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Question
Read the following hypothetical text and answer the given questions on the basis of the same:
Aashna, an alumnus of CBSE School, initiated her start up Smartpay, in 2015. Smartpay is a service platform that processes payments via UPI and POS, and provides credit or loans to their clients. During the year 2021-22, Smartpay issued bonus shares in the ratio of 5:1 by capitalising reserves. The profits of Smartpay in the year 2021-22 after all appropriations was ₹ 7,50,000. This profit was arrived after taking into consideration the following items -
| Particulars | Amount (₹) |
| Interim Dividend paid during the year | 90,000 |
| Depreciation on Machinery | 40,000 |
| Loss of Machinery due to fire | 20,000 |
| Insurance claim received for Loss of Machinery due to Fire |
10,000 |
| Interest on Non-Current Investments received | 30,000 |
| Tax Refund | 20,000 |
Additional Information:
| Particulars | 31.3.22 (₹) | 31.3.21 (₹) |
| Equity Share Capital | 12,00,000 | 10,00,000 |
| Securities Premium Account | 3,00,000 | 5,00,000 |
| General Reserve | 1,50,000 | 1,50,000 |
| Investment in Marketable Securities | 1,50,000 | 1,00,000 |
| Cash in hand | 2,00,000 | 3,00,000 |
| Machinery | 3,00,000 | 2,00,000 |
| 10% Non-Current Investments | 4,00,000 | 3,00,000 |
| Bank Overdraft | 2,50,000 | 2,00,000 |
| Goodwill | 30,000 | 80,000 |
| Provision for Tax | 80,000 | 60,000 |
- Goodwill purchased during the year was ₹ 20,000.
- Proposed Dividend for the year ended March 31, 2021 was ₹ 1,60,000 and for the year ended March 31, 2022 was ₹ 2,00,000.
You are required to:
- Calculate Net Profit before tax and extraordinary items.
- Calculate Operating profit before working capital changes.
- Calculate Cash flow from Investing activities.
- Calculate Cash flow from Financing activities.
- Calculate closing cash and cash equivalents.
Solution
(1) Net Profit before tax and extraordinary items = Net Profit for the year + Interim Dividend + Loss of assets due to fire + Provision for Tax + Proposed Dividend - Insurance claim received for Loss due to Fire – Tax refund
= 7,50,000 + 90,000 + 20,000 + 80,000 + 1,60,000 – 10,000 – 20,000
= ₹ 10,70,000
(2) Operating profit before working capital changes = Net Profit before tax and extraordinary items + Adjustments for non-cash and non-operating expenses and goodwill amortised – Adjustments for non-cash and non-operating incomes
= 10,70,000 + 40,000 + 70,000** – 30,000
= 11,50,000
** Goodwill amortised = Opening goodwill + Goodwill purchased - Closing goodwill
(3) Cash flow from Investing Activities = Interest on Non-Current Investments + Insurance claim for loss of assets due to fire – Purchase of Investments – Purchase of Machinery – Goodwill purchased
= 30,000 + 10,000 – 1,00,000 - 1,60,000 – 20,000
= ₹ (2,40,000) Outflow
(4) Cash flow from Financing Activities = Raise of Bank overdraft – Interim Dividend Paid – Final Dividend paid
= 50,000 – 90,000 – 1,60,000
= ₹ (2,00,000) Outflow
(5) Closing Cash and Cash Equivalents = Cash in Hand + Investment in Marketable Securities
= 2,00,000 + 1,50,000
= 3,50,000
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RELATED QUESTIONS
Short Answer Question
How are the various activities classified (as per AS-3 revised) while preparing cash flow statement?
For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow, viz., operating, investing and financing.
(a) Acquired machinery for Rs 2,50,000 paying 20% by cheque and executing a bond for the balance payable.
(b) Paid Rs 2,50,000 to acquire shares in Informa Tech. and received a dividend of Rs 50,000 after acquisition.
(c) Sold machinery of original cost Rs 2,00,000 with an accumulated depreciation of Rs 1,60,000 for Rs 60,000.
Identify the transactions as belonging to (i) Operating Activities, (ii) Investing Activities, (iii) Financing Activities and (iv) Cash and Cash Equivalents:
| (a) Cash Sale of Goods | (b) Cash Received against Revenue from Services rendered |
| (c) Cash Purchase of Goods | (d) Cash Paid against Services Taken |
| (e) Patents Purchased | (f) Marketable Securities |
| (g) Bank Overdraft | (h) Proceeds from Issue of Debentures |
| (i) Purchase of Shares | (j) Repayment of Long-term Loan |
| (k) Commission Received | (l) Redemption of Debentures |
| (m) Interest on Debentures | (n) Interest on Investments |
| (o) Income Tax Paid | (p) Income Tax Paid on Gain of Sale of Asset |
| (q) Cash Received from Debtors | (r) Cash Paid to Creditors |
Classify the following transactions as Operating Activities for a financial company and a non-financial company:
(a) Purchase of Shares on a Stock Exchange.
(b) Dividend received on Shares.
(c) Dividend paid on Shares.
(d) Loans given.
(e) Loans taken.
(f) Interest paid on borrowings.
Answer the following question:
From the following information, calculate the amount of cash flow from investing activities.
Acquired machinery for 10,00,000, paying 10% immediately in cash and accepting a draft for the balance in favour of the vendor, payable after three months.
Insurance Claim received by Albert Co. Ltd. of ₹ 5,00,000 for Loss of Machinery due to theft will be recorded in Cash Flow Statement in which of the following manner?
Interest of ₹3,000 received in cash on loans and advances will result in :
In case of a financial enterprise whose main business is lending and borrowing, ‘interest paid' and ‘interest received’ are classified as ______.
Which of the following transaction will result in no flow of cash?
Match the transactions given in column - II with their correct category given in Column - I for the purpose of preparation of 'Cash Flow Statement'.
| Column - I | Column - II | ||
| (a) | Investing Activity | (i) | Interest paid |
| (b) | Financing Activity | (ii) | Purchase of Goodwill |
| (c) | Operating Activity | (iii) | Cash receipts from sale of goods |
Which of the following activities are operating activities for the purpose of preparing 'Cash flow statement'?
- Dividend and Interest received on securities.
- Payment of employee benefit expenses.
- Cash receipts from royalties and fees.
- Issue of shares against purchase of machinery.
What will be the effect of issue of Bonus shares on Cash Flow Statement?
Prepare a Cash Flow Statement from the following Balance Sheets of Arya Ltd.:
| Particulars | Note | 31.3.2023 (₹) | 31.3.2022 (₹) | |
| I. | Equity and Liabilities: | |||
| (1) | Shareholders’ Funds: | |||
| a) | Share Capital | 1 | 10,00,000 | 8,00,000 |
| b) | Reserves and Surplus | 2 | 6,40,000 | 5,40,000 |
| (2) | Non-Current Liabilities: | |||
| Long-term Borrowings | 1,50,000 | 1,00,000 | ||
| (3) | Current Liabilities: | |||
| a) | Trade Payables | 3 | 30,000 | 12,000 |
| b) | Short-term Provisions | 30,000 | 28,000 | |
| Total | 18,50,000 | 14,80,000 | ||
| II. | Assets: | |||
| (1) | Non-Current Assets: | |||
| a) | Property, Plant and equipment and intangible assets: Property, Plant and Equipment |
4 | 7,75,000 | 4,90,000 |
| b) | Non-current Investments | 90,000 | 50,000 | |
| (2) | Current Assets | |||
| a) | Inventory | 6,20,000 | 4,13,000 | |
| b) | Trade receivables | 3,20,000 | 4,94,000 | |
| c) | Cash & Cash Equivalents | 45,000 | 33,000 | |
| Total | 18,50,000 | 14,80,000 |
Notes to Accounts:
| Particulars | 31.3.2023 | 31.3.2022 | |
| 1. | Reserves & Surplus: | ||
| General Reserve | 5,00,000 | 4,30,000 | |
| Capital Reserve | 60,000 | 50,000 | |
| Surplus ie balance in statement of profit and loss | 80,000 | 60,000 | |
| 6,40,000 | 5,40,000 | ||
| 2. | Long-term Borrowings: | ||
| 10% Debentures | 1,50,000 | 1,00,000 | |
| 3. | Short-term Provisions: | ||
| Provision for tax | 30,000 | 28,000 | |
| 4. | Tangible Assets: | ||
| Plant and Machinery | 7,75,000 | 4,90,000 |
Additional Information:
- Tax provided during the year is ₹ 17,000.
- Depreciation charged on plant and Machinery during the year amounted to ₹ 1,20,000.
- Non-current Investments costing ₹ 30,000 were sold for ₹ 40,000 during the year. Gain on sale of Investments was credited to Capital Reserve.
- Additional Debentures were issued on 31.03.2023.
