Question

From the following Balance Sheets of Rainbow Ltd., you are required to prepare a Cash Flow Statement (as per As 3) for the year 2021 - 22.

Balance Sheets of Rainbow Ltd. As at 31st March, 2022 and 31st March, 2021
Particulars	Note no.	31.3.2022 (₹)	31.3.2021 (₹)
I. Equity and liabilities
1. Shareholder's Funds
(a) Share Capital (Equity)		4,00,000	4,00,000
(b) Reserve and Surplus	1	1,60,000	1,20,000
2. Non-Current Liabilities
Long-term Borrowings (5% Debentures)		3,50,000	2,60,000
3. Current Liabilities
Short term Provision (Provision for Tax)		30,000	25,000
Total		9,40,000	8,05,000
II. Assets
1. Non-Current Assets
Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment (Plant & Machinery)		6,00,000	7,80,000
2. Current Assets
Cash & Bank Balances (Cash at Bank)		3,40,000	25,000
Total		9,40,000	8,05,000

Notes to Accounts:

Particulars	31.3.2022 (₹)	31.3.2021 (₹)
I. Reserves and Surplus
General Reserve	30,000	20,000
Balance in Statement of Profit and Loss	1,30,000	1,00,000

Additional Information:

During the year 2021-22, the company:

1. Sold a machine for ₹ 90,000 at a loss ₹10,000.
2. Issued the 5% Debentures on 31^st March; 2022, at a discount of 10%. The discount was written off from General Reserve.

Answer 1

Rainbow Ltd. Cash Flow Statement for the year ended 31st March, 2022
Particulars		Amount (₹)	Amount (₹)
A.	Cash Flow from Operating Activities
	Net profit before tax (working note 1)	70,000
	Adjustments for non-cash and non-operating items
Add:	Depreciation on plant and machinery.	80,000
	Loss on sale of machine	10,000
	Discount on issue of debentures	9,000
	Interest on debentures (2,60,000 × 5%)	13,000
	Operating profit before working capital changes	1,82,000
Less:	Tax paid	(25,000)
	Net Cash Flow from Operating Activities	1,57,000	1,57,000
B.	Cash flow from Investing Activities
	Proceeds from sale of machine	90,000
	Net cash Flow from Operating Activities	90,000	90,000
C.	Cash Flow from Financing Activities
	Proceeds from issue of debentures (90,000 - 9,000)	81,000
	Payment of interest on debentures	(13,000)
	Net cash flow from financing activities	68,000	68,000
	Net increase in cash and cash equivalents		3,15,000
Add:	Opening cash and bank balances		25,000
	Closing cash and bank balances		3,40,000

Working Note:

New debentures issued = 3,50,000 - 2,60,000 = ₹ 90,000

Discount on issue of debentures = 90,000 × 10% = ₹ 9,000

Transfer to general reserve = 30,000 - 20,000 = ₹ 10,000

(1) 

Calculation of Net Profit before tax difference between closing and opening balance of surplus i.e. balance in statement of profit and loss (1,30,000 - 1,00,000)	30,000
Add: Transfer to general reserve	10,000
Provision for tax for current year	30,000
Net profit before tax	70,000

(2)

Dr.	Plant and Machinery Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	7,80,000	By Bank A/c	90,000
		By Statement of Profit & Loss (Loss of sale)	10,000
		By Depreciation A/c (balancing fig.)	80,000
		By Balance c/d	6,00,000
	7,80,000		7,80,000