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Question
Long Answer Question
Describe"Indirect" method of ascertaining Cash Flow from Operating Activities.
Solution
Indirect Method: This method starts with the Net Profit before tax and extraordinary items. For this purpose, the Net Profit as revealed by the Profit and Loss Account cannot be taken into consideration as there exists some items which do not leads to outflow of cash. The following are those items that need to be added back to the Net Profit of the Profit and Loss Account.
- Non-cash items like, depreciation goodwill written off, etc are added to the Net Profit.
- Non-operating expenses like loss on sale of fixed assets, transfers to reserves, loss on sale of fixed assets are added back to the Net Profit.
- Provisions like, provisions for doubtful debts and discount for debtors, proposed dividends etc. should be added back to the Net Profit.
- Decrease in current assets and increase in current liabilities should be added to the operating profit.
The following are those items that need to deduct from the Net Profit of the Profit and Loss Account.
- Non-operating incomes like profit on sale of fixed assets, etc. are deducted from the Net Profit.
- Non-trading Incomes like dividend received, interest received, tax refund, etc. are to be deducted from the Net Profit.
- Increase in current assets and decrease in current liabilities should be deducted from the operating profit.
Indirect Method
Cash Flow Statement
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Particulars |
Amount Rs |
Amount Rs |
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Cash Flow from Operating Activities: |
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Net Profit before tax and extraordinary items |
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*** |
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Add: Non-Cash Expenses and Non-Operating Expenses. |
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Depreciation |
** |
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Goodwill |
** |
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Interest paid |
** |
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Loss on sale of fixed assets |
** |
** |
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Less: |
Non-Operating Incomes. |
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Dividend received |
** |
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Profit on sale of fixed assets |
** |
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Interest received |
** |
** |
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Operating Profit before Working Capital Changes |
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*** |
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Add: Decrease in Current Assets |
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Increase in Current Liabilities |
** |
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Less: Increase in Current Assets |
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Decrease in Current Liabilities |
*** |
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Cash generated from Operating Activities |
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Less: Income tax paid |
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*** |
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Cash flow before Extra ordinary items |
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Add/Less: Extra ordinary items |
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Net Cash Flow from Operating Activities |
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APPEARS IN
RELATED QUESTIONS
Following is the Balance Sheet of K K Ltd as at 31-3-2015:
K.K. Ltd Balance Sheet as at 31-3-2015
| Particulars | Note No. | 31-3-2015 (Rs.) | 31-3-2014 (Rs.) |
|
I. Equity and Liabilities 1. Shareholder’s Funds a. Share Capital b. Reserve and Surplus 2. Non - Current Liabilities a) Long – term borrowings 3. Current Liabilities a) Short – term borrowings b)Short – term provisions |
1
2
3 4 |
10,00,000 4,00,000
9,00,000
3,00,000 1,40,000 |
8,00,000 (1,00,000)
10,00,000
1,00,000 1,80,000 |
| Total | 27,40,000 | 19,80,000 | |
|
II. Assets 1. Non – Current Assets a) Fixed Assets Tangible assets Intangible assets b) Non – Current Investments 2. Current Assets a) Current Investments b) Inventories c) Cash and Cash |
5 6
7
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20,06,000 40,000 2,00,000
1,00,000 2,14,000 1,80,000 |
14,40,000 60,000 1,50,000
1,20,000 90,000 1,20,000 |
| Total | 27,40,000 | 19,80,000 |
| Note No | Particulars | 31-3-2015(Rs.) | 31-3-2014(Rs.) |
|
1.
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Reserve and Surplus (Surplus i.e. Balance in Statement of Profit and Loss) |
4,00,000 |
(1,00,000) |
| 4,00,000 | (1,00,000) | ||
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2.
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Long term borrowings : 12 % Debentures |
9,00,000 |
10,00,000 |
| 9,00,000 | 10,00,000 | ||
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3.
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Short – term borrowings : Bank Overdraft |
3,00,000 |
1,00,000 |
| 3,00,000 | 1,00,000 | ||
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4.
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Short – term provisions Provisions for tax |
1,40,000 |
1,80,000 |
| 1,40,000 | 1,80,000 | ||
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5.
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Tangible Assets Machinery Accumulated Depreciation |
24,06,000 (4,00,000) |
16,42,000 (2,02,000) |
| 20,06,000 | 14,40,000 | ||
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6.
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Intangible Assets Goodwill |
40,000 |
60,000 |
| 40,000 | 60,000 | ||
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7.
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Inventories Stock in trade |
2,14,000 |
90,000 |
| 2,14,000 | 90,000 |
Additional Information
(i) 12% Debentures were redeemed on 31-3-2015
(ii) Tax 1,40,000 was paid during the year
Prepare Cash flow Statement.
While preparing Cash Flow Statement, the accountant of a financing company showed 'Dividend Received Rs 50,000 on investments' as an investing activity. Was he correct in doing so? Give reason.
Which of the following transactions will result in the flow of cash?
The accountant of 'Nav Jeevan Limited' while preparing Cash Flow Statement added the proposed
dividend of the current year to net profit while calculating cash flow from operating activities. Was he correct in doing so? Give reason.
While preparing 'Cash Flow Statement', the accountant of 'Jain Limited', a financing company, showed dividend received on investments as investing activity. Was he correct in doing so? Give reason.
Prepare a Cash Flow Statement from the information given in the balance sheet of Simco Ltd. As at 31-3- 2013and 31-3-2012:
| Particulars | Note No. |
31-3-2013 Rs |
31-3-2012 Rs |
|
I. Equity and Liabilities 1. Shareholders' Funds a. Equity Share Capital b. Reserves and Surplus 2. Non-current Liabilities a. Long term-borrowing 3. Current liabilities a. Trade Payables |
2,00,000 90,000
87,500
10,000 |
1,50,000 75,000
87,500
76,000 |
|
| Total | 3,87,500 | 3,87,500 | |
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II. Assets 1. Non- Current assets a. Fixed assets i. Tangible assets b. Non –Current Investment 2. Current assets a. Current-Investment (marketable) b. Inventory c. Trade receivable d. Cash and Cash equivalents |
1,87,500 1,05,000
12,500 4,000 9,500 68,500 |
1,40,000 1,02,500
33,500 5,500 23,000 84,000 |
|
| Total | 3,87,500 | 3,88,500 |
Notes to Account:
Note -1
| Particulars |
2013 Rs |
2012 Rs |
| Reserve and Surplus | ||
| Surplus( balance in the statement of profit and loss) | 90,000 | 75,000 |
Why is specific disclosure of cash flow financing activities important while preparing Cash Flow Statement?
When does the flow of cash take place'?
Short term investments are not considered while preparing cash flow statement. Why?
State any two advantages of preparing cash flow statement.
Answer the following question:
State any one objective of preparing Cash Flow Statement.
From the following Balance Sheets of B.C.R. Ltd as on 31-3-2010 and 31-3-2011.
Prepare a Cash Flow Statements:
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Balance Sheets of B.C.R. Ltd. as on 31.3.2010 and 31.3.2011 |
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Liabilities |
31-3-2010 Rs |
31-3-2011 Rs |
Assets |
31-3-2010 Rs |
31-3-2011 Rs |
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Equity Shares Capital Profit and Loss Account Bank Loan Proposed Dividend Provision for tax Creditors |
5,00,000
2,00,000
1,00,000 50,000 30,000 55,000 |
7,00,000
3,50,000
50,000 70,000 50,000 52,000 |
Patents Equipment Investment Debtors Stock Bank |
1,00,000 5,00,000 – 80,000 55,000 2,00,000 |
95,000 5,00,000 1,00,000 1,30,000 3,00,000 |
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9,35,000 |
12,72,000 |
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9,35,000 |
12,72,000 |
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Additional Information:
During the year Equipment costing Rs 1,00,000 was purchases. Loss on sale of Equipment amounted to Rs 12,000. Rs 18,000 deprecation charged on Equipment.
From the following Balance Sheets of Tiger Super Steel Ltd., prepare Cash Flow Statement:
Balance Sheet of Tiger Super Steel Ltd.
as at 31st March 2014 and 31st March 2017
| Particulars | Note No. | March 31, 2017 (Rs) |
March 31, 2016 (Rs) |
| I) Equity and Liabilities | |||
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1. Shareholders’ Funds |
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a) Share capital |
1 | 1,40,000 | 1,20,000 |
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b) Reserves and surplus |
2 | 22,800 | 15,200 |
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2. Current Liabilities |
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a) Trade payables |
3 | 21,200 | 14,000 |
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b) Other current liabilities |
4 | 2,400 | 3,200 |
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c) Short-term provisions |
5 | 28,400 | 22,400 |
| Total | 2,14,800 | 1,74,800 | |
| II) Assets | |||
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1. Non-Current Assets |
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a) Fixed assets |
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i) Tangible assets |
6 | 96,400 | 76,000 |
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ii) Intangible assets |
18,800 | 24,000 | |
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b) Non-current investments |
14,000 | 4,000 | |
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2. Current Assets |
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a) Inventories |
31,200 | 34,000 | |
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b) Trade receivables |
43,200 | 30,000 | |
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c) Cash and Cash Equivalents |
11,200 | 6,800 | |
| Total | 2,14,800 | 1,74,800 |
Notes to accounts:
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2017 |
2016 |
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1. Share Capital |
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Equity share capital |
1,20,000 |
80,000 |
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10% Preference share capital |
20,000 |
40,000 |
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1,40,000 |
1,20,000 |
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2. Reserves and surplus |
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General reserve |
12,000 |
8,000 |
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Balance in statement of profit and loss |
10,800 |
7,200 |
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22,800 |
15,200 |
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3. Trade payables |
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Bills payable |
21,200 |
14,000 |
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4. Other current liabilities |
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Outstanding expenses |
2,400 |
3,200 |
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5. Short-term provisions |
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Provision for taxation |
12,800 |
11,200 |
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Proposed dividend |
15,600 |
11,200 |
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28,400 |
22,400 |
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6. Tangible assets |
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Land and building |
20,000 |
40,000 |
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Plant |
76,400 |
36,000 |
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96,400 |
76,000 |
Additional Information:
Depreciation Charge on Land & Building Rs 20,000, and Plant Rs 10,000 during the year.
Classify the following activity into operating activities, investing activities, financing activities or cash activities.
"Cash Sales"
Which item comes under Financial Activities in the Cash Flow statement?
Cash flow example from an operating activity is ______.
Dividend received by other than financial enterprise is shown in cash flow statement under ______.
Which of the following is not an inflow of cash?
From the following information, find out Cash Outflow from Financing Activities.
| Year I | Year II | |
| Proposed Dividend | ₹ 1,20,000 | ₹ 1,50,000 |
| 12% debentures | ₹ 4,00,000 | ₹ 5,00,000 |
Additional Information:
Additional Debentures were issued at the end of the year.
Interim Dividend paid ₹ 50,000
Preference Share Capital Issued ₹ 2,00,000
