The cash flow statement summarizes the cash inflows and outflows for ABC Ltd. between 2019 and 2020. It shows a net cash outflow from operating activities of Rs. 5,000. Investing activities had a net cash inflow of Rs. 27,000 from the sale of long-term investments offset by purchase of furniture and fittings. Financing activities had a net cash outflow of Rs. 25,000 due to redemption of equity shares exceeding issues of preference shares, debentures and bank loans. The overall net effect was a decrease in cash and cash equivalents.
The cash flow statement summarizes the cash inflows and outflows for ABC Ltd. between 2019 and 2020. It shows a net cash outflow from operating activities of Rs. 5,000. Investing activities had a net cash inflow of Rs. 27,000 from the sale of long-term investments offset by purchase of furniture and fittings. Financing activities had a net cash outflow of Rs. 25,000 due to redemption of equity shares exceeding issues of preference shares, debentures and bank loans. The overall net effect was a decrease in cash and cash equivalents.
The cash flow statement summarizes the cash inflows and outflows for ABC Ltd. between 2019 and 2020. It shows a net cash outflow from operating activities of Rs. 5,000. Investing activities had a net cash inflow of Rs. 27,000 from the sale of long-term investments offset by purchase of furniture and fittings. Financing activities had a net cash outflow of Rs. 25,000 due to redemption of equity shares exceeding issues of preference shares, debentures and bank loans. The overall net effect was a decrease in cash and cash equivalents.
The cash flow statement summarizes the cash inflows and outflows for ABC Ltd. between 2019 and 2020. It shows a net cash outflow from operating activities of Rs. 5,000. Investing activities had a net cash inflow of Rs. 27,000 from the sale of long-term investments offset by purchase of furniture and fittings. Financing activities had a net cash outflow of Rs. 25,000 due to redemption of equity shares exceeding issues of preference shares, debentures and bank loans. The overall net effect was a decrease in cash and cash equivalents.
Changes in cash position between two accounting periods
Useful tool to make short term financial decisions Guide to forecasting Effective cash management Reveals Liquidity position Cash: Cash in hand and demand deposits with bank Cash equivalents: highly liquid instruments that are readily convertible into cash – short term –ex: T.bills Cash flows: Cash inflow increases cash total and outflow decreases cash.
Cash flow statement is prepared with operating, investing and financing
activities. Two methods of converting net profit shown by profit and loss account into net cash flows from operating activity: Direct Method- Cash flow from operating activities: Determines changes in cash receipts and payments reported in the cash flow from the operations section Indirect method- takes net income generated in a period and adds or subtracts changes in the asset and liability accounts to determine cash flow. Particulars Rs. Rs. Rs. 1. Cash from operating activities: Net profit xxx Add: Intangible assets written off xxx Add: Transfer to general reserve xxx Add: Proposed dividend xxx Add: Provision for tax xxx Add: Interim dividend paid xxx Add: Fictitious assets written off [Discount on issue of debentures and preliminary expenses] xxx Less: Income tax refund xxx Net Profit Before Tax & Extraordinary Items xxxx Add: Adjustments for Non cash, Non operating items and Loss on sale of fixed assets & investments: Depreciation on fixed assets xxx Interest expenses or Interest paid on debentures xxx Loss on sale of fixed assets or investments xxx Premium on redemption of debentures xxx xxx
Less: Adjustments for non operating incomes & gains: Gain on sale of fixed assets or investments xxx Interest or dividend received on long term investments xxx xxx Operating Profit Before Working Capital Changes xxxx Add: Adjustments for Increase in Current liabilities & Decrease in Current Assets [Except cash & cash equivalents] xxx xxx Less: Adjustments for Increase in Current Assets & Decrease in Current Liabilities [Except cash & cash equivalents] xxx xxx Cash generated from operations xxxx Less: Income tax paid xxx Cash flow before extraordinary items xxxx Add/Less: Extraordinary losses/gains xxx Net Cash From Operating Activities xxxx 2. Cash flows from investing activities:
Add: Sale of fixed assets or investments xxx
Add: Dividend or Interest received xxx
Less: Purchase of fixed assets or investments xxx
Net Cash From Investing Activities xxxx
3. Cash flows from financing activities: Add: Issue of shares or debentures xxx Add: Loan received xxx Less: Interest or dividend paid xxx Less: Repayment of loan xxx Less: Redemption of Preference shares or debentures xxx Less: Drawings xxx Net Cash From Financing Activities xxxx Net Increase or Decrease in cash & cash equivalents xxxx Add: Cash & cash equivalents at the beginning of the period xxxx Cash & cash equivalents at the end of the period xxxx Balance sheet of ABC Ltd. Prepare cash flow statement: Liabilities 2019 2020 Assets 2019 2020 Equity share capital 9,00,000 6,00,000 Furniture & Fittings 1,17,000 1,30,000 Preference share capital ------- 2,00,000 Machine 1,54,000 80,000 P&L Account 1,10,000 75,000 Long term investments 3,00,000 2,60,000 Debentures 2,50,000 3,00,000 Stock 8,29,000 8,00,000 Bank loan 75,000 1,00,000 Trade debtors 90,000 1,09,000 Bills payable 45,000 40,000 Cash at bank 1,43,000 1,40,000 Trade creditors 1,50,000 1,15,000 Prepaid expense 10,000 15,000 Outstanding expenses 18,000 19,000 Provision for tax 95,000 85,000 16,43,000 15,34,000 16,43,000 15,34,000 Particulars Rs. Rs. Rs. 1. Cash from operating activities: Net balances of P&L Account[Rs.75,000 – Rs.1,10,000] [35,000] Add: Provision for tax 85,000 85,000 Net Profit Before Tax & Extraordinary Items 50,000 Add: Adjustments for Non cash, Non operating items and Loss on sale of fixed assets & investments: Depreciation on machine 74,000 74,000 Less: Adjustments for non operating incomes & gains xxx xxx Operating Profit Before Working Capital Changes 1,24,000 Add: Adjustments for Increase in Current liabilities & Decrease in Current Assets: Increase in Outstanding expenses 1,000 Decrease in Stock 29,000 30,000 Less: Adjustments for Decrease in Current Liabilities & Increase in Current Assets: Increase in prepaid expense 5,000 Decrease in Bills payable 5,000 Decrease in Trade creditors 35,000 Increase in Trade debtors 19,000 [64,000] Cash generated from operations before tax 90,000 Less: Income tax paid [95,000] Cash flow before extraordinary items [5,000] Add/Less: Extraordinary losses/gains xxx Net Cash From Operating Activities [5,000] Particulars Rs. Rs. Rs. 2. Cash flows from investing activities: Add: Sale of long term investments 40,000 Less: Purchase of Furniture & Fittings [13,000] 27,000 Net Cash From Investing Activities 27,000 3. Cash flows from financing activities: Add: Issue of Preference shares 2,00,000 Add: Issue of Debentures 50,000 Add: Bank loan borrowed 25,000 Less: Redemption of equity shares [3,00,000] [25,000] Net Cash From Financing Activities [25,000]
Net Decrease in cash & cash equivalents [3,000]
Add: Cash & cash equivalents at the beginning of 143,000
the period Cash & cash equivalents at the end of the period 140,000