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Question
What is meant by 'Cash Flow' while preparing Cash Flow Statement?
Solution
Cash flows refer to the movement of cash in and out of the business. Cash flows can be either inflows or outflows of cash and cash equivalents. A cash inflow implies receipt of cash by the business and cash outflow implies the payment of cash by the business. Cash inflows result in increase in the total cash balance while cash outflows result in decrease in the total cash balance.
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RELATED QUESTIONS
L Ltd. had purchased machinery on deferred payment basis. During the year ended 31-3-2015 the company paid an installment of Rs.4,00,000 which included interest of Rs.4,000. Under which activity or activities payment of installment will be classified while preparing Cash flow Statement.
Give the meaning of ‘Cash Equivalents’ for the purpose of preparing Cash Flow Statement.
From the following Balance Sheet of JY Ltd. as at 31st March 2017, prepare a Cash Flow Statement :
| Balance Sheet of JY Ltd. as at 31.3.2017 |
|||
| Particular | Note No. |
31-3-2017 Rs |
31-3-2016 Rs |
|
I. Equity and Liabilities 1. Shareholders' Funds: (a) Share capital (b) Reserves and surplus 2. Non-current Liabilities: Long term-borrowing 3. Current Liabilities: (a) Short-term borrowings (b) Short-term provisions |
1
2
3 4 |
5,00,000 1,00,000
2,50,000
1,50,000 2,00,000 |
5,00,000 (25,000)
1,50,000
1,00,000 1,25,000 |
| Total | 12,00,000 | 8,50,000 | |
|
II. Assets 1. Non- Current Assets: (a) Fixed Assets: (i) Tangible 2. Current Assets: (a) Trade Receivable (b) Cash and Cash Equivalents (c) Short-term Loans and Advances |
5
|
6,00,000
2,75,000 1,25,000 2,00,000 |
4,50,000
2,25,000 75,000 1,00,000 |
| Total | 12,00,000 | 8,50,000 | |
Notes to Accounts
| Note No | Particulars |
31-3-2017 Rs |
31-3-2016 Rs |
|
1
2
3
4
5
|
Reserve and Surplus (Surplus i.e. Balance in Statement of Profit and Loss)
|
1,00,000 |
(25,000) |
| 1,00,000 | (25,000) | ||
|
Long-term borrowings : 10 % Debentures
|
2,50,000 |
1,50,000 |
|
| 2,50,000 | 1,50,000 | ||
|
Short-term borrowings : Bank Overdraft
|
1,50,000 |
1,00,000 |
|
| 1,50,000 | 1,00,000 | ||
|
Short-term provisions: (i) Proposed Dividend (ii) Provision for Tax
|
75,000 1,25,000 |
50,000 75,000 |
|
| 2,00,000 | 1,25,000 | ||
|
Tangible Assets: Machinery Accumulated Depreciation
|
7,37,500 (1,37,500) |
5,25,000 (75,000) |
|
| 6,00,000 | 4,50,000 |
Additional Information:
Rs 1,00,000, 10% Debentures were issued on 31-3-2017.
While preparing Cash Flow statement of Sharda Ltd. 'Depreciation provided on fixed assets' was added to net profit to calculate cash flow from operating activities. Was the accountant correct in doing so? Give reason.
State the objective preparing ‘Cash Flow Statement’.
Short term investments are not considered while preparing cash flow statement. Why?
State with reason whether the following transactions will increase, decrease or not change the 'Return on Investment':
(i) Purchase of machinery worth Rs 2,00,000 by issue of equity shares.
(ii) Charging depreciation of Rs 5,000 on machinery.
(iii) Redemption of debentures in cash Rs 70,000.
(iv) Converting Rs 50,000, 9% debentures into equity shares.
State the purpose of preparing a ‘Cash Flow Statement’.
Long Answer Question
Describe"Indirect" method of ascertaining Cash Flow from Operating Activities.
Anand Ltd., arrived at a net income of Rs 5,00,000 for the year ended March 31, 2017. Depreciation for the year was Rs 2,00,000. There was a profit of Rs 50,000 on assets sold which was transferred to Statement of profit and Loss account. Trade Receivables increased during the year Rs 40,000 and Trade Payables also increased by Rs 60,000. Compute the cash flow operating activities by the indirect approach.
Which one is Cash Outflows from Financing activities?
Which one is Cash Inflows from Financing activities?
Classify the following activity into operating activities, investing activities, financing activities or cash activities.
"Cash Sales"
Classify the following activity into operating activities, investing activities, financing activities or cash activities
"Cash credit"
______ reconciles the opening cash balance with the closing cash balance of a given period on the basis of a net decrease or increase in cash during that period.
Interest collected by an automobile company selling a car on an instalment basis will be classified as:
State whether the following transaction will result in inflow, outflow or no flow of cash while preparing cash flow statement:
Interest received in cash from loans and advances ₹ 80,000.
From the following information of Hoopla Ltd., you are required to prepare a Cash Flow Statement (as per AS 3) for the year 2021 - 22.
| Particulars | (₹) | |
| (i) | Profit for the year 2021-22, before considering dividend and tax but after taking into account the following items: |
15,80,000 |
| (a) Depreciation on Property, Plant & Equipment | 5,50,000 | |
| (b) Interest Payable on Bank Loan | 3,80,000 | |
| (c) Profit on sale of investments, the book value of which was ₹ 2,20 000. |
1,00,000 | |
| (ii) | During the year 2021-22: | |
| (a) The company | ||
| • Paid Tax (which was provided in 2020 - 21) | 4,40,000 | |
| • Issued 66,000 equity shares of ₹ 10 each | 6,60,000 | |
| • Repaid Bank Loan | 15,00,000 | |
| • Paid interest on Bank Loan | 3,00,000 | |
| • Paid Dividend | 5,00,000 | |
| (b) Trade payables decreased by | 10,000 | |
| (c) Cash at bank increased from ₹ 60,000 on 1st April, 2021 to ₹ 7,00,000 on 31st March, 2022. |
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:
- Sold a machine for ₹ 90,000 at a loss ₹10,000.
- Issued the 5% Debentures on 31st March; 2022, at a discount of 10%. The discount was written off from General Reserve.
