in

two ways:
(a) No additional information is given w.r.t dividend.
Example : Balance sheet Extract
as on 31st March,…
Liabilities 2020 (Rs.) 2021(Rs.) Assets 2020(Rs.) 2021 (Rs.)
Profit & Loss A/c 3,50,000 4,00,000
Dividend Payable 20,000 30,000
Unpaid Dividend --- 4,000
Solution:
Cash Flow Statement
Particulars (Rs.)
A. Cash Flow from Operating Activities:
Net Profit as per Profit & Loss A/c 50,000
Add: Dividend Payable 30,000 80,000
B. Cash Flow from Financing Activities:
Dividend paid (20,000 – 4,000) (16,000)

(b) Additional information is given

Example : Balance sheet Extract
as on 31st March,…
Liabilities 2020 (Rs.) 2021(Rs.) Assets 2020(Rs.) 2021 (Rs.)
Profit & Loss A/c 1,50,000 1,90,000
Dividend Payable 50,000 65,000
Additional information :Dividend of Rs. 60,000 was paid during the year ended March 31, 2021.

Solution: Cash Flow Statement

Particulars (Rs.)
C. Cash Flow from Operating Activities:
Increase in Profit & Loss A/c Balance 40,000
Add: Dividend Payable (WN1) 75,000 1,15,000
D. Cash Flow from Financing Activities:
Dividend paid (60,000)
Working Note :

Dr. Dividend Payable A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Bank A/c (paid) 60,000 By Balance b/d 50,000
To Balance c/d 65,000 By P & LA/c (Dividend declared 75,000
during the year)

1,25,000 1,25,000

(8) Debtors/ Provision for Doubtful Debts

Example : Balance sheet (Extract)
Liabilities 2020(Rs.) 2021(Rs.) Assets 2020(Rs.) 2021(Rs.)
Provision for Doubtful 3,000 4,000 Debtors 2,75,000 2,85,000
debts
(a) Net Debtors can be find out to calculate increase in debtors to shown under the head
‘Changes in working capital’.
Debtors for 2020 = Rs.(2,75,000- 3,000)= Rs. 2,72,000
Debtors for 2021 = Rs. (2,85,000 – 4,000) = Rs.2,81,000
Increase in debtors = Rs. 9,000 will reduce the cash flow from operating activities.
(b) Change in current assets (Debtors) and current liabilities (Provision for Doubtful Debts)
can be find out.
Increase in Current Assets(Debtors) = Rs. 10,000
Increase in Current Liabilities (provision for doubtful debts) = Rs. 1,000
Note: Treatment will be similar for Provision for Discount on Debtors and Provision for
Loss of stock.

Case : When all the Debtors are good (if it is mentioned in the question)
(a) Increase in Provision for doubtful debts is added back to the profit. /(increase
in G/R)
(b) Decrease in Provision for Doubtful debts is deducted from profit /(utilisation
of G/R)

(9) Bank Overdraft and Cash Credit

• borrowing facilities extended by financial institutions.
• Bank overdraft is the overdraft facility provided by the banks under which customers
can withdraw money more than their account balance.
• Cash Credit = lending of money by bank against the securities of commodities pledged
by customers , withdrawal of money from sanctioned account by bank for specific
period, repayable on demand counter to demand deposits.
• Purpose = to meet the working capital requirements.
Accounting Treatment:
Both will become the part of cash & cash equivalents and should be adjusted in opening
and closing balance of cash & cash equivalents
Question 7 : The following is the balance sheet of ABC Ltd. as at 31st March, 2020 and 2021 with some
additional information. You are required to prepare Cash Flow Statement.
Particulars 2020(Rs.) 2021(Rs.)
A. Equity & Liabilities
1. Shareholders Fund
Share Capital :
Equity shares 6,00,000 8,00,000
12% Preference Shares 2,00,000 1,50,000
Reserve & Surplus :
Profit & Loss A/c (20,000) 1,44,000
Securities Premium --- 1,20,000
2. Non-current Liabilities
15% Debentures 4,00,000 5,00,000
3. Current Liabilities
Trade Payables (Trade Creditors) 1,00,000 2,20,000
Other Current Liabilities:
Bank Overdraft 50,000 40,000
Cash Credit 30,000 35,000

Total 13,60,000 20,09,000

B. Assets
1. Non-current Assets
Property, Plant & Equipment(PPE) 4,00,000 10,00,000
Less : Accumulated Depreciation (60,000) (96,000)
Non Current : Investments 80,000 90,000
2. Current Assets
Current Investments (Marketable securities) 60,000 45,000
Stock in Trade 3,00,000 4,00,000
Trade Receivables (Trade Debtors) 3,52,000 1,12,000
Less : Provision for Doubtful Debts (20,000) (32,000)
Cash & Cash Equvivalent:
Cash at Bank 1,88,000 4,28,000
Cash in Hand 20,000 30,000
Other Current Assets : Preliminary Expenses 40,000 32,000
Total 13,60,000 20,09,000
Additional Information :
(a) The dividend proposed for the 2019-20 amounting to Rs. 72,000 was declared and paid in 2020-
21.
(b) Investments costing Rs. 20,000 were sold at a profit of Rs. 8,000.
(c) Property, Plant and Equipment costing Rs. 40,000 (accumulated depreciation Rs. 16,000) were
sold at a profit of Rs. 10,000.
(d) Additional debentures amounted to Rs. 1,00,000 issued on 1st January, 2021. Interest on
debenture is paid on 31st March every year.
Solution :
Cash Flow Statement of ABC Ltd.
for the year ended 31st March, 2021
Particulars (Rs.) (Rs.)
A. Cash Flow from Operating Activities:
Net Profit during the year 1,64,000
Adjustment for Non-cash and Non-operating Items:
Add: Dividend paid 72,000
Depreciation on PPE (WN 3) 52,000
Preliminary Expenses Written off 8,000
Interest on Debentures paid (WN1) 63,750 1,95,750
3,59,750
Less : Profit on Sale of Investment 8,000
Profit on sale of PPE 10,000 (18,000)
Operating Profit before Working Capital Changes: 3,41,750
Adjustment for changes in Working Capital :
Add : Decrease in Current Assets :
Trade Debtors 2,40,000
Increase in Current Liabilities :
Trade Creditors 1,20,000
Provision for Doubtful Debts 12,000 3,72,000
7,13,750
Less : Increase in Current Assets :
Stock in Trade (1,00,000)
Net Cash Flow from Operating Activities 6,13,750 6,13,750
B. Cash Flow from Investing Activities:
Purchase of PPE (WN 2) (6,40,000)
Sale of PPE 34,000
Purchase of Investment (WN 4 ) (30,000)
Sale of Investments 28,000
Net Cash used in Investing Activities (6,08,000) (6,08,000)
C. Cash Flow from Financing Activities :
Cash proceeds from Issue of Equity Shares 2,00,000
Premium received on Issue of 1,20,000
Securities(shares/debentures)
Cash proceeds from Issue of Debenture 1,00,000
Redemption of Preference Shares (50,000)
Dividend paid (72,000)
Interest on Debentures paid (WN1) (63,750)
Net Cash Flow from Financing Activities 2,34,250 2,34,250
Net increase in Cash &Cash Equivalents (A+B+C) 2,40,000
Cash & Cash Equivalents in the beginning of the year 1,88,000
Cash & Cash Equivalents at the end of the year 4,28,000

Working Notes :
(1) Interest on Debentures: Rs.
On Rs. 4,00,000 for 1 yr. @15% 60,000
 On Rs. 1,00,000 for 3 moths @15% (1,00,000 x 15% x 1/12) 3,750
63,750

(2)

Dr. Property, Plant & Equipment A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 4,00,000 By Bank A/c (Sale) 34,000
To P &L A/c (Gain on sale) 10,000 By Accumulated Depreciation A/c 16,000
To Bank A/c (Purchases)(bal.fig.) 6,40,000 (on assets sold)
By Balance c/d 10,00,000

10,50,000 10,50,000

(3)

Dr. Accumulated Depreciation A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To PPE A/c (Transfer to PPE A/c) 16,000 By Balance b/d 60,000
To Balance c/d 96,000 By P&L A/c (Current yr. 52,000
Depreciation)

10,50,000 10,50,000

(4)

Dr. Investments A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 80,000 By Bank A/c (sale ) 28,000
To P&L A/c (Profit on sale) 8,000 By Balance c/d 90,000
To Bank A/c (Purchase) (bal. fig.) 30,000

1,18,000 1,18,000

(4) Increase/Decrease
Particulars 31.03.2020(Rs.) 31.03.2021(Rs.)
Cash in Hand 20,000 30,000
Cash at Bank 1,88,000 4,28,000
Marketable Securities 60,000 45,000
2,68,000 5,03,000
Less : Bank overdraft (50,000) (40,000)
Cash Credit (30,000) (35,000)
1,88,000 4,28,000
Question 8 : From the following details relating to the accounts of ABC Ltd. prepare Cash Flow
Statement as per AS-3(Revised) :

Liabilities Note No. 31.03.2021(Rs.) 31.03.2020(Rs.)

A. Equity & Liabilities
1. Shareholders Funds
(a) Share Capital 1 10,00,000 8,00,000
(b) Reserves & Surplus 2 3,00,000 2,00,000
2. Non- Current Liabilities :
(a) Long- term Borrowings :
10% debentures 2,00,000 ---
3. Current Liabilities :
(a) Trade payables 3 7,00,000 8,20,000
(b) Short-term Provision 4 3,00,000 1,70,000
Total 25,00,000 20,00,000
B. Assets
1. Non Current Assets
(a) Tangible Assets 5 13,00,000 9,00,000
(b) Non-Current Investments 1,00,000 ---
2. Current Assets
(a) Inventories (stock) 4,00,000 2,00,000
(b) Trade Receivable : Debtors 5,00,000 7,00,000
(c) Cash in Hand/Bank 2,00,000 2,00,000
Total 25,00,000 20,00,000
Notes to Accounts (Balance Sheet) :
Particulars 31.03.21(Rs.) 31.03.20(Rs.)
1. Share Capital :
Equity Share Capital of Rs. 10 each 10,00,000 8,00,000
2. Reserve & Surplus :
General Reserves 2,00,000 1,50,000
Surplus .i.e., Balance in P&L A/c 1,00,000 60,000
3,00,000 2,10,000
3. Trade Payable
Sundry Creditors 7,00,000 8,20,000
4. Short-term Provisions:
Provision for Taxation 1,00,000 70,000
Dividend Payable 2,00,000 1,00,000
3,00,000 1,70,000
5. Tangible Assets :
Plant& Machinery 7,00,000 5,00,000
Land& Building 6,00,000 4,00,000
13,00,000 9,00,000

Additional Information :
(a) Depreciation @ 25% was charged on the opening value of Plant & Machinery.
(b) During the year one old machine costing Rs. 50,000 (WDVRs.20,000) was sold for Rs.15,000.
(c) Provision for taxation made during the current year Rs. 80,000.
(d) Building under construction was not subject to any depreciation.
Solution :
ash Flow Statement of ABC Ltd.
For the year ended 31st March,2021
Particulars (Rs.) (Rs.)
A. Cash Flows from Operating Activities :
Net Profit before taxation & extraordinary items (WN1) 3,70,000
Adjustment for Non Cash and Non- Operating items:
Depreciation 1,25,000
Loss on sale of Plant & Machinery 5,000
Operating Profit before Changes in Working Capital 5,00,000
changes:
Adjustment for Changes in Working Capital:
Increase in Stock (2,00,000)
Decrease in Debtors 2,00,000
Decrease in Creditors (1,20,000)
Cash generated from Operations 3,80,000
Less : Income Tax paid (50,000)
Net cash generated from Operating Activities 3,30,000 3,30,000
B. Cash Flows from Investing Activities
Purchase of Plant& Machinery A/c (WN3) (3,45,000)
Addition to Land& Building (2,00,000)
Purchase of Investments (1,00,000)
Sale of old Machine 15,000
Net Cash used in Investing Activities (6,30,000) (6,30,000)
C. Cash Flows from Financing Activities :
Proceeds from issue of shares 2,00,000
Proceeds from issue of Debentures 2,00,000
Payment of Dividend (1,00,000)
Net cash from Financing Activities 3,00,000 3,00,000
Net changes in Cash & Cash Equivalents (A+B+C) NIL
Add: Cash & Cash Equivalent in the beginning of the yr. 2,00,000
Cash & Cash Equivalents in the end of the yr. 2,00,000
Working Notes:
(1) Net profit before extraordinary items: Rs.
P& L A/c balance 40,000
Increase in General Reserve 50,000
Dividend Payable (2021) 2,00,000
Provision for taxation (WN2) 80,000

3,70,000
(2) Dr. Provision for Taxation A/c Cr.
Particulars (Rs.) Particulars (Rs.)
To Bank A/c (paid) 50,000 By Balance b/d 70,000
To Balance c/d 1,00,000 By P&L A/c(made during current 75,000
yr)

1,50,000 1,50,000
 (3) Dr. Plant & Machinery A/c Cr.
Particulars (Rs.) Particulars (Rs.)
To Balance b/d 5,00,000 By P&L A/c(Depreciation) 1,25,000
To Bank A/c (purchase)(b/f) 3,45,000 By Bank A/c (Sale) 15,000
By P& L A/c (Loss) 5,000
By Balance c/d 7,00,000

8,45,000 8,45,000

Question 9 : The Balance of XYZ Ltd. for the year ending 31st March,2020 & 2021 are as follows:
Particulars 2020(Rs.) 2021(Rs.)
A. Equity & Liabilities
Shareholders’ Funds
Share Capital :
Equity Share 12,00,000 16,00,000
10% Preference Share Capital 4,00,000 2,80,000
Reserves & Surplus:
Capital Reserves --- 40,000
General Reserves 6,80,000 8,00,000
Profit & Loss Account 2,40,000 3,00,000
Non-Current Liabilities
9% Debentures 4,00,000 2,80,000
Current Liabilities
Current Liabilities (all) 4,80,000 5,20,000
Short-term Provision (Current Tax) 3,60,000 3,40,000
Other Current Liabilities :
Dividend Payable 1,20,000 1,44,000
Unpaid Dividend --- 16,000
Total 38,80,000 38,80,000
B. Assets
Non-Current Assets:
Property, Plant &Equipment:
(a) Tangible Assets 32,00,000 38,00,000
Less : Accumulated depreciation (9,20,000) (11,60,000)
Non-current Investments 4,00,000 3,20,000
Current Assets
Cash& Cash Equivalents : Cash in Hand 10,000 10,000
Other current assets 11,10,000 13,10,000
Preliminary Expenses 80,000 40,000
Total 38,80,000 43,20,000
Additional Information:
(a) The company sold one fixed asset for Rs. 1,00,000, the cost of which was Rs. 2,00,000 and the
depreciation provided on it was Rs. 80,000.
(b) The company also decided to write off another fixed asset costing Rs. 56,000 on which
depreciation amounted to Rs. 40,000 has been provided.
(c) Depreciation on fixed assets provided Rs. 3,60,000.
(d) Company sold some investment at a profit of Rs. 40,000 which was credited to Capital Reserve.
(e) Debentures & Preference shares capital redeemed @5% premium.
(f) Company decided to value stock at cost, whereas, previously the practice was to value stock at
cost less 10%. The stock according to books on 31st March,2020 was Rs. 2,16,000. The stock
on 31st March,2021 was correctly valued at Rs. 3,00,000.
Solution :
Cash Flow Statement of XYZ Ltd.
For the year ended 31.03.2021

Particulars (Rs.) (Rs.)

A. Cash Flows from Operating Activities :
Net Profit as per P &L A/c (after inventory adjustment) 36,000
(WN1)
Transfer to General Reserve 1,20,000
Payable Dividend 1,44,000
Provision for Tax 3,40,000
Net Profit before taxation and extraordinary items 6,40,000
Adjustment for Non- Cash and Non-operating items:
Add : Preliminary Expenses written off 40,000
Depreciation on fixed assets 3,60,000
Loss on sale of fixed assets 20,000
Decrease in value of fixed assets 16,000
Premium on redemption of preference share capital 6,000
Premium on redemption of debenture 6,000
Interest on Debenture 36,000
Operating profit before working capital changes 11,24,000
Adjustment for changes in Working Capital :
Increase in current liabilities 40,000
Increase in other current assets[13,10,000 – (1,76,000)
(11,10,000+24,000)]
Cash generated from operations 9,88,000
Income tax paid (3,60,000)
Net Cash from Operating Activities 6,28,000 6,28,000
B. Cash Flow from Investing Activities :
Purchase of Fixed Assets (8,56,000)
Proceeds from sale of Fixed Assets 1,00,000
Proceeds from sale of Investments 1,20,000
Net cash used in investing activities (6,36,000) (6,36,000)
C. Cash Flow from Financing Activities :
Proceeds from the issue of Equity Share Capital 4,00,000
Redemption of Preference Share Capital (1,26,000)
Redemption of Debentures (1,26,000)
Payment of Interest on debentures (36,000)
Dividend Paid (net of unpaid dividend) (1,04,000)
Net Cash from Financing Activities : 8,000 8,000
Net Increase/Decrease in Cash & Cash Equivalents NIL
during the year (A+B+C)
Add: Cash & Cash Equivalents at the beginning of the year 10,000
Cash & Cash Equivalents at the end of the year 10,000
Working Notes :
 (1) Correct value of Stock as on 31.03.2020 after revaluation = Rs. 2,16,000/90 x 100= Rs.
2,40,000
So, Increase/Change in Opening Stock = (2,40,000 – 2,16,000) = Rs. 24,000 and the same will have
a effect on the opening balance of Profit & Loss A/c.
So, opening balance of other current assets also increases by Rs. 24,000.
Then Increase in other assets = Rs. 1,76,000
(2)

Dr. Investment A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 4,00,000 By Bank A/c (Investment sold) (b/f) 1,20,000
To Capital Reserve(profit on 40,000 By Balance c/d 3,20,000
sale of investment)

4,40,000 4,40,000

Dr. Fixed Assets A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 32,00,000 By Bank A/c(sale) 1,00,000
To Bank A/c (Purchase)(b/f) 8,56,000 By Accumulated Depreciation A/c 80,000
By P&L A/c (Loss on sale) 20,000
By Accumulated Depreciation A/c 40,000
By P&L A/c (Assets written off) 16,000
By Balance c/d 38,00,000

40,56,000 40,56,000

Dr. Accumulated Depreciation A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Fixed Assets A/c 80,000 By Balance b/d 9,20,000
(Transfer) By P&L A/c(Depreciation charged) 3,60,000
To Fixed Assets A/c 40,000
To Balance c/d 11,60,000
12,80,000 12,80,000

Question 10 : Through the following information of ABC Ltd. prepare a Cash Flow Statement for the
year ended 31st March,2021.
Balance Sheet of ABC Ltd.
as on 31st March,2020 and 2021

Particulars Note No. 2021(Rs.) 2020(Rs.)

I. Equity & Liabilities
(1) Shareholder’s Funds
(a) Share Capital 1 7,20,000 6,20,000
 (b) Reserves & Surplus 2 1,64,000 76,000
(2) Current Liabilities
Trade Payables 1,30,000 88,000
Other Current Liabilities 3 74,000 54,000
Short-term Provisions (Provision for Tax) 64,000 56,000
Total 11,52,000 8,94,000
II. Assets
(1) Non-Current Assets
Property, Plant & Equipment : Tangible Assets 4 5,32,000 3,80,000
Intangible Assets (Goodwill) 1,14,000 1,40,000
Non-Current Investments 70,000 20,000
(2) Current Assets
Inventories 1,56,000 1,70,000
Trade Receivables 2,16,000 1,50,000
Cash & Cash Equivalent 64,000 34,000

Total 11,52,000 11,52,000

Notes to Accounts :
Particulars 31.03.2021(Rs.) 31.03.2020(Rs.)
1. Share Capital :
Equity Share Capital 5,20,000 3,20,000
8% Preference Share Capital 2,00,000 3,00,000
7,20,000 6,20,000
2. Reserve & Surplus :
Surplus, i.e. Statement of P&L A/c 1,14,000 76,000
Capital Reserves 50,000 ---
1,64,000 76,000
3. Current Liabilities :
Dividend Payable 74,000 54,000
4. Tangible Assets : (Property, Plant
& Equipment)
Land & Building 1,50,000 2,00,000
Machinery 3,82,000 1,80,000
5,32,000 3,82,000
Additional Information :
(a) Rs.36,000 depreciation for the year has been written off on plant & Machinery.
(b) No depreciation has been charged on Land & Building.
(c) A piece of land has been sold out for Rs. 1,00,000 and the balance has been revalued, profit on
such sale and revaluation being transferred to capital reserve. There is no other entry in capital
reserve account.
(d) A plant was sold for Rs. 24,000 (WDV being Rs. 30,000).
(e) Dividend received amounted to Rs. 4,200 which included pre-acquisition dividend of Rs. 1,200.
(f) An interim dividend of Rs. 20,000 has been paid.
(g) Non-current investments given in the balance sheet represents investments in shares of other
companies.
(h) ABC Ltd. declared a dividend amounting to Rs. 1,00,000 in the year 2020-21.
Solution : Cash Flow Statement of ABC Ltd.
for the year ending 31st March,2021
Particulars (Rs.) (Rs.)
A. Cash Flow from Operating Activities :
Net Profit before tax (WN1) 1,38,000
Add : Interim dividend paid during the year 20,000
Provision for Tax 64,000 84,000
Net Profit before Tax and Extra Ordinary item 2,22,000
Adjustments for Non-cash & Non- operating items :
Add : Depreciation 36,000
Loss on sale of Plant 6,000
Goodwill written off 26,000
Less : Dividend Income (3,000) 65,000
Operating Profit before working capital changes 2,87,000
Adjustment for changes in working capital :
Decrease in Inventories 14,000
Increase in Trade Payables 42,000
Less : Increase in Trade Receivables (66,000) (10,000)
Cash generated from operations 2,77,000
Less : Income tax paid (56,000)
Net cash flow from Operating Activities 2,21,000
B. Cash Flow from Investing Activities :
Purchase of Plant(WN3) (2,68,000)
Sale of Plant 24,000
Sale of land 1,00,000
Purchase of Investments(WN4) (51,200)
Dividend Received 4,200
Net cash used in Investing Activities (1,91,000) (1,91,000)
C. Cash Flows from Financing Activities :
Proceeds from issue of Share Capital 2,00,000
Redemption of preference shares (1,00,000)
Interim Dividend paid (20,000)
Final Dividend Paid (80,000)
Net cash from Financing Activities Nil Nil
Net increase in Cash & Cash Equivalents (A+B+C) 30,000
Cash &Cash Equivalent at the beginning of the year 34,000
Cash & Cash Equivalent at the end of the year 64,000
Working Notes:

Dr. (1) Profit & Loss A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Dividend Payable A/c 1,00,000 By Balance b/d 76,000
To Balance c/d 1,14,000 By P & L A/c 1,38,000

2,14,000 2,14,000
Dr. (2) Land & Building A/c Cr.

Particulars (Rs.) Particulars (Rs.)

 To Balance b/d 2,00,000 By Bank A/c (Sale) (b/f) 1,00,000
To Capital Reserve(Bal.fig.) 50,000 By Balance c/d 1,50,000
(profit on sale of investment)

2,50,000 2,50,000

Dr. (3) Plant & Machinery A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 1,80,000 By Depreciation A/c 36,000
To Bank A/c(Bal. fig.) 2,68,000 By Bank A/c (Sale) 24,000
(Purchase) By P & L A/c (Loss on sale) 6,000
By Balance c/d 3,82,000

4,48,000 4,48,000

Dr. (4) Investment A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Balance b/d 20,000 By Bank A/c (Pre-acquisition) 1,200
To Bank A/c (Bal. 51,200 (Dividend Received)
fig.)(Purchase) By Balance c/d 70,000

71,200 71,200

Dr. (5) Dividend Payable A/c Cr.

Particulars (Rs.) Particulars (Rs.)

To Bank A/c (Dividend 80,000 By Balance b/d 54,000
paid) By Profit & Loss A/c 1,00,000
To Balance c/d 74,000

1,54,000 1,54,000

Question 11 : ABC Ltd. presents you the following information for the year ended 31st March,2021:
Particulars (Rs.)
(a) Net Profit before tax provision 36,000
(b) Dividend paid 10,202
(c) Income tax paid 5,100
(d) Book value of asset sold 222
(e) Loss on sale of asset 48
(f) Depreciation debited in P & L A/c 24,000
(g) Capital grant received – amortised in Profit & Loss A/c 10
(h) Book value of investment sold 33,318
(i) Profit on sale of investment 120
(j) Interest income from investment credited in Profit & Loss A/c 3,000
(k) Interest expenditure debited in Profit & Loss A/c 12,000
 (l) Interest actually paid (Financing activity) 13,042
(m) Increase in working capital (Excluding cash & bank balance) 67,290
(n) Purchase of fixed assets 22,092
(o) Expenditure on construction work 41,688
(p) Grant received for capital projects 18
(q) Long term borrowings from banks 55,866
(r) Provision for income tax debited in Profit & Loss A/c 6,000
(s) Cash & bank balance on 01.04.2020 6,000
(t) Cash & bank balance on 31.03.2021 8,000
You are required to prepare a Cash Flow Statement as Per AS-3(Revised).
Solution : Cash Flow Statement of ABC Ltd.
For the year ended 31.03.2021
Particulars (Rs.) (Rs.)
A. Cash Flows from Operating Activities :
Net Profit before tax provision 36,000
Add : Non- cash expenditure
Depreciation 24,000
Loss on sale of assets 48
Interest Expenditure 12,000 36,048
72,048
Less : Non-cash income
Amortisation of capital grant received (10)
Profit on sale of investments (120)
Interest income from investments (3,000) (3,130)
Operating profit before working capital changes 68,918
Less : Increase in working capital (67,290)
Cash from operations 1,628
Less : Income Tax paid (5,100)
Net Cash used in Operating Activities (3,472)
B. Cash Flows from Investing Activities :
Sale of Asset 174
Sale of Investments 33,438
Interest income from investments 3,000
Purchase of Fixed Assets (22,092)
Expenditure on construction work (41,688)
Net Cash used in investing activities (27,168)
C. Cash Flows from Financing Activities :
Grants for Capital Projects 18
Long term borrowings 55,866
Interest paid (13,042)
Dividend paid (10,202)
Net Cash from Financing Activities 32,640 32,640
Net Increase in Cash (A+B+C) 2,000
Add: Cash & bank balances as on 01.04.2020 6,000
Cash & bank balance as on 31.03.2021 8,000
 Direct Method for computing cash flow from operating activities

Effects of Income Statement Changes on Cash Flow

Cash Inflow Cash Outflow

Revenue Accounts Expense Accounts

Sources of cash Uses of Cash

Format for Cash Flow Statement (Operating Activity)

for the year ended…….
as per Accounting Standard- 3 (Revised)
Particulars (Rs.) (Rs.)
I. Cash Flow from Operating Activities
A. Operating Cash Receipts
Cash sales xxx
Cash received from customers (Debtors) xxx
Trading commission received xxx
Royalties received xxx xxx
B. Less : Operating Cash Payment
Cash Purchase (COGS) xxx
Cash Paid to the suppliers (Creditors) xxx
Cash paid for business xxx (xxx)
C. Cash generated from operation before taxes (A-B) xxx
D. Less : Income Tax paid (net of tax refund) (xxx)
E. Cash flow before extraordinary item (C-D) xxx
F. Adjust extraordinary items (+/-) Receipt/Payment xxx

Net Cash Flow from (or used in) Operating Activities xxx