Updated Complete Cash Flow Statement

ULTIMATE BOOK OF ACCOUNTANCY
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Cash Flow Statement
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1. Give the meaning of Cash Flow Statement.
Ans. Cash flow statement highlights the cash inflows and cash outflows of the business. Cash flow statement is a statement
of the changes in the financial position of a business on cash basis. It is more useful for the short term cash planning
and short term analysis of the business.
2. Give any two objectives of Cash Flow Statement.
Ans. Main objectives of Cash Flow Statement are :
(1) Cash flow statement provides information about the cash flows (inflows and outflows) of an enterprise.
(2) A cash flow statement indicates historical changes in cash and cash equivalents by classifying the cash flows from
operating activities, investing activities and financing activities.
3. Give any two Advantages/Importance of Cash Flow Statement.
Ans. Main advantages of Cash Flow Statement are :
(1) Helpful in assessing the 'Solvency and Liquidity': Cash flow statement indicates the liquidity and solvency of an
enterprise. It also indicates the ability of an enterprise to generate cash and cash equivalents. Cash flow statement
is helpful in assessing the solvency of an enterprise and ability to utilize those cash flows for the business
operations.
(2) Helpful in short-term planning: Information provided by the cash flow statement is helpful in short-term planning.
On the basis of cash flow statement an enterprise can plan its short term requirements.
4. Give any two limitations of Cash Flow Statement.
Ans. Two main limitations of Cash Flow Statement are :
(1) Affect of window dressing : Sometimes figures presented in accounting form are not true and fair. Because of
window dressing true cash position cannot be ascertained. Through window dressing cash balance can be
manipulated easily by the accountant.
(2) Non-cash transactions are ignored: Non-cash transactions are not recorded in the books of accounts but they play
important role in ascertaining the solvency and liquidity of an enterprise.
5. Define Operating, Investing and Financing Activities.
Ans. Operating Activities : Operating activities are the principal revenue-producing activities of the enterprise and other
activities that are not investing or financing activities.
Investing Activities : Investing activities are the acquisition and disposal of long-term assets and other investments not
included in cash equivalents.
Financing Activities : Financing activities are activities that result in changes in the size and composition of the owners'
capital (including preference share capital in the case of a company) and borrowings of the enterprise.
6. What do you mean by Cash and Cash Equivalents?
Ans. Cash Equivalents are highly liquid assets or highly liquid investments which can be converted into cash within a very
short period (not more than 3 months).
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SUBJECTIVE TYPE QUESTIONS CHAPTER 6 143
Cash : (i) Cash in hand (ii) Cash at bank

Cash Equivalents :
(i) Cheques in hand, (ii) Drafts in hand, (iii) Marketable Securities (short-term), (iv) Short-term deposits,
(v) Commercial bills, (vi) Commercial papers, (vii) Treasury bills
7. State whether the payment of cash to creditors will result in inflow, outflow or no flow of cash.
Ans. Cash paid to creditors will reduce the cash balance so it is outflow of cash.
8. What is the difference between operating activity and an investing activity? [CBSE Modified]
Ans. Operating activities are the principal revenue producing activities of a company and Investing activities are concerned
with the long term assets.
9. What is the difference between operating activity and financing activity?
Ans. Operating activities are the principal revenue producing activities of a company and financing activities are concerned
with the Shareholders' funds and borrowings (short term and long term).
10. Why cash flow statement is not a substitute for income statement? [CBSE Modified]
Ans. Cash flow statement is used to assess the cash inflows and outflows only. It does not calculate profit or loss of a
company that's why it is not a substitute for income statement.
11. Interest received by a finance company is classified under which kind of activity while preparing a cash flow
statement?
Ans. For a financial company all financial activities are considered as operating activities. Interest received by a finance
company is operating activity.
12. Under which type of activity will you classify 'Cash Receipts from Debtors' while preparing Cash Flow Statement?
Ans. Cash received from debtors will be treated shown under 'Operating Activities' because selling goods on credit to the
customers and receiving cash is operating activity of a business.
13. List any two investing activities which result into outflow of cash. [CBSE Modified]
Ans. (i) Purchase of Fixed assets (Tangible or Intangible)
(ii) Purchase of investments
14. Name any two financing activities that will result into inflow of cash.
Ans. (i) Issue of Shares or debentures
(ii) Long term borrowings (raised loan from bank or from other financial institutions)
15. What are two major inflows and two major outflows of cash from investing activities?
Ans. Two major inflows and outflows from investing activities are :
Inflows from investing activities Outflows from investing activities
1. Sale of fixed assets 1. Fixed assets purchased
2. Sale of investments 2. Investments purchased
16. List any two financing activities that will result into outflow of cash.
Ans. (i) Redemption of debentures (ii) Dividend paid
17. Redemption of debentures would result in inflow, outflow or no flow of cash.
Ans. Redemption of debentures would result in cash outflow will be shown under financing activities.
18. Sale of marketable securities at par would result in inflow, outflow or no flow of cash.
Ans. Sale of marketable securities at par will result in no flow of cash.
19. Why non-cash transactions are ignored while preparing cash flow statement?
Ans. Cash flow statement is prepared to record the cash transactions only. Non-cash transactions do not affect the cash and
cash equivalents that's why they are ignored while preparing cash flow statement.
20. Under which type of activity will you classify 'Sale of shares of another company' while preparing cash flow
statement?
Ans. Sale of shares of another company is treated as investment. While preparing cash flow statement it is classified under
investing activity.
144 VINESH Target Ultimate AccountancyXII
21. When is interest received considered as financing activity?

Ans. When a company receives interest on 'Calls in arrear' it is classified under the financing activity.
22. How would you classify the dividend paid by the finance company and dividend paid by the manufacturing
company?
Ans. (i) Dividend paid by a finance company is classified as Financing Activity.
(ii) Dividend paid by a manufacturing company is classified as Financing Activity.
23. Cash paid as salaries to workers would result in inflow, outflow or no flow of cash. Give answers with reason.
Ans. Cash paid to workers as salaries will reduce the cash balance or cash and cash equivalents. So it is a outflow of cash.
24. What is the treatment of Increase in Provision for doubtful debts?
Ans. Increase in Provision for doubtful debts will be added back to the profit while calculating cash flow from operating
activities.
25. State how Cash Flow Statements are historical in nature.
Ans. Cash flow statement is prepared on the basis of Statement of profit and loss and Balance Sheet, that's why cash flow
statements are historical in nature.
26. Classify the following into Operating, Investing or Financing Activities:
(a) Issue of Debentures of ` 5,00,000
(b) Interest on loan paid by a trading firm ` 1,00,000
(c) Receipt of interest by a company ` 25,000
Ans. (a) Issue of debentures of ` 5,00,000 is Financing Activity
(b) Interest on loan paid is Financing Activity
(c) Receipt of interest is Investing Activity
27. Mention the net amount of ‘Source’ or ‘Use’ of cash from the following :
Issue of shares of ` 8,00,000 against purchase of business comprising of fixed assets ` 7,00,000, Current Assets
` 2,00,000 and took over Current liabilities at ` 1,00,000.
Ans. No Source or use of cash, because this transaction does not involve cash (inflow/outflow).
28. State with reason whether the issue of 9% debentures to the vendor for the purchase of a Machinery of ` 50,000
will result in inflow, outflow or no flow of cash.
Ans. No flow of cash.
29. Old Computer (Book value ` 3,000) was completely written off from the books. What is the amount of source or
cash in this case?
Ans. Nil, because this transaction does not involve any cash.
30. Classify the following into cash inflows from investing activities/financing activities while preparing a Cash Flow
Statement:
(a) Sale of Fixed Assets (b) Interest Received
(c) Redemption of Debentures (d) Receipt of Dividend
Ans. (a) Investing Activities (b) Investing Activities
(c) Financing Activities (d) Investing Activities
31. Classify the following into Cash flow from :
(i) Operating activities
(ii) Investing activities and
(iii) Financing activities while preparing a cash flow statement:
(a) Interest Paid (b) Purchase of Equipments
(c) Payment of Tax (d) Purchase of Machinery
Ans. (a) Financing Activities (b) Investing Activities
(c) Operating Activities (d) Investing Activities
32. The accountant of Manav Ltd. while preparing Cash Flow Statement added depreciation provided on fixed assets
to net profit for calculating cash flow from operating activities. Was he correct in doing so? Give reason.
Ans. Yes, Accountant is correct, earlier depreciation was deducted from the net profit in Statement of Profit & Loss.
Depreciation is a non cash expense, hence, it should be added back while preparing cash flow statement.
33. While preparing Cash Flow Statement, the accountant of Rachana Ltd., a finance company, included 'Interest
received on loan' in financing activities. Was he correct in doing so ? Give Reason.
Ans. No, Accountant was wrong in his approach of showing interest received on loan under the 'Financing Activities'. The
main work of financing companies is to lend or borrow funds. Hence, interest received by a finance company is
classified as cash flow from operating activities.
34. While preparing Cash Flow Statement, the accountant of Gulfam Ltd., a finance company, showed 'Dividend
received on investments as investing activity. Was he correct in doing so? Give Reason.
Ans. No, Accountant was wrong in his approach of showing dividend received on investments under the 'Investing Activities'.
The main work of financing companies is to lend or borrow funds. Hence, dividend received by a finance company is
classified as cash flow from operating activities.
35. Finserve Ltd is carrying on a Mutual Fund business. It invested ` 30,00,000 in shares and ` 15,00,000 in
debentures of various companies during the year. It received ` 3,00,000 as dividend and interest. Find out cash
flows from investing activities.
Ans. Cash flows from investing activities - Nil
36. Normally, what should be the maturity period for a short-term investment from the date of its acquisition to be
qualified as Cash Equivalents?
Ans. Maturity period of a short-term investment should be 3 months from the date of acquisition, then it will be considered
as Cash Equivalents.
37. Whether the following statement is True or False:
'Patents purchased by a company will be an operating activity'
Ans. Statement is false because patents purchased by a company will be an investing activity. Patent is fixed intangible asset.
38. Give any two examples of Cash Flow from Operating Activities. [CBSE 2019 C]
Ans. (i) Purchase of goods in cash (outflow) (ii) Sold goods in Cash (inflow)
39. Under which type of activity will you classify 'Cash advances and Loans made to third party' while preparing
Cash Flow Statement?
Ans. Investing Activity
40. Vinod Ltd. redeemed ` 2,50,000, 11% Debentures at 10% premium. What will be the amount of 'Cash Flow
from Financing Activities' other than interest?
Ans. Cash flow from Financing Activities = 2,50,000 + 25,000
41. State giving reason, whether issue of shares for consideration other than cash will result into inflow, outflow or
no flow of cash. [CBSE]
Ans. No flow of cash because issue of shares generated no cash for the company.
42. Payment of Dividend and Interest will be classified as which type of activity while preparing Cash Flow Statement?
Ans. Financing Activities
43. State with reason, whether 'Discount received on making payment to Suppliers' would result into inflow, outflow
or no flow of cash.
Ans. No flow of cash because it does not involve cash
44. On 1stOctober, 2020, Vinod Ltd., issued 20,000, 9% Debentures of ` 100 each and paid interest of ` 90,000 on
these Debentures on 31st March 2021. Calculate the Cash Flow from Financing Activities for the period ending
31st March 2021. [CBSE]
Ans. 20,00,000 - 90,000 Interest paid = 19,10,000
45. Sale of 'Marketable Securities at Par' would result in inflow of cash. State whether the statement is True or
False. [CBSE]
Ans. False because it will lead no change in cash and cash equivalents, it is just a movement between items of cash and cash
equivalents.
46. Why is Depreciation added back to net profit while preparing Cash Flow Statement?
Ans. At the time of preparation of Cash Flow Statement, depreciation is added back to the net profit because it does not
involve outflow of cash but it results in decrease in profits of the firm.
47. Vinod Ltd. is a non-financing company; it has received a dividend of ` 40,000 on shares. How will it be presented
while preparing Cash Flow Statement?
Ans. It will be part of Investing Activities (Add while preparing cash flow statement)
48. When can 'Receipt of Dividend' be classified as an Operating Activity? State, also give reason in support of your
answer.
Ans. It is Operating activity for a finance company because it is a principal revenue producing activity.
49. Does movement between items that constitute Cash or Cash Equivalents result into Cash Flow? Give reason in
support of your answer.
Ans. There are some transactions which represent movement between items of Cash or Cash Equivalents but they do not
result in Cash Flow because increase in one asset and decrease in other asset of the same nature.
50. M Ltd. a finance company, had advanced a loan of ` 3,00,000, invested ` 6,00,000 in shares of the other
company and purchased a machinery for ` 9,00,000. It received dividend of ` 70,000 on investment in shares.
The company sold an old machine of the book value of ` 79,000 at a loss of ` 10,000. Compute cash flow from
investing activities.
Ans. 69,000 sale of machinery - Purchase of Machinery 9,00,000 = 8,31,000 cash used in investing activities.
51. Loans and advances granted by a company will be considered as which type of activity while preparing Cash
Flow Statement.
Ans. Investing Activities
52. Net increase in Working Capital other than Cash and Cash Equivalents will increase, decrease or not change
Cash Flow from Operating Activities. Give reason in support of your answer.
Ans. Net increase in Working Capital indicates that more cash is invested in the Working Capital and thus decreases Cash
Flow from Operating Activities.
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53. Following Extracted information of Vinod Ltd. is available on 31st March 2021:
Particulars 2021 2020
Surplus i.e. Statement of Profit and Loss 3,80,000 (50,000)

Provision for Tax 75,000 50,000
Provision for Doubtful Debts 15,000 ---
Additional Information :
Proposed Dividend for the year 2020 and 2021 was Rs.40,000 and Rs.50,000.
Find out Cash Flow from Operating Activities.
Ans. Cash Flow from Operating Activities 5,10,000
Provision for Tax 1,00,000 1,50,000
Provision for tax made during the year Rs.1,55,000.
How much tax is paid by Vinod Ltd. during the year?
Ans. Tax Paid Rs.2,05,000
Additional Information:
Tax paid during the year Rs.1,40,000.
How much Provision for Tax made by Vinod Ltd. during the year?
Ans. Provision for Tax made Rs.90,000
Equity Share Capital 8,00,000 5,00,000
10% Redeemable Preference Share Capital 2,00,000 2,00,000
General Reserve 60,000 ---
Workmen Compensation Reserve 20,000 10,000
Surplus i.e. Balance in Statement of Profit and Loss 3,40,000 2,10,000
Debtors 1,80,000 2,00,000
Provision made for tax during the year Rs.30,000.
Find out Cash flow from Operating Activities.
Ans. Cash flow from Operating Activities Rs.2,30,000.
Machinery (at cost) 5,00,000 3,00,000
Accumulated Depreciation 50,000 30,000
During the year, a machine costing Rs.60,000 with its accumulated depreciation of Rs.10,000 was sold at 20% loss.
Find out Cash Flow from Investing Activities.
Ans. Cash used in Investing Activities (Rs.2,20,000)
10% Non-current Investment 4,00,000 3,00,000
60% of the investment held in the beginning of the year were sold at a gain of 20%. Interest received on investment at
the end of the year 31st March 2021 Rs.35,000.
Find out Cash Flow from Investing Activities.
Ans. Cash used in Investing Activities (Rs.29,000)
Share Capital 5,00,000 3,00,000
Securities Premium Reserve 50,000 ---
Bank Overdraft at the rate of 8% p.a. 1,20,000 ---
Bank overdraft was availed on 1st December 2020. Interest on Bank overdraft was paid on 31st March 2021.
Find out the Cash flow from Financing Activities.
Ans. Cash flow from Financing Activities Rs.3,66,800.
1. Long-term Borrowings
10% Debentures 7,00,000 4,00,000
2. Other Current Liabilities
10% Debentures Current Maturities ---- 2,00,000
Fresh Debentures were issued on 1st October 2020 and debentures were redeemed on 31st December 2020 with interest.
Find out the Cash flow from Financing Activities.
Ans. Cash flow from Financing Activities Rs.30,000
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1. From the following information, calculate Cash Flow from Operating Activities :
Particulars 31st March 2021 31st March 2020
Surplus i.e. Balance in Statement of Profit & Loss 2,84,000 3,56,000
Trade payables 60,000 60,000
Share Capital 6,00,000 6,00,000
Inventories 48,000 16,000
Trade Receivables 2,32,000 1,80,000
Outstanding Expenses 58,400 40,000
Copyrights 2,28,000 1,08,000
Cash in hand 36,000 48,000
Machinery 3,28,000 2,24,000
(i) One part of machinery costing ` 2,00,000, on which depreciation of ` 30,000 had been charged, was sold for `
90,000. Depreciation charged during the year was ` 72,000.
(ii) Income Tax ` 92,000 was paid during the year.
(iii) Interim Dividend paid during the year was ` 1,44,000.
Solution. Cash Flow Statement
Particulars Details Amount
CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and Extraordinary items 1,64,000
(72,000) + 1,44,000 Dividend + 92,000 Tax
Add : Depreciation on Machinery 72,000
Add : Loss on Sale of Machinery 80,000
Operating Profit before Working Capital Changes 3,16,000
Add : Increase in Current Liabilities:
Outstanding Expenses 18,400
Less : Increase in Current Assets:
Inventories (32,000)
Trade Receivables (52,000)
Cash Generated from Operating Activities 2,50,400
Less : Tax Paid (92,000)
Cash Flow from Operating Activities 1,58,400
Working Note : Profit/Loss = 2,84,000 – 3,56,000 = (72,000) Loss
Machinery Account
Particulars Amount Particulars Amount
To Balance b/d 2,24,000 By Bank (Sale) 90,000

To Bank A/c (Bal. Fig. Purchase) 3,46,000 By Loss on Sale 80,000
By Depreciation A/c 72,000
By Balance c/d 3,28,000
5,70,000 5,70,000
2. Calculate 'Cash Flow from Operating Activities from the following information :

Patents 90,000 1,20,000
Outstanding Expenses 48,000 --
General Reserve 4,80,000 3,00,000
Provision for Depreciation on Plant 6,00,000 4,92,000
Prepaid Expenses -- 36,000
Trade Payables 5,04,000 3,60,000
(i) Plant costing ` 3,60,000 having book value of ` 2,16,000 was sold for ` 2,40,000 during the year.
(ii) Income Tax paid during the year was ` 1,80,000.
(iii) Dividend paid during the year was ` 1,08,000.
CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and Extraordinary items
(1,20,000) + 1,80,000 Tax + 1,08,000 Dividend + 1,80,000 Reserve 3,48,000
Add : Patents amortised 30,000
Add : Depreciation on plant 2,52,000
Less : Gain on sale of plant (24,000)
Operating Profit before Working Capital Changes 6,06,000
Add : Increase in Current Liabilities/Decrease in Current Assets :
Outstanding Expenses 48,000
Trade Payables 1,44,000
Prepaid Expenses 36,000
Less : Increase in Current Assets:
Less : Tax Paid (1,80,000)
Working Note:
(i) Provision for Depreciation on Plant Account
To Plant A/c 1,44,000 By Balance b/d 4,92,000

To Balance c/d 6,00,000 By Depreciation A/c (Bal.fig.) 2,52,000
7,44,000 7,44,000
(ii) Gain on Sale of Plant = 2,40,000 - 2,16,000 book value = 24,000
Cash Flow from Investing Activities

3. From the following information, calculate the amount of cash flow from Investing activities:
Particulars Amount
Land purchased during the year 5,00,000

Non-current investment purchased 2,70,000
Fixed Tangible Assets (Machinery) Purchased 4,50,000
Fixed Tangible Assets sold (Building) 6,00,000
Sale of Non-current Investment 1,60,000
Sale of Tangible Fixed Assets (Machinery) 2,10,000
Interest received on Debentures held as investments 1,10,000
Dividend received on Shares as investments 30,000
Solution. Cash Flow from Investing Activities
CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from the Sale of Building 6,00,000
Proceeds from the sale of Investment 1,60,000
Proceeds from the sale of Machinery 2,10,000
Interest on Debentures received 1,10,000
Dividend received on shares 30,000
Land Purchased (5,00,000)
Non-current Investment purchased (2,70,000)
Machinery purchased (4,50,000)
Cash used in Investing Activities (1,10,000)
4. Calculate Cash Flows from Investing Activities from the following information :
Investments in shares of Vinod Ltd. 18,00,000 8,00,000

12% Long Term Investments 1,50,000 5,00,000
Plant and Machinery 6,00,000 4,00,000
Computer Software 1,20,000 40,000
Additional information :
(i) 9% dividend was received from Vinod Ltd.
(ii) A machine costing ` 50,000 (depreciation provided thereon ` 15,000) was sold for ` 40,000. Depreciation charged
during the year was ` 55,000.

Proceeds from Sale of Plant and Machinery 40,000
Purchase of Plant and Machinery (2,90,000)
Proceeds from sale of 12% Long-term investment 3,50,000
Interest received on Long-term investment 60,000
Purchase of investment in shares of Vinod Ltd. (10,00,000)
Dividend Received 72,000
Computer Software purchased (80,000)
Plant and Machinery Account
To Balance b/d 4,00,000 By Bank A/c (Sale) 40,000

To Gain on sale of Machinery 5,000 By Depreciation A/c 55,000
To Bank A/c (Bal. Fig. Purchase) 2,90,000 By Balance c/d 6,00,000
6,95,000 6,95,000
5. From the following information, calculate the amount of Cash flow from Investing Activities:

Computers 2,00,000 2,00,000
Computer software 80,000 90,000
6% p.a. Investments 1,50,000 1,00,000
Accrued Interest on 6% p.a. Investments 2,500 --
Land (at Cost) 2,50,000 4,30,000
(i) 6% p.a. investment was made on 1st October 2020.
(ii) Land was sold at a Gain/profit of 25% on cost.
(iii) Depreciation charged on Plant and Machinery was ` 60,000
(iv) A Machinery with a book value of ` 50,000 was sold at a loss of 20%.

Proceed from the sale of Plant and Machinery 40,000
Proceeds from sale of land 2,25,000
Purchase of Plant and Machinery (3,10,000)
Purchase of Investment (50,000)
Interest on investment 5,000
Cash used in Investing Activities (90,000)

To Balance b/d 6,00,000 By Depreciation A/c 60,000

To Bank A/c (Bal. Fig. Purchase) 3,10,000 By Bank A/c (Sale) 40,000
By Loss on sale 10,000
By Balance c/d 8,00,000
9,10,000 9,10,000
Land Account
To Balance b/d 4,30,000 By Bank A/c (Sale) 2,25,000

To Gain on sale 45,000 By Balance c/d 2,50,000
4,75,000 4,75,000
Cash Flow from Financing Activities

6. From the following information, Calculate Cash Flow from Financing Activities:

7% Preference Share Capital 3,00,000 3,00,000
Long-term Borrowings (9% Debentures) 2,40,000 2,40,000
Other Current Liabilities (Current Maturity of Debentures) --- 60,000
(i) Equity Shares were issued at a premium of 20% on 1st April 2020.
(ii) Proposed dividend on Equity Shares for the year ended 31st March 2020 and 31st March 2021 were ` 30,000 and
40,000.
(iii) Debentures were redeemed on the due date 30th September 2020.
(iv) Interest on debentures was paid on time.
CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of Equity Shares 2,50,000
Securities Premium Reserve 50,000
Payment of Preference Dividend (21,000)
Payment of Equity Dividend (30,000)
Redemption of Debentures (60,000)
Interest on Debentures (24,300)
Cash Flow from Financing Activities 1,64,700
7. From the following information, Calculate Cash Flow from Financing Activities:

Long-term Borrowings (9% Debentures) 4,00,000 2,50,000
Other Current Liabilities (Current Maturity of Debentures) --- 50,000
Bank Overdraft --- 30,000
(i) Bank overdraft was settled on 31st December 2020 with interest 6% p.a.
(ii) Debentures were redeemed on due date 30th September 2020 and Fresh Debentures were issued on 1st December
2020.
(iii) Equity Shares were issued on 1st April 2020 at a premium of 20%.
(iv) The company proposed dividend of ` 25,000 and ` 35,000 for the years ended 31st March 2020 and March 2021.
CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of Equity Shares 2,00,000
Issue of Debentures 1,50,000
Payment of Equity Dividend (25,000)
Bank overdraft repaid (30,000)
Interest on Bank overdraft (1,350)
8. Prepare Cash Flow Statement. Following was the Balance Sheet of Vinod Limited at on 31.3.2021 :
Particular Note No. 31.3.2021 (Rs) 31.3.2020 (Rs)
I. Equity and Liabilities
1. Shareholder's Funds:
(a) Share Capital 1 25,00,000 20,00,000
(b) Reserve and Surplus 2 3,90,000 3,00,000
2. Non-Current Liabilities:
Long-Term Borrowings 3,10,000 6,00,000
(10% Bank Loan)
3. Current Liabilities:
(a) Short Term Borrowings 3 1,00,000 70,000
(b) Trade Payables 2,00,000 1,30,000
(c) Short-Term Provisions 4 84,000 60,000
Total 35,84,000 31,60,000

II. Assets:
1. Non-Current Assets:
(a) Property, Plant & Equipment
(Fixed Assets):
(i) Tangible 5 20,84,000 16,00,000
(ii) Intangible 6 3,50,000 3,00,000
2. (b) Non-current Investment 2,50,000 4,00,000
3. Current Assets:
(a) Current Investments 1,00,000 60,000
(b) Inventories 5,00,000 3,50,000
(c) Trade Receivables 2,70,000 3,50,000
(d) Cash and Cash equivalents 30,000 1,00,000
Total 35,84,000 31,60,000
Notes to Accounts
S.No. Particulars 2021 2020
1. Share Capital
10% Preference Shares issued on 31.3.2021 2,00,000 --
2. Reserves and Surplus

General Reserve 70,000 70,000
Surplus i.e. Statement of P/L 2,80,000 2,30,000
Securities Premium Reserve 40,000 --
3. Short-term Borrowings
Bank Overdraft 60,000 20,000
Cash Credit 40,000 50,000
4. Short-term Provisions
Provision for tax 84,000 60,000
5. Tangible Assets
Land and Building 8,84,000 6,00,000
Less: Accumulated Depreciation 90,000 60,000
6. Intangible Assets
Patents 2,30,000 1,00,000
Trademarks 1,20,000 2,00,000
(i) During the year, a piece of machinery costing 50,000 on which accumulated depreciation was ` 5,000, was sold for
` 38,000.
(ii) Non-current investment was sold at a profit of 20%.
(iii) Provision for tax made during the year ` 40,000.
(iv) Bank Loan was repaid on 31st March 2021.
Prepare Cash Flow Statement

A. Cash Flow from Operating Activities

Calculation of Profit before tax: Statement of P/L 50,000
Provision for tax 40,000
Net Profit before tax 90,000
Add : Depreciation 35,000
Add : Loss on sale of machine 7,000
Add : Trademarks amortised 80,000
Add : Interest on loan 60,000
Less : Gain on sale of investment (30,000)
Operating profit before working capital changes 2,42,000
Add : Trade Receivables 80,000
Add : Trade payables 70,000
Less : Inventories (1,50,000)
Cash flow from operating activities before tax 2,42,000
Less : Tax 16,000
B. Cash Flow from Investing Activities

Proceeds from sale of investment 1,80,000
Proceeds from sale of machinery 38,000
Purchase of machinery (2,80,000)
Purchase of land and building (2,84,000)
Purchase of patents (1,30,000)
C. Cash Flow from Financing Activities

Issue of Equity Shares 3,00,000
Issue of Preference Shares 2,00,000
Bank Overdraft 40,000
Interest on loan (60,000)
Cash Credit (10,000)
Bank Loan Repaid (2,90,000)
D. Decrease in Cash and Cash Equivalents (A + B + C) (30,000)
Add : Cash and Cash Equivalents in the beginning 1,60,000
(60,000 + 1,00,000)
Cash and Cash Equivalents at the end 30,000 + 1,00,000 1,30,000

9. Prepare Cash Flow Statement for the following Balance Sheet of Vinod Limited:
(a) Share Capital 6,30,000 5,60,000
2. Current Liabilities :
(a) Short term borrowings (bank overdraft) 50,000 40,000
(b) Trade Payables 2,80,000 1,82,000
(c) Short-Term Provisions (Tax) 32,000 26,000
Total 13,00,000 9,90,000
II. Assets:
(a) Property, Plant & Equipment (Fixed Assets) :
(i) Tangible (Plant & Machinery) 3,92,000 2,80,000
(ii) Intangible (Patents) 48,000 16,000
2. Non-current Investment 14,000 20,000
3. Current Assets :
(a) Current Investments 20,000 30,000
(b) Inventories 98,000 1,40,000
(d) Cash and Cash equivalents 2 98,000 84,000
Total 13,00,000 9,90,000
Notes to Accounts

General Reserve 1,08,000 82,000
2. Cash and Cash Equivalents

Cash in hand 58,000 40,000
Cheques in hand 40,000 44,000
(i) An old machinery having book value of ` 42,000 was sold for ` 56,000. Depreciation provided on machinery during
the year was ` 28,000.
(ii) Tax paid during the year ` 18,000.
(iii) Interest received on Non-current Investments ` 2,000.
(iv) Dividend paid by the company during the year ` 60,000.
(v) Interest on Bank Overdraft was ` 4,000.
Particulars Detail Amount

Calculation of Profit before tax: General Reserve 26,000
Statement of P/L 1,00,000
Dividend 60,000
Net Profit before tax 2,10,000
Add : Interest on overdraft 4,000
Less : Gain on sale of machinery (14,000)
Less : Interest received on investment (2,000)
Add : Inventories 42,000
Less : Trade Receivables (2,10,000)
Less : Tax (18,000)
Proceeds from sale of investment 6,000
Purchase of patents (32,000)
Interest received on investment 2,000
Cash used in investing activities (1,50,000)
Share Capital 70,000
Bank Overdraft 10,000
Dividend paid (60,000)
Interest on Bank Overdraft (4,000)
Cash Flow from Financing Activities 16,000
D. Decrease in Cash and Cash Equivalents (A + B + C) 4,000

Add : Cash and Cash Equivalents in the beginning 1,14,000
(30,000 + 84,000)
Cash and Cash Equivalents at the end 1,18,000

To Balance b/d 2,80,000 By Bank A/c (sale) 56,000

To Gain on sale 14,000 By Depreciation A/c 28,000
To Bank A/c (purchase) 1,82,000 By Balance c/d 3,92,000
4,76,000 4,76,000
10. Following was the Balance Sheet of Vinod Limited at on 31.3.2021:
Particular Note No. 31.3.2021 (`) 31.3.2020 (`)
1. Shareholder's Funds :
(a) Share Capital 10,00,000 7,00,000
(b) Reserve and Surplus 1 5,00,000 20,000
2. Non-Current Liabilities :
Long-Term Borrowings (10% Debentures) 4,00,000 1,00,000
Current Liabilities :
3. (a) Short term borrowings (Cash Credit) 2,00,000 80,000
(b) Trade Payables 2,60,000 2,00,000
(d) Other Current Liabilities (Rent due) 10,000 50,000
Total 24,50,000 12,00,000
II. Assets :
1. Non-Current Assets :
(a) Property, Plant & Equipment (Fixed Assets):
(i) Tangible (Machinery) 8,00,000 5,00,000
(ii) Intangible (Copyrights) 4,00,000 1,00,000
2. Non-current Investment 4,00,000 2,50,000
3. Current Assets:
(a) Current Investments 1,00,000 1,50,000
(b) Inventories 2,90,000 1,00,000
(c) Trade Receivables 3,10,000 90,000
(d) Cash and Cash equivalents 1,50,000 10,000
Total 24,50,000 12,00,000
Notes to Accounts

Surplus i.e. Statement of P/L 3,00,000 (1,00,000)
Securities Premium Reserve 2,00,000 1,20,000
(a) Additional debentures were issued on 1st Oct. 2020.
(b) Interest paid on cash credit @ 10% on the opening balance.
(c) ` 50,000 depreciation has been charged to machinery during the year 2021. A piece of machinery costing ` 12,000
(Book value 5,000) was sold at 60% profit on book value.
(d) 40% of the opening balance of Non-current Investment was sold at a profit of 20%.
Prepare Cash Flow Statement.

Particulars Amount
(A) Cash Flow from Operating Activities
Net Profit 3,00,000 + 1,00,000 + 80,000 Tax 4,80,000

Add : Interest on Debentures 25,000
Add : Interest on Cash Credit 8,000
Less : Profit on sale of machinery (3,000)
Less : Profit on sale of Non-current Investment (20,000)
Add : Trade Payables 60,000
Less : Rent (40,000)
Less : Inventories (1,90,000)
Less : Tax (50,000)
(B) Cash Flow from Investing Activities
Proceeds from sale of Non-current Investment 1,20,000
Purchase of Non-current Investment (2,50,000)
Purchase of Copyrights (3,00,000)
(C) Cash Flow from Financing Activities

Share capital 3,00,000
Cash Credit 1,20,000
Interest on Cash Credit (8,000)
Net Effect (A + B + C) 90,000

Add opening balance of cash and cash equivalents 1,60,000
Closing cash and cash equivalents 2,50,000
Working Note:
Interest on Debentures = 25,000 i.e.
1,00,000 x 6/12 x 10/100 = 5,000
4,00,000 x 6/12 x 10/100 = 20,000
11. Prepare Cash Flow Statement for the following Balance Sheet of Vinod Limited :
(a) Share Capital 3,00,000 2,00,000
(b) Reserve and Surplus 1 1,00,000 60,000
2. Non-Current Liabilities
Long-Term Borrowings (10% Debentures) 90,000 90,000
(a) Short term borrowings (bank overdraft) 40,000 70,000
(b) Trade Payables 1,10,000 50,000
(d) Other Current Liabilities 2 -- 30,000
Total 6,60,000 5,10,000
II. Assets :
(a) Property, Plant & Equipment (Fixed Assets) :
(i) Tangible (Machinery) 3 3,10,000 2,00,000
(ii) Intangible (Goodwill) Nil 25,000
2. 10% Non-current Investment 40,000 50,000
3. Current Assets:
(a) Inventories 50,000 30,000
(b) Trade Receivables 2,00,000 1,75,000
(c) Cash and Cash equivalents 4 60,000 30,000
Total 6,60,000 5,10,000
Notes to Accounts

Surplus i.e.Balance in Statement of P/L 70,000 50,000

Current Maturity of 10% Debentures -- 30,000
3. Tangible Assets
Machinery 3,60,000 2,30,000
Less: Accumulated Depreciation (50,000) (30,000)
4. Cash and Cash Equivalents

Cash in hand 40,000 30,000
Cheques in hand 20,000 ---
(1) During the year, machinery costing ` 30,000 (Accumulated Depreciation ` 10,000) was sold at a loss of 20%.
(2) Debentures were redeemed on 31 July 2020 and interest was also paid.
(3) Non-current investments were sold on 31st March 2021 at par and full interest was received on that date.
(4) Dividend paid by the company ` 20,000 during the year.
(5) Interest paid on bank overdraft at the rate of 6% p.a. on the opening balance.

Calculation of Profit before tax: Statement of P/L 20,000
General Reserve 20,000
Dividend 20,000
Net Profit before tax 80,000
Add : Loss on sale of machine 4,000
Add : Goodwillwritten off 25,000
Add : Interest on Bank Overdraft 4,200
Add : Interest on debentures 9,000 + 1,000 10,000
Less : Interest on investment (5,000)
Less : Trade Receivables (25,000)
Less : Inventories (20,000)
Less : Tax (10,000)
Proceeds from sale of investment 10,000
Interest on Investment 5,000
Issue of Equity Shares 1,00,000
Bank Overdraft (30,000)
Dividend paid (20,000)
Cash Flow from Financing Activities 5,800
D. Decrease in Cash and Cash Equivalents (A + B + C) 30,000
Add : Cash and Cash Equivalents in the beginning 30,000
Cash and Cash Equivalents at the end 60,000
12. Following is the Balance Sheet of Vinod Ltd. as on 31st March, 2021.
(a) Share Capital 60,00,000 45,00,000
(b) Reserve and Surplus 15,00,000 9,00,000
Long-Term Borrowings (10% Debentures) 9,00,000 6,00,000
(a) Trade Payables 4,50,000 6,00,000
(b) Short-term Provisions (Tax) 2,10,000 1,80,000
Total 90,60,000 67,80,000
II. Assets :
(a) Tangible 57,00,000 45,00,000
(b) Intangible (Computer Software) 14,10,000 8,10,000
2. Current Assets:
(a) Inventories 7,50,000 4,80,000
(c) Cash and Cash equivalents 5,70,000 3,60,000
Total 90,60,000 67,80,000
Prepare a Cash Flow Statement after taking into account the following adjustment:
(i) During the year, a piece of machinery costing ` 80,000 on which depreciation was ` 60,000, was sold for 18,000.
(ii) Tax paid during the year ` 60,000.
(iii) Debentures were issued on 1st July 2020.
Particulars Amount
Cash Flow from Operating Activities

Profit before tax 6,00,000 + 90,000 Tax Provision 6,90,000
Add : Loss on Sale of machinery 2,000
Depreciation 60,000
Interest on Debentures 82,500
Operating Profit before Working capital changes 8,34,500
Less : Trade Payable (1,50,000)
Inventories (2,70,000)
Cash generated from operating activities before tax 4,14,500
Less : Tax paid 60,000
Cash flow from operating activities 3,54,500
Particular Amount
Computer Software (6,00,000)
Machinery (purchase) (12,80,000)
Machinery (sale) 18,000
Particular Amount
Share Capital 15,00,000
Debentures 3,00,000
Cash flow from Financing Activities 17,17,500
Particular Amount
Cash used in Investing activities (18,62,000)
Cash flow from financing activities 17,17,500
Total 2,10,000
Add: Opening cash and cash equivalents 3,60,000
Closing cash and cash equivalents 5,70,000
13. Following is the Balance Sheet of Solar Power Ltd. as at 31.3.2021:
Solar Power Ltd. Balance Sheet
(a) Share Capital 24,00,000 22,00,000
Long-Term Borrowings (Loan) 4,80,000 3,40,000
(a) Trade Payables 3,58,000 4,08,000
(b) Short-Term Provisions 1,00,000 1,54,000
Total 39,38,000 35,02,000
II. Assets :
(i) Tangible 2 21,40,000 17,00,000
(ii) Intangible 3 80,000 2,24,000
2. Current Assets :
(b) Inventories 2,58,000 2,42,000
(d) Cash and Cash equivalents 6,40,000 7,50,000
Total 39,38,000 35,02,000
Notes to Accounts
S.No. Particulars As on 31.3.2021 As on 31.3.2020

Surplus (balance in Statement of Profit and Loss) 6,00,000 4,00,000
2. Tangible Assets
Machinery 25,40,000 20,00,000
Less : Accumulated Depreciation (4,00,000) (3,00,000)
Goodwill 80,000 2,24,000
During the year a piece of machinery costing ` 48,000 on which accumulated depreciation was ` 32,000 was sold for Rs
12,000.
Particulars Detail (`)
A. Cash Flow from operating activities

Net profit before tax 3,00,000
Add : Non operating expenses and losses
Depreciation on machinery 1,32,000
Loss on sale of machinery 4,000
Goodwill written off 1,44,000 2,80,000
Operating profit be fore working capital changes 5,80,000
Inventories (16,000)
Trade Payables (50,000) (1,20,000)
Cash generated from operating activities 4,60,000
Less : Taxpaid (1,54,000)
B. Cash Flow from investing activities
Sale of machinery 12,000
Cash used in investing activities (5,76,000)
C. Cash flow from financing activities
Issue of share capital 2,00,000
Borrowing of loan 1,40,000 3,40,000
Cash flow from financing activities 3,40,000
Net decrease in cash and cash equivalent

3,06,000+(5,76,000)+3,40,000 70,000
Add:Cash and cash equivalent in the beginning
7,50,000+3,00,000 10,50,000
Cash and cash equivalent at the end of year
6,40,000+4,80,000 11,20,000
14. (a) From the following information calculate the amount of cash flows from Investing Activities:
Particulars 31.03.2020 (`) 31.03.2021 (`)
Non Current Investments 40,000 1,00,000
Land (At cost) 2,00,000 1,00,000
(i) Depreciation charged on Plant and Machinery was ` 50,000
(ii) Plant and Machinery with a book value of ` 60,000 was sold for ` 40,000
(iii) Land was sold at a gain of ` 60,000.
(b) XYZ Ltd., provided the following information, calculate net cash flows from financing activities :
Particulars 31.03.2020 31.03.2021
12% Long-term borrowing (Debentures) 1,00,000 2,00,000
(i) Interest paid on Debentures ` 12,000 (ii) Dividend paid ` 50,000.
Particular Amount
Machinery (purchase) (2,60,000)
Machinery (sale) 40,000
Non-current Investment (60,000)
Sale of Land 1,60,000
Particular Amount
Proceeds from Share Capital 2,00,000
DividendPaid (50,000)
15. From the following extracts of Vinod Limited, calculate for the year ending 31st March, 2021
(i) Cash from Investing Activities (ii) Cash from Financing Activities
Particulars 31-03-2021 31-03-2020
Long-term Borrowings (10% Bank Loan) 60,000 1,00,000
Fixed Assets:
Less : Accumulated Depreciation (1,35,000) (90,000)
4,80,000 2,85,000
Non-current Investments 30,000 1,00,000
Land (at cost) 5,00,000 7,00,000
Computer Software 30,000 40,000
Copyrights 1,30,000 80,000
(i) 40% of loan amount and interest on loan was paid at the end of the financial year 2021.
(ii) During the year 2020-21:
(a) Interim Dividend of ` 17,000 was paid.
(b) During the year, a machine costing ` 60,000 with its accumulated depreciation of ` 37,500 was sold at a profit of
20%.
(c) The company sold 70% of its non-current investments which it held at the beginning of the year, at a profit of
20% on its book value.
Particular Amount
Sale of Machinery 27,000
Purchase of Machinery (3,00,000)
Sale of Non-current Investment 84,000
Sale of Land 2,00,000
Copyright purchased (50,000)
Working Note:
To Balance b/d 3,75,000 By Bank A/c (sale) 27,000
To Gain on sale 4,500 By Depreciation A/c 37,500
To Bank A/c (purchase) 3,00,000 By Balance c/d 6,15,000
6,79,500 6,79,500
Particular Amount
Proceeds from Share Capital 3,00,000
Bank Loan (40,000)
Interest on Loan (10,000)
Dividend Paid (17,000)
16. Following is the Balance Sheet of Vinod Power Ltd. as at 31.3.2021:

(a) Share Capital 8,50,000 7,00,000
Long-Term Borrowings : Debentures 3,60,000 3,60,000
(a) Short-term Borrowings - Bank Overdraft 40,000 20,000
(b) Trade Payables 1,00,000 1,50,000
(c) Other Current Liabilities - Expenses due 20,000 --
(b) Short-Term Provisions - Provision for tax 80,000 50,000
Total 16,50,000 15,30,000
II. Assets :
(i) Tangible 2 8,25,000 7,50,000
(ii) Intangible:(Computer Software) 1,75,000 2,50,000
(b) Non-current Investment 2,00,000 90,000
2. Current Assets :
(a) Current Investments 50,000 1,10,000
(b) Inventories 2,00,000 1,80,000
(d) Cash and Cash equivalents 50,000 30,000
Total 16,50,000 15,30,000
Notes to Accounts
S.No. Particulars As on 31.3.2021 As on 31.3.2020

General Reserve 50,000 --
Surplus (balance in Statement of Profit and Loss) 1,50,000 2,50,000
2. Tangible Assets
Plant & Machinery (at cost) 11,00,000 10,00,000
Less: Accumulated Depreciation (2,75,000) (2,50,000)
8,25,000 7,50,000
(a) Non-current investment costing ` 10,000 were sold for ` 14,000 during the year.
(b) During the year a machine costing ` 1,00,000 (Accumulated Depreciation on the same machinery was ` 60,000) was
sold for ` 50,000.
(c) Tax paid during the year ` 30,000.
Particulars Details (`) Amt. (`)

Profit before tax & extraordinary items 10,000
Add : Depreciation on Plant & Machinery 85,000
Add : Amortisation Computer Software 75,000
Less : Gain on Sale of Machinery (10,000)
Less : Gain on Sale of Non-current Investment (4,000)
Operating Profit before working capital changes 1,56,000
Less : Increase in Inventories (20,000)
Less : Increase in Trade Receivables (30,000)
Less : Decrease in Trade Payables (50,000)
Add : Increase in other current liabilities 20,000
Cash Generated (before tax) 76,000
Cash Flow from Operating Activities 46,000

Machinery Purchased (2,00,000)
Purchase of Non-current Investment (1,20,000)
Cash outflow/used in Investing Activities (2,56,000)
Issue of Share Capital 1,50,000
Increase in bank overdraft 20,000
Cash Inflow from Financing Activities 1,70,000
Net Increase in Cash & Cash Equivalents (A + B + C) (40,000)
Add : Opening balance of Cash & Cash Equivalents
Current Investments 1,10,000
Cash & Cash Equivalents 30,000 1,40,000
Closing balance of Cash & Cash Equivalents 1,00,000
(Current Investment 50,000 + Cash & Cash Equivalents 50,000)
Working Notes :
Calculation of Profit/Loss :
General Reserve 50,000
Statement of P/L (1,00,000)
Provision for Tax ( See Provision for Tax A/c) 60,000
10,000
Plant & Machinery Account
To Balance b/d 10,00,000 By Bank A/c (Sale) 50,000

To Gain on Sale 10,000 By Accumulated Dep. A/c 60,000
To Bank A/c (Bal. fig. purchase) 2,00,000 By Balance c/d 11,00,000
12,10,000 12,10,000
Accumulated Depreciation Account

To Plant & Machinery A/c 60,000 By Balance b/d 2,50,000

(Dep. on sold machine) By Depreciation A/c 85,000
To Balance c/d 2,75,000 (Bal. fig. Statement of P/L
3,35,000 3,35,000
Provision for Tax Account

To Bank A/c (Tax paid) 30,000 By Balance b/d 50,000

To Balance c/d 80,000 By Statement of P/L 60,000
(Bal. fig. provision)
1,10,000 1,10,000
Non-current Investment Account

To Balance b/d 90,000 By Bank A/c (Sale) 14,000

To Gain on Sale 4,000 By Balance c/d 2,00,000
To Bank A/c (Bal. fig. purchase) 1,20,000
2,14,000 2,14,000
17. Following are the Balance Sheets of SK Limited as on 31.3.2020 and 31.3.2021:

1. Shareholders' Funds
(a) Share Capital 1,40,000 80,000
(b) Reserves and Surplus (Loss) (64,000) (10,000)
2. Non-current Liabilities
(a) Long-term Borrowings: 8% Debentures 80,000 40,000
3. Current Liabilities
(a) Trade Payables (Creditors) 30,000 22,000
(b) Other Current Liabilities (Expenses due) 4,000 2,000
Total 1,90,000 1,34,000
II Assets
1. Non-current Assets
(i) Tangible Assets: Plant & Machinery 1,00,000 60,000
(b) Non-current Investments 28,000 40,000
2. Current Assets
(a) Inventories (Stock) 20,000 10,000
(b) Trade Receivables (Debtors) 34,000 20,000
(c) Cash and Cash Equivalents 8,000 4,000
Total 1,90,000 1,34,000

(a) Included in the fixed assets was a piece of machinery costing ` 14,000 on which depreciation charged was ` 8,000
and it was sold for ` 6,000. During the year ` 28,000 depreciation was charged on fixed assets.
(b) Non-current investments costing ` 12,000 were sold at a profit of 60%.
(c) Additional Debentures were issued on 1st October 2020.

Loss during the year (54,000)
Less : Gain on Sale of Non-current Investment (7,200)
Operating loss before working capital changes (28,400)

Add: Expenses due 2,000
Less : Inventories (10,000)
Cash usedin Operating Activities (42,400)
Machinery Purchased (74,000)
Cash outflow/used in Investing Activities (48,800)
(c) Cash Flow from Financing Activities
Issue of Share Capital 60,000
Issue of Debentures 40,000
Increase on Debentures (4,800)
Cash Inflow from Financing Activities 95,200
Net Increase in Cash & Cash Equivalents (A + B + C) 4,000
Add : Opening balance of Cash & Cash Equivalents 4,000
Closing balance of Cash & Cash Equivalents 8,000
18. Prepare Cash Flow Statement for the following Balance Sheet of Vinod Limited:
(a) Share Capital 10,00,000 8,00,000
2. Non-current Liabilities
(a) Long-term Borrowings (12% Debentures) 4,00,000 2,50,000
(a) Short term borrowings (bank overdraft) 60,000 ---
(b) Trade Payables 1,20,000 1,00,000
Total 18,85,000 14,80,000
II. Assets :
(i) Tangible (Plant & Machinery) 9,00,000 7,00,000
(ii) Intangible (Copyrights) 2,00,000 80,000
2. Current Assets:
(c) Cash and Cash equivalents 1,85,000 2,00,000
Total 18,85,000 14,80,000
Notes to Accounts

Securities Premium Reserve 20,000 --
(i) Debentures were issued on 1st August 2020.
(ii) 5% p.a. interest paid on Cash Credit during the year. Cash credit was availed on 1st December 2020.
(iii) Tax paid during the year ` 20,000
(iv) During the year, a machinery costing ` 1,00,000 (Depreciation charged on that machinery till date ` 15,000) was
sold at a loss of 20%. Total depreciation charged on machinery during the year ` 90,000.
Particulars Details (`) Amt. (`)

Profit before tax 2,60,000 - 3,00,000 + Tax 15,000 (25,000)
Add : Loss on sale of machinery 17,000
Add : Interest on Cash Credit 1,000
Operating Profit before working capital changes 1,25,000
Cash Generated (before tax) 15,000
Cash used in Operating Activities (5,000)
Machinery Purchased (3,75,000)
Copyrights purchased (1,20,000)
Issue of Share Capital 2,00,000
Cash Credit 60,000
Interest on Cash Credit (1,000)
Cash Inflow from Financing Activities 3,87,000
Net Increase in Cash & Cash Equivalents (A + B + C) (45,000)

Add : Opening balance of Cash & Cash Equivalents 3,50,000
Closing balance of Cash & Cash Equivalents 3,05,000

19. Following information is provided by Vinod Limited as on 31.3.2022:

(a) Share Capital 19,00,000 17,00,000
Long-Term Borrowings 2 5,00,000 4,00,000
Current Liabilities :
3. (a) Short term borrowings 3 70,000 5,000
(b) Trade Payables 1,00,000 1,00,000
(c) Short-Term Provisions 4 3,00,000 1,65,000
(d) Other Current Liabilities 5 ---- 1,70,000
Total 34,70,000 28,40,000
II. Assets :
(i) Tangible Assets 6 24,00,000 19,00,000
(ii) Intangible Assets 7 2,00,000 3,00,000
(b) Non-current Investment 3,00,000 2,00,000
2. Current Assets :
3. (a) Current Investments 1,40,000 2,00,000
(b) Inventories 3,60,000 2,00,000
(c) Cash and Cash equivalents 70,000 40,000
Total 34,70,000 28,40,000
Notes to Accounts
Surplus i.e. balance in Statement of P/L 6,00,000 3,00,000
12% Debentures 5,00,000 4,00,000
Bank overdraft 70,000 5,000
Provision for tax 3,00,000 1,65,000
12% Debentures due for redemption- --- 1,70,000
6. Tangible Assets
Machinery 26,00,000 20,00,000
24,00,000 19,00,000
Computer Software 2,00,000 3,00,000
(i) Interest on Debentures is paid on 31st March every year. Fresh Debentures were issued on 1st April 2021 ` 1,00,000
and debentures due for redemption were redeemed on maturity date with interest on 30th September 2021.
(ii) During the year, a piece of machinery costing ` 80,000 on which accumulated depreciation was ` 40,000 was sold at
a gain of ` 10,000.
Solution.
Cash Flow Statement
A: Cash flow from operating Activities

Net profit before tax (W.N. 1) 6,00,000
(+) Depreciation 1,40,000
(+) Interest on Debentures 60,000 + 10,200 70,200
(-) Gain on sale of machinery (10,000)
(+) Computer software amortised 1,00,000
Operating Profit before working capital change 9,00,200
(-) Increase in inventory (1,60,000)
Cash generated from operation 7,40,200
(-) Tax Paid (1,65,000)
Net cash flow from operating activities 5,75,200
B : Cash flow from investing activities
Purchase of Machine (6,80,000)
Sale of Machine 50,000
Purchase of Non-current investment (1,00,000)
Net Cash used in Investing activities (7,30,000)
C: Cash flow from financing Activities
Issue of share capital 2,00,000
Issue of debentures 1,00,000
Bank overdraft 65,000
Redemption of Debentures (1,70,000)
Net cash flow from financing activities 1,24,800
D: Net decrease in cash & Cash equivalent (A+B+C) (30,000)
Cash & Cash equivalent in the beginning 2,40,000
Cash & Cash equivalent in the End 2,10,000
Working Note. 1 : Calculation of net profit before Tax

Profit 3,00,000
(+) Provision for tax (current year) 3,00,000
Net profit before tax 6,00,000
W.N. 2
Machinery Account
Particular Amount Particular Amount
To Balance b/d 20,00,000 By Depreciation A/c 40,000

To Gain on sale (Statement of P&L) 10,000 By Bank (Sale) 50,000
To Bank (Purchase) 6,80,000 By Balance c/d 26,00,000
26,90,000 26,90,000
W.N. 3 :
Accumulated Depreciation Account
Particular Amount Particular Amount
To MachineryA/c 40,000 By Balance b/d 1,00,000

To Balance c/d 2,00,000 By Depreciation A/c (Current year) 1,40,000
2,40,000 2,40,000
20. Following was the Balance Sheet of Vinod Limited at on 31.3.2021 :

1. Shareholder's Funds :
(a) Share Capital 2,50,000 2,00,000
(b) Reserve and Surplus 1 90,000 50,000
(a) Short term borrowings (Bank overdraft) -- 10,000
(b) Trade Payables 20,000 15,000
(c) Other Current Liabilities 2 5,000 5,000
(d) Short-Term Provisions 25,000 20,000
Total 3,90,000 3,00,000
II. Assets :
Property, Plant & Equipment (Fixed Assets) :
(i) Tangible 2,55,000 2,35,000
2. Current Assets :
(a) Current Investments 30,000 --
(b) Inventories 15,000 25,000
(c) Trade Receivables 40,000 10,000
(d) Cash and Cash equivalents 50,000 30,000
Total 3,90,000 3,00,000

Notes to Accounts

Surplus i.e., Balance in Statement ofProfit & Loss 70,000 40,000
Securities Premium Reserve 20,000 10,000
90,000 50,000
Unclaimed Dividend 4,000 --
5,000 5,000
Additional Information : During the year 2020-21:
(i) A tangible fixed asset costing ` 50,000 was purchased.
(ii) Tax paid ` 15,000
(iii) Interest of ` 1,000 was paid on the bank overdraft.
(iv) Proposed Dividend for the year 2021 was ` 5,000 and for the year 2020 was ` 10,000.

Profit (70,000 - 40,000) 30,000
Add : Provision for Tax 20,000
Add : Dividend 10,000
Add : Interest 1,000
Operating profit before working capital changes 91,000
Add : Inventories 10,000
Less : Outstanding Expenses (4,000)
Cash generated from Operations 72,000
Less : Tax (15,000)
Cash flow from operating activities 57,000
Purchase of asset (50,000)
Proceeds from issue of Shares 50,000
Bank overdraft (10,000)
Dividend 10,000 - 4,000 unclaimed (6,000)
Cash flow from Financing Activities 43,000
D. Net increase in cash and cash equivalents (A+B+C) 50,000
Add : Opening cash and cash equivalents 30,000
E. Closing cash and cash equivalents 50,000+ 30,000 80,000
1.
1
Vinod Ltd. reported a profit of `90,000 for the year ended 31st March, 2021 after considering the following :
Tax Provided during the year……………………….. ` 3,000
Amortization of Patents ………………………………… ` 12,000
Profit on Sale of Land……………………………………. ` 5,000
Loss by Fire during the year…………………………. ` 2,000
The Extract of Balance Sheet is given below :
Accounts Receivable 20,000 16,000
Bank Balance 8,000 10,000
Accounts Payable 9,000 11,000
Expenses payable 6,000 5,000
Marketable Securities 5,000 2,000
Proposed Dividend for year 2020 was ` 10,000 and for 2021 was ` 12,000. You are required to calculate Cash Flow from
Operating Activities.
2. Following information is provided by Vinod Ltd on 31st March 2020 :
Particulars Note No. 2020 2019
(1) Shareholders Funds:
(a) Share Capital 1 8,00,000 8,00,000
(b) Reserves & Surplus 2 3,50,000 (40,000)
(2) Non-current Liabilities:
Long term borrowings 3 2,50,000 2,00,000
(3) Current Liabilities:
(a) Short-term Borrowings 4 60,000 1,00,000
(b) Trade Payables 2,40,000 1,90,000
(c) Short-term Provision 5 80,000 50,000
Total 17,80,000 13,00,000
II. Assets
(1) Non-current Assets:
Property, Plant & Equipment (Fixed Assets):
(ii) Intangible Assets 7 20,000 50,000
Non-current Investment 2,50,000 2,00,000
(2) Current Assets:
(b) Inventories 3,05,000 2,30,000
(d) Cash and Cash Equivalents 1,00,000 40,000
Total 17,80,000 13,00,000
Notes to Accounts :
1. Share Capital
6% Preference Share Capital 3,00,000 3,00,000
8,00,000 8,00,000

General Reserve 1,40,000 20,000
Surplus i.e. Balance in Statement of P/L 2,00,000 (60,000)
3,50,000 (40,000)
8% Debentures 2,50,000 2,00,000
8% Bank Loan 60,000 1,00,000
6. Tangible Assets
Patents 20,000 50,000
Prepare a Cash Flow Statement after taking into account the following adjustment:
(a) At the end of the year Non-current investments were sold for ` 1,50,000 (including 50% profit).
(b) Income tax ` 1,00,000 was provided
(c) Additional debentures were issued at premium on 1st April 2019.
(d) Bank Loan was repaid on 1st October 2019.
3. Following information is provided by Vinod Limited as on 31.3.2021:
(a) Share Capital 25,00,000 20,00,000
(b) Reserve and Surplus 1 10,00,000 (2,50,000)
(a) Short term borrowings 3 7,50,000 2,50,000
(b) Short-Term Provisions 4 3,50,000 4,50,000
Total 68,50,000 49,50,000

II. Assets:
(ii) Intangible Assets 6 1,00,000 1,50,000
2. (b) Non-current Investment 5,00,000 3,75,000
3. Current Assets:
(b) Inventories 7 5,35,000 2,25,000
(c) Cash and Cash equivalents 8 4,50,000 3,00,000
Total 68,50,000 49,50,000
Notes to Accounts:

Surplus i.e. Balance in Statement of P/L 10,00,000 (2,50,000)
12% Debentures 22,50,000 25,00,000
Cash Credit 7,50,000 2,50,000
4. Short-term Provision
5. Tangible Assets
Machinery (cost) 60,15,000 41,05,000
50,15,000 36,00,000
Trademarks 1,00,000 1,50,000
7. Inventories
Stock-in-Trade 5,35,000 2,25,000
8. Cash & Cash Equivalents

Cash in Hand 1,50,000 3,00,000
Marketable Securities 3,00,000 ---
(i) Interest paid on Cash Credit ` 10,000.
(ii) 12% Debentures were redeemed on 31st March 2021.
(iii) Tax paid ` 3,50,000 during the year.
1.
1
Cash used in Operating Activities of Vinod Ltd. for the year ended 31st March 2021 was ` 48,000. The Balance Sheet
along with Notes to Accounts as at 31st March 2021 as follows:
I. EQUITY AND LIABILITIES

(a) Share Capital 18,00,000 10,00,000
(a) Short-Term Provisions 3 2,50,000 3,60,000
(b) Other Current Liabilities 4 ---- 3,00,000
Total 22,30,000 18,00,000
II. ASSETS:
(ii) Intangible Assets 6 1,80,000 70,000
2. Current Assets:
(a) Current Investments 30,000 1,90,000
(b) Inventories 30,000 ---
(d) Cash and Cash equivalents 3,00,000 2,30,000
Total 22,30,000 18,00,000
Notes to Accounts :
Particulars 31.3.2021 31.3.2020
Surplus i.e. Balance in Statement of Profit & Loss 50,000 40,000
8% Debentures 1,00,000 1,00,000
4. Other-current Liabilities
8% Debentures Current Maturities Nil 3,00,000
5. Tangible Assets
Plant & Machinery 15,20,000 10,90,000
Less: Accumulated Depreciation (1,20,000) (90,000)
14,00,000 10,00,000
Patents 1,80,000 70,000
(i) A Machinery of the book value of ` 40,000 (accumulated depreciation of that machinery ` 12,000) was sold at a loss
of ` 6,000
(ii) 8% Debentures were redeemed on 1st July 2020.
2. Vinod Ltd. has provided the following information on 31st March 2021 :
Particulars Note No. 31st March 2021 31st March 2020
I. EQUITY AND LIABILITIES:
(a) Share Capital 10,00,000 8,00,000
(b) Reserve and Surplus 1 4,00,000 (1,00,000)
Long-term Borrowings 2 9,00,000 9,00,000
(a) Short-term Borrowings 3 2,40,000 1,00,000
(b) Short-term Provisions 4 2,00,000 1,75,000
Total 27,40,000 18,75,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment (Fixed Assets):
(ii) Intangible Assets (Trademarks) 46,000 58,000
(b) Non-current Investments 6 1,00,000 45,000
2. Current Assets:
(b) Inventories (Stock) 2,14,000 90,000
(c) Cash and Cash Equivalents 1,80,000 1,20,000
Total 27,40,000 18,75,000
Notes to Accounts :
Particulars 31.3.2021 31.3.2020
Surplus i.e. Balance in Statement of Profit & Loss 4,00,000 (1,00,000)
12% Debentures 9,00,000 9,00,000
Bank overdraft 2,40,000 1,00,000
5. Tangible Assets
Machinery 24,00,000 16,42,000
20,00,000 14,42,000
6. Non-current Investments
8% Fixed Deposits 45,000 45,000
12% Debentures purchased of Tata Ltd. 55,000 ---
(i) Tax ` 1,50,000 was paid during the year. (ii) 12% Investment was made on 1st December 2020.
1
1. Calculate Cash from Operating Activities from the following:
Surplus i.e. Balance in Statement of Profit and Loss 80,000 1,00,000

Goodwill 15,000 20,000
Outstanding Expenses 8,000 ---
Provision for Depreciation on Plant 1,00,000 82,000
Prepaid Expenses --- 6,000
Trade Payables 84,000 60,000
(i) Plant costing ` 60,000 having book value of ` 36,000 was sold for ` 40,000 during the year.
(ii) Income Tax paid during the year ` 30,000
(iii) Interim Dividend paid during the year ` 18,000.
2. Vinod Ltd. has provided the following information on 31st March 2021:
(a) Share Capital 4,00,000 3,00,000
Long-term Borrowings 2 80,000 80,000
(a) Trade Payables 3 1,60,000 60,000
(b) Other Current Liabilities 4 20,000 45,000
Total 7,30,000 5,35,000

II. ASSETS
(ii) Intangible Assets (Software) 2,000 10,000
(b) Long-term Loans and Advances 1,30,000 1,00,000
2. Current Assets:
(a) Inventories 90,000 70,000
(b) Trade Receivables 60,000 40,000
(c) Cash and Cash Equivalents 98,000 65,000
Total 7,30,000 5,35,000

Notes to Accounts:
Particulars 31.3.2021 31.3.2020
Surplus i.e. Balance in Statement of Profit & Loss 70,000 50,000
12% Debentures 80,000 80,000
3. Trade Payables
Creditors 1,60,000 40,000
Bills Payables --- 20,000
12% Debentures Current Maturities --- 20,000
5. Tangible Assets
Machinery 4,00,000 2,90,000
Less: Provision for Depreciation (50,000) (40,000)
3,50,000 2,50,000
(i) During the year a machinery with a book value of 80,000 (after deducting provision for depreciation on it ` 10,000)
was sold at a loss of 40% on book value.
(ii) Debentures were redeemed on 31st December 2020.
3. Prepare Cash Flow Statement from the following information:
I. EQUITY AND LIABILITIES :
(a) Share Capital 15,00,000 11,00,000
(a) Short-Term Borrowings 3 20,000 30,000
(b) Trade Payables 1,00,000 60,000
Total 26,80,000 17,60,000
II. ASSETS
(ii) Intangible Assets (Goodwill) 1,40,000 2,00,000
2. Current Assets:
(a) Inventories 3,50,000 3,00,000
(c) Cash and Cash Equivalents (Bank Balance) 90,000 60,000
Total 26,80,000 17,60,000
Notes to Accounts :
Particulars 31.3.2021 31.3.2020
10% Debentures 5,00,000 1,40,000
3. Short-Term Borrowings
4. Short-Term Provisions
Provision for Taxation 60,000 30,000
5. Tangible Assets
Machinery 17,60,000 10,00,000
Less: Provision for Depreciation (1,60,000) (1,00,000)
16,00,000 9,00,000
(i) A part of the machine (costing ` 50,000) accumulated depreciation thereon being ` 20,000 was sold at a loss of 40%
on book value.
(ii) Tax Paid ` 20,000
(iii) 10% Debentures were issued on 1st April 2020. Interest was paid on Debentures on 31st March 2021.
4. Prepare Cash Flow Statement from the following information:
(a) Share Capital 16,50,000 14,00,000
(a) Short-Term Borrowings 3 17,000 10,000
(b) Trade Payables 15,000 1,00,000
Total 21,50,000 17,95,000
II. ASSETS
(ii) Intangible Assets (Copyrights) 1,60,000 30,000
(b) Non-current Investment 45,000 55,000
2. Current Assets:
(b) Inventories 37,000 60,000
(c) Trade Receivables 26,000 23,000
(d) Cash and Cash Equivalents (Bank Balance) 14,000 12,000
Total 21,50,000 17,95,000
Notes to Accounts :
Particulars 31.3.2021 31.3.2020
8% Term Loan 2,00,000 1,25,000
3. Short-Term Borrowings
4. Short-Term Provisions
5. Tangible Assets
Machinery 20,00,000 17,00,000
Less: Provision for Depreciation (1,40,000) (90,000)
18,60,000 16,10,000
(i) Tax paid during the year amounted to ` 16,000
(ii) An old Machine with a net book value of ` 10,000 (after Accumulated Depreciation ` 40,000) was sold and only 20%
of net book value amount realized from it.
(iii) During the year Non-current Investments were sold at a gain of 20%.
12
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43 1234523495 66
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1. Read the following hypothetical text and answer the given questions on the basis of the same:
Krishika an alumni of IIM Ahemdabad initiated her startup Krishika Ltd. in 2018. The profits of Krishika Ltd. in the
year 2019-20 after all appropriations was ` 31,25,000. This profit was arrived after taking into consideration the
following items:-
Particulars Amount
Gain on sale of fixed tangible assets 12,50,000

Goodwill written off 7,80,000
Transfer to General Reserve 8,75,000
Provision for taxation 4,37,500
Particulars 31.3.2020 31.3.2019
Prepaid Expenses 7,50,000 5,00,000

Inventory 10,50,000 8,20,000
Trade Payables 4,50,000 3,50,000
(1) Net Profit before tax will be ……………………………. (Choose the correct alternative)
(a) 22,50,000 (b) 35,62,500
(c) 39,67,500 (d) 44,37,500
(2) Operating profit before working capital changes is……… (Choose the correctalternative)
(a) 52,17,500 (b) 64,67,500
(c) 39,67,500 (d) 39,69,500
(3) Cash from operating activities before tax will be………… (Choose the correct alternative)
(a) 35,57,500 (b) 40,67,500
(c) 37,87,500 (d) 35,67,300
(4) Cash flow from Operating Activities will be………… (Choose the correct alternative)
(a) 39,95,000 (b) 31,20,000
(c) 40,67,500 (d) 31,00,000
Answers:
1. (d) 44,37,5002 (c) 39,67,5003 (a) 35,57,5004 (b) 31,20,000
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2. Following information is provided by the Vinod Ltd. on 31st March 2021:
Particulars 31.3.2021 31.3.2020
Fixed Assets (at cost) 6,00,000 4,90,000
(i) The Provision for Depreciation on Fixed Assets stood at Rs.1,40,000 on 31st March, 2020 and Rs.1,80,000 on 31st
March 2021.
(ii) During the year 2020-21, a fixed asset costing Rs.60,000 (book value Rs.30,000) was sold for Rs.20,000.
You are required to answer the following questions:
(1) Fixed Assets purchased by the Vinod Ltd. for Rs…………………..
(2) Fixed Assets Sold by Vinod Ltd. Rs……………………………………….
(3) Gain/Loss on sale of Fixed Assets _______________
(4) How much Depreciation is charged on the Fixed Assets?
Answers : (1) 1,70,000 (2) 20,000
(3) 10,000 (4) 70,000
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3. Vinod Ltd. reported a profit of Rs.90,000 for the year ended 31st March 2021 after considering
the:
Provision made for tax during the year ......................................... Rs.3,000
Amortisation of Trademarks ...................................................... Rs.12,000
Gain on Sale of Land ............................................................... Rs.5,000
Writing off Preliminary Expenses ................................................ Rs.2,000
A Machinery with book value Rs.22,000 was sold during the year at a loss of Rs.17,000. Total Depreciation charged
during the year on Plant on Machinery Rs.14,000.
Information Extracted from the Balance Sheet:
Particulars 31.3.2021 31.3.2020
Trade Receivables 20,000 16,000

Bank Balance 8,000 10,000
Trade Payable 9,000 11,000
Marketable Securities 5,000 2,000
Plant and Machinery 94,000 1,30,000
Proposed Dividend for previous year was Rs.10,000 and for the current year was Rs.12,000.
You are required to answer the following questions:
(1) Machinery was sold for Rs. ______________
(2) How much tax is paid during the year?
(3) Calculate Operating Profit before changes in working capital.
(4) Cash flow from Operating Activities will be __________
Answers: (1) 5,000 (2) 5,000 (3) 1,43,000 (4) 1,36,000

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Updated Complete Cash Flow Statement

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ULTIMATE BOOK OF ACCOUNTANCY

Cash : (i) Cash in hand (ii) Cash at bank

21. When is interest received considered as financing activity?

Particulars 2021 2020

Surplus i.e. Statement of Profit and Loss 3,80,000 (50,000)

Particulars 2021 2020

Provision for Tax 1,00,000 1,50,000

Particulars 2021 2020

CASH FLOW FROM OPERATING ACTIVITIES

To Balance b/d 2,24,000 By Bank (Sale) 90,000

Surplus i.e. Balance in Statement of Profit & Loss 5,60,000 6,80,000

Solution. Cash Flow Statement

Particulars Details Amount

CASH FLOW FROM OPERATING ACTIVITIES

To Plant A/c 1,44,000 By Balance b/d 4,92,000

(ii) Gain on Sale of Plant = 2,40,000 - 2,16,000 book value = 24,000

Cash Flow from Investing Activities

Land purchased during the year 5,00,000

Solution. Cash Flow from Investing Activities

Particulars Details Amount

CASH FLOW FROM INVESTING ACTIVITIES

Investments in shares of Vinod Ltd. 18,00,000 8,00,000

Solution. Cash Flow from Investing Activities

Particulars Details Amount

CASH FLOW FROM INVESTING ACTIVITIES

Plant and Machinery Account

Particulars Amount Particulars Amount

To Balance b/d 4,00,000 By Bank A/c (Sale) 40,000

Particulars 31st March 2021 31st March 2020

Plant and Machinery 8,00,000 6,00,000

Solution. Cash Flow from Investing Activities

Particulars Details Amount

CASH FLOW FROM INVESTING ACTIVITIES

Plant and Machinery Account

To Balance b/d 6,00,000 By Depreciation A/c 60,000

Particulars Amount Particulars Amount

To Balance b/d 4,30,000 By Bank A/c (Sale) 2,25,000

Cash Flow from Financing Activities

Particulars 31st March 2021 31st March 2020

Equity Share Capital 7,50,000 5,00,000

Solution. Cash Flow Statement

Particulars Details Amount

CASH FLOW FROM FINANCING ACTIVITIES

Particulars 31st March 2021 31st March 2020

Equity Share Capital 8,00,000 6,00,000

CASH FLOW FROM FINANCING ACTIVITIES

Particular Note No. 31.3.2021 (Rs) 31.3.2020 (Rs)

I. Equity and Liabilities

Total 35,84,000 31,60,000

S.No. Particulars 2021 2020

2. Reserves and Surplus

Prepare Cash Flow Statement

Particulars Details Amount

A. Cash Flow from Operating Activities

B. Cash Flow from Investing Activities

C. Cash Flow from Financing Activities

Cash and Cash Equivalents at the end 30,000 + 1,00,000 1,30,000

I. Equity and Liabilities

Total 13,00,000 9,90,000

Total 13,00,000 9,90,000

S.No. Particulars 2021 2020

1. Reserves and Surplus

2. Cash and Cash Equivalents