WORKSHEET -6 ON CASH FLOW STATEMENT

Q1). From the following extracts taken from the Balance Sheet of M/s K Ltd. On 31 st March
and the additional information provided, you are required to calculate:

(i) Cash Flows from Operating Activities.

(ii) Cash Flows from Financing Activities.

Particulars 31.3.2015 31.3.2016

Equity Share Capital 20,00,000 30,00,000
10% Preference Share Capital 2,00,000 1,00,000
Securities Premium Reserve a/c -------------- 85,000
Profit & Loss Balance 4,00,000 8,00,000
10% Debentures 10,00,000 11,00,000

Additional Information:
1. Fresh equity shares were issued on 31st March 2016 at a premium of 10% and
Underwriting Commission amounted to Rs. 10,000.
2. Interim Dividend was paid on equity shares @ 8%.
3. Preference shares were redeemed on 31st March, 2016 at Par.
4. 10% Debentures were issued on 1st April 2015, at a discount of 5%. Discount on issue
of Debentures was written off from premium received on issue of fresh equity
shares.
Solution:
K Ltd.

CASH FLOW STATEMENT for the year ended 31.3.2016

Particulars Rs. Rs.

A. Cash Flows from Operating Activities:

Net Profit before Tax ( Note 1) 5,80,000

Adjustments for non-cash and non-operating items:
Add: Interest on Debentures 1,10,000
Operating Profit before Working Capital changes 6,90,000
Net Cash from operating activities 6,90,000
6,90,000

Cash flows from Financing Activities:

Cash Proceeds from Equity Shares (Rs. 10,00,000 + Rs.1,00,000 -

10,000) 10,90,000
Cash paid for Redemption of Preference Shares (1,00,000)
Cash Proceeds from Debentures (Rs. 1,00,000 – Rs. 5,000) 95,000
Dividend Paid on Preference Shares (20,000)
Dividend Paid on Equity Shares (1,60,000)
Interest on Debentures (1,10,000)
Net Cash flows from financing activities 7,95,000 7,95,000
Notes:
Calculation of Net Profit before Tax:
Profit & Loss Balance on 31st March, 2016 8,00,000
Less: Profit & Loss Balance on 31st March, 2015 4,00,000
4,00,000
Add: Dividend Paid on Preference Shares (10% on Rs. 2,00,000) 20,000
Dividend Paid on Equity Shares (8% on Rs. 20,00,000) 1,60,000
Net Profit before Tax 5,80,000
PBITD
Less: Interest
PBT (This is our Destination) 5,80,000
Less: Tax NIL
PAT 5,80,000
Less: Preference Dividend 20,000
Profit available to Equity Dividend – (Equity Dividend; Interim Dividend; Proposed
Shareholders Dividend) = 1,60,000
+ Balance of Statement of P/L = Rs. 4,00,000

Dividend on Preference Shares is paid before payment of dividend on Equity Shares. The
Company has paid Interim Dividend on Equity Shares. Hence, it must have paid dividend on
Preference Shares.

Entry (i)

Bank a/c……………..Dr 11,00,000

To E.S. Application 11,00,000

Equity Share Application a/c…………….Dr 11,00,000

To Equity Share Capital 10,00,000
To SPR 1,00,000
OR

Bank a/c…………….Dr 11,00,000

To Equity Share Capital 10,00,000
To SPR 1,00,000

Underwriting Commission…………….Dr 10,000

To Underwriter’s a/c 10,000

Underwriter’s a/c…………….Dr 10,000

To Bank a/c 10,000

OR

Underwriter’s a/c…………….Dr 10,000

To Share Capital a/c 10,000
(NOT APPLICABLE HERE)
SPR a/c………………….Dr 10,000
To Underwriting Commission 10,000

Entry (ii)

(At the time of Issue)

Bank a/c………………..Dr 95,000

To Debenture Application & Allotment a/c 95,000

Debenture Application & Allotment a/c…………Dr 95,000

Discount on Issue of Debentures a/c………………Dr 5,000
To Debentures a/c 1,00,000

SPR A/C…………Dr 5,000

To Discount on Issue of Debentures a/c……………… 5,000
Q2). From the following extracts taken from the Balance Sheet of M/s K Ltd. On 31 st March
and the additional information provided, you are required to calculate:

(i) Cash Flows from Operating Activities.

(ii) Cash Flows from Financing Activities.

Particulars 31.3.2015 31.3.2016

Equity Share Capital 20,00,000 30,00,000
10% Preference Share Capital 2,00,000 1,00,000
Securities Premium Reserve a/c -------------- 90,000
Profit & Loss Balance 4,00,000 8,00,000
10% Debentures 10,00,000 11,00,000

Additional Information:
1. Fresh equity shares were issued on 31st March 2016 at a premium of 10% and
Underwriting Commission amounted to Rs. 10,000.
2. Interim Dividend was paid on equity shares @ 8%.
3. Preference shares were redeemed on 31st March, 2016 at Par.
4. 10% Debentures were issued on 1st April 2015, at a discount of 5%. Discount on issue
of Debentures was written off from Statement of P&L.

Solution:
K Ltd.

CASH FLOW STATEMENT for the year ended 31.3.2016

Particulars Rs. Rs.

B. Cash Flows from Operating Activities:

Net Profit before Tax ( Note 1) 5,80,000

Adjustments for non-cash and non-operating items:
Add: Interest on Debentures 1,10,000
Discount on issue of Debentures 5,000
Operating Profit before Working Capital changes 6,95,000
Net Cash from operating activities 6,95,000 6,95,000
Cash flows from Financing Activities:
Cash Proceeds from Equity Shares (Rs. 10,00,000 + Rs.1,00,000 –
10,000) 10,90,000
Cash paid for Redemption of Preference Shares (1,00,000)
Cash Proceeds from Issue of Debentures 95,000
Dividend Paid on Preference Shares (20,000)
Dividend Paid on Equity Shares (1,60,000)
Interest on Debentures (1,10,000) 7,95,000
Net Cash flows from financing activities 7,95,000
Notes:
Calculation of Net Profit before Tax:
Profit & Loss Balance on 31st March, 2016 8,00,000
Less: Profit & Loss Balance on 31st March, 2015 4,00,000
4,00,000
Add: Dividend Paid on Preference Shares (10% on Rs. 2,00,000) 20,000
Dividend Paid on Equity Shares (8% on Rs. 20,00,000) 1,60,000
Net Profit before Tax 5,80,000

PBITD
Less: Interest
PBT (This is our Destination) 5,80,000
Less: Tax NIL
PAT 5,80,000
Less: Preference Dividend 20,000
Profit available to Equity Dividend – (Equity Dividend; Interim Dividend; Proposed
Shareholders Dividend) = 1,60,000
+ Balance of Statement of P/L = Rs. 4,00,000

Dividend on Preference Shares is paid before payment of dividend on Equity Shares. The
Company has paid Interim Dividend on Equity Shares. Hence, it must have paid dividend on
Preference Shares.
Entry (i)

Bank a/c……………..Dr 11,00,000

To E.S. Application 11,00,000

Equity Share Application a/c…………….Dr 11,00,000

To Equity Share Capital 10,00,000
To SPR 1,00,000
OR

Bank a/c…………….Dr 11,00,000

To Equity Share Capital 10,00,000
To SPR 1,00,000

Underwriting Commission…………….Dr 10,000

To Underwriter’s a/c 10,000

Underwriter’s a/c…………….Dr 10,000

To Bank a/c 10,000

OR

Underwriter’s a/c…………….Dr 10,000

To Share Capital a/c 10,000
(NOT APPLICABLE HERE)

SPR a/c………………….Dr 10,000

To Underwriting Commission 10,000

Entry (ii)

(At the time of Issue)

Bank a/c………………..Dr 95,000

To Debenture Application & Allotment a/c 95,000

Debenture Application & Allotment a/c…………Dr 95,000

Discount on Issue of Debentures a/c………………Dr 5,000
To Debentures a/c 1,00,000

Statement of P& L …………Dr 5,000

To Discount on Issue of Debentures a/c……………… 5,000