NCERT Solutions for Class 12 Accountancy Chapter 4 Analysis of Financial Statements

Q:

What are the objectives of preparing cash flow statement?

A:

A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. The primary objective of cash flow statement is to provide useful information about cash flows (inflows and outflows) of an enterprise during a particular period under operating activities, investing activities and financing activities.

Q:

What is a Cash flow statement?

A:

A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. The primary objective of preparing cash flow statement is to provide useful information about cash flows of a business during a particular period under various heads i.e. operating activities, investing activities and financing activities. It explains the reasons of receipts and payments in cash and change in cash balances during an accounting year.

Q:

For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow, viz., operating, investing and financing.
  1. Acquired machinery for ₹2,50,000 paying 20% by cheque and executing a bond for the balance payable.
  2. Paid ₹2,50,000 to acquire shares in Informa Tech. and received a dividend of ₹50,000 after acquisition.
  3. Sold machinery of original cost ₹2,00,000 with an accumulated depreciation of ₹1,60,000 for ₹60,000.

A:

(a) Cash out flow from investing activities = 20% of ₹2,50,000 = ₹50,000

(b) Payment for purchase of shares and divided received on shares is part of investing activity. The net out flow from investing activities will be (₹2,50,000 - ₹50,000) = (₹2,00,000).

(c) Sale of machinery is a part of investing activity. The inflow from investing activity is ₹60,000. The profit on sale of machinery ₹20,000 is a part of operating activity.

Q:

“The nature/type of enterprise can change altogether the category into which a particular activity may be classified”. Do you agree? Illustrate your answer.

A:

Yes, the nature or type of an enterprise can change altogether the category into which a particular activity may be classified. This can be better understood with the help of an example of two firms. One engaged in real estate and other engaged in general business.

For the firm that is engaged in real estate business purchase and sales of building will be part of the operating activity, on the other hand firm that is engaged in general business purchase and sale of building will be part of investing activity. Hence, it can be said that the classification of activities depends on the nature and type of enterprise.

Q:

How are the various activities classified (as per AS-3 revised) while preparing cash flow statement?

A:

As per AS 3 the various activities of cash flow statement are to be classified into three categories:

  1. Cash from operating activities: These activities constitute the primary or main activities of an enterprise. These are the principal revenue generating activities of an enterprise and these activities are not investing and financing activities. They generally result from the transactions and other events that enter into the determination of net profit or loss.
  2. Cash flows from investing activities: As per AS 3 investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Investing activities relate to purchase and sale of long-term assets or fixed assets such as machinery, land and building etc.
  3. Cash flows from financing activities: These activities relate to long-term funds or capital of an enterprise. As per AS 3 financing activities are the activities that result in changes in the size and composition of the owners’ capital and borrowings of the enterprise.

Q:

From the information given below you are required to calculate the cash paid for the inventory:
Particulars
Inventory in the beginning 40,000
Credit Purchases 1,60,000
Inventory in the end 38,000
Trade payables in the beginning 14,000
Trade payables in the end 14,500

A:

Trade Payables A/c

Particulars

Particulars

To cash –paid

1,59,500

By balance b/d

14,000

(B. figure)

 

By purchases

 

To balance c/d

14,500

credit

1,60,000

 

1,74,000

 

1,74,000

Cash paid for Inventory amounts to ₹1,59,500

Q:

Anand Ltd. arrived at a net income of ₹5,00,000 for the year ended March 31, 2017. Depreciation for the year was ₹2,00,000. There was a profit of ₹50,000 on assets sold which was transferred to Statement of Profit and Loss account. Trade Receivables increased during the year ₹40,000 and Trade payables also increased by ₹60,000. Compute the cash flow from operating activities by the indirect approach.

A:

Cash flow from operating activities

Particulars

Net profit during the year

 

5,00,000

Items to be adjusted

 

 

(+) Depreciation

2,00,000

 

(-) Gain on sale of assets

(50,000)

1,50,000

Operating profit before working capital changes

 

6,50,000

(+)Increase in trade payables

60,000

 

(-) Increase in trade receivables

(40,000)

20,000

Net cash from operations

 

6,70,000

Q:

State the meaning of the terms: (i) Cash Equivalents (ii) Cash Flows.

A:

Cash equivalents: It means short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as cash equivalent only when it has short maturity period, of say, three months or less, from the date of acquisition.

Cash flows: It implies movement of cash in and out due to some non-cash items. Receipt of cash from a non-cash item is termed as cash inflow while cash payment in respect of such items as cash outflow. For example, purchase of machinery.

Q:

State the objectives of cash flow statement.

A:

Cash flow statement provides the following benefits:

  1. A cash flow statement aims at highlighting the cash generated from operating activities.
  2. It is useful in planning the replacement of an asset, repayment of loan etc.
  3. It is very useful in the evaluation of cash position of an enterprise.
  4. Banks and financial institutions mostly prefer cash flow statement to analyse liquidity of the borrowing firm.
  5. It is useful in assessing the ability of the enterprise to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different enterprises.

Q:

Explain the major Cash Inflows and Outflows from financing activities.

A:

Financing activities relate to long term funds or capital of an enterprise. As per AS 3, financing activities are the activities that result in changes in the size and composition of the owners’ capital and borrowings of the enterprise.

Major Cash Inflows from financing activities:

  • Cash receipts from issuing shares (equity and/or preference)
  • Cash receipts from issuing debentures, loans, bonds and other short/long term borrowings.

Major Cash Outflows from financing activities:

  • Cash repayments of amounts borrowed.
  • Interest paid on debentures and long term loans and advances.
  • Dividend paid on equity and preference capital.

Q:

Explain the major Cash Inflows and Outflows from investing activities.

A:

Investing Activities: As per AS 3, investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Investing activities relate to purchase and sale of long-term assets or fixed assets such as machinery, furniture, land and building etc. Transactions related to long-term investments are also investing activities.

Major Cash Outflows from investing activities:

  • Cash payments to acquire fixed assets including intangibles and capitalised research and development.
  • Cash payments to acquire shares, warrants or debt instruments of other enterprises other than instruments those held for trading purpose.
  • Cash advances and loans made to third parties (other than advances and loans made by a financial enterprise wherein it is operating activity)

Major Cash Inflows from investing activities:

  • Cash receipts from disposal of fixed assets including intangibles.
  • Cash receipts from the repayment of advances or loans made to third parties (except in case of financial enterprises).
  • Cash receipts from disposal of shares, warrants or debt instruments of other enterprises except those held for the trading purposes.  
  • Interest received from loans and advances.
  • Dividend received from investments in other enterprises.

Q:

State clearly what would constitute the operating activities for each of the following enterprises?
  1. Hotel.
  2. Film production house.
  3. Financial enterprise.
  4. Media enterprise.
  5. Steel manufacturing unit.
  6. Software development business unit.

A:

Operating activities are the activities that constitute the primary or main activities of an enterprise.

  1. Hotel: Receipts from sale of goods and services to the customer will be operating activity related to revenue generation. Payment of wages and salaries, food items, and other items used in accommodation and stay of customer will be an operating activity related to expenditure.
  2. Film production house: Revenue generating operating activity would be its receipts from selling film rights to the distributors and operating activity related to expenditure would be payment made to actors, actresses, directors, location rent, fare etc.
  3. Financial enterprise: Receipts from repayment of loans, interest incomes from investments etc. would be considered as revenue generating operating activity. Operating activities related to expenditure include repayment of loans, salaries of employees, recovery expenditure for loan recovery etc.
  4. Media enterprise: Its revenue generating operating activity would be receipts from advertisements. Operating activities related to expenditure include payment to staff, reporters, photographers etc.
  5. Steel manufacturing unit: Receipts from sale of steel sheet will be revenue from operating activity. Payment for raw materials and salaries to staff will be expenditure related to operating activities.
  6. Software business: Receipts from sale of software and renewal of license will be revenue from operating activity. Payment for salaries to staff etc. will be expenditure related to operating activities.

Q:

Prepare a format of cash flow from operating activities.

A:

Indirect Method

Particulars

(₹)

  1. Cash Flows From Operating Activities

 

          Net Profit before Tax

--------

Adjustment for non cash and non operating items:

 

Add:

 

  • Depreciation                                                    ---

 

  • Increase in provision for doubtful debts              ---

 

  • Goodwill, Patents & Trademark amortised           ---

 

  • Interest on long term borrowings                       ---

 

  • Loss on Sale of Fixed Assets                        

-------

 

 

 

Less:

 

  • Interest Income                                              (---)

 

  • Dividend Income                                             (---)

 

  • Rental Income                                                (---)

 

  • Profit on Sale of fixed Assets                            (---)

(----)

Operating Profit before Working Capital  changes

-------

 

 

Add:

 

Decrease in Current Assets                                       ---

-----

Increase in Current Liabilities                                    ---

-----

(Current assets exclude cash and cash equivalents)

 

(Current liabilities exclude bank overdraft and cash credit)

 

 

-----

Less:

 

Increase in Current Assets                                      (---)

----

Decrease in Current Liabilities                                 (---)

(----)

 

-------

Cash Generated from operations

----

Less: Income Tax Paid (Net Tax Refund received)

 

 

 

Net Cash from (or used in) Operating Activities

 

Q:

From the following Balance Sheet of Computer India Ltd. prepare cash flow statement.
Balance Sheet of Computer India Ltd. as on….
Particulars Note 31/03/2017 31/03/2016
I) Equity & Liabilities
1. Shareholders’ Funds
a) Share capital 52,000 40,000
b) Reserves & Surplus (surplus) 1 9,500 8,000
2. Non-current Liabilities
10% Debentures 6,500 6,000
3. Current Liabilities
a) Short-term borrowings 2 6,800 12,500
b) Trade payables 11,000 12,000
c) Short-term provisions 3 4,200 3,000
Total 90,000 81,500
II) Assets
1. Non-current Assets
a) Fixed assets 4 27,000 30,000
2. Current Assets
a) Inventories 35,000 30,000
b) Trade receivables 24,000 20,000
c) Cash & Cash equivalents-cash 3,500 1,200
d) other current assets-prepaid exp. 500 300
Total 90,000 81,500
Notes to accounts:
Particulars 31st March 2017 31st March 2016
1. Reserve and Surplus
(i) Balance in statement of profit and loss 7,000 6,000
(ii) General reserve 2,500 2,000
9,500 8,000
2. Short-term borrowings
Bank overdraft 6,800 12,500
3. Short-term, provisions
(i) Provision for taxation 4,200 3,000
4. Fixed assets:
Fixed assets 42,000 41,000
Less: Accumulated Depreciation (15,000) (11,000)
27,000 30,000
Additional Information:
Proposed dividend for the year 2015-16 is Rs. 5,000

A:

Cash Flow Statement

 

Particulars

A

Cash flow from operating activities

 

 

 

Profit as per Balance Sheet 

1,000

 

 

Add: 

 

 

 

Proposed dividend Previous year (2016)

5,000

 

 

General reserve

500

 

 

Provision for taxation Current Year (2017)

4,200

 

 

Net profits before taxation and extraordinary items

 

10,700

 

Adjustments

 

 

 

Add: Provision for Depreciation

4,000

 

 

Interest paid on debentures

600

4,600

 

Operating profit before working capital changes

 

15,300

 

(-) Increase in Current Assets

 

 

 

Trade receivables

(4,000)

 

 

Inventories

(5,000)

 

 

Other current assets

(200)

 

 

(-) Decrease in Current Liabilities

 

 

 

Trade payable

(1,000)

(10,200)

 

Cash from operating activities

 

5,100

 

Less: Income tax paid

 

(3,000)

 

Net cash from operating activities

 

2,100

B.

Cash Flow from Investing Activities

 

 

 

Purchase of fixed assets  

(1,000)

 

 

Net cash inflow from Investing Activities

 

(1,000)

C.

Cash Flow from Financing Activities

 

 

 

Issue of equity shares

12,000

 

 

Issue of 10% debentures  

500

 

 

Interest paid

(600)

 

 

Dividend paid (Previous year 2016)

(5,000)

6,900

 

Decrease in bank overdraft

 

(5,700)

 

Net cash from Financing Activities

 

1,200

D.

Net increase in Cash and cash equivalents (A+B+C)

 

2,300

 

(+) Cash and cash equivalents in the beginning

1,200

 

E.

Cash and cash equivalents at the end of the period

 

3,500

Q:

Following is the Financial Statement of Garima Ltd. prepare cash flow statement.
Balance Sheet of Garima Ltd. as on….
Particulars Note 31/03/2017 31/03/2016
I) Equity & Liabilities
1. Shareholders’ Funds
a) Share Capital 1 4,40,000 2,80,000
b) Reserves & Surplus (surplus) 2 40,000 28,000
3. Current Liabilities
a) Trade payables 1,56,000 56,000
b) Short-term provision (provision for taxation) 12,000 4,000
Total 6,48,000 3,68,000
II) Assets
1. Non-current Assets
a) Fixed assets
i) Tangible assets 3,64,000 2,00,000
2. Current Assets
a) Inventories 1,60,000 60,000
b) Trade receivables 80,000 20,000
c) Cash & Cash equivalents 28,000 80,000
d) other current assets (Prepaid expenses) 16,000 8,000
Total 6,48,000 3,68,000
Notes to Accounts:
Particulars 31st March 2017 31st March 2016
1. Share capital
a) Equity share capital 3,00,000 2,00,000
b) Preference share capital 1,40,000 80,000
4,40,000 2,80,000
2. Reserve & Surplus
Surplus in statement of profit and loss at the beginning of the year 28,000
Add: Profit of the year 16,000
Less: Interim Dividend 4,000
Profit at the end of the year 40,000
Additional Information:
Depreciation charged during the year ₹32,000.

A:

Cash Flow Statement

 

Particulars

A

Cash flow from operating activities

 

 

 

Profit as per Balance Sheet  

12,000

 

 

Add: 

 

 

 

Proposed dividend

4,000

 

 

Provision for taxation

12,000

 

 

Net profits before taxation and extraordinary items

 

28,000

 

Adjustments

 

 

 

Add: Depreciation

32,000

 

 

 

 

32,000

 

Operating profit before working capital changes

 

60,000

 

(-) Increase in Current Assets

 

 

 

Trade receivables

(60,000)

 

 

Inventories

(1,00,000)

 

 

Prepaid expenses

(8,000)

 

 

(+)Increase in Current Liabilities

 

 

 

Trade payable

1,00,000

(68,000)

 

Cash from operating activities

 

(8,000)

 

Less: Income tax paid

 

(4,000)

 

Net cash used in operating activities

 

(12,000)

B.

Cash Flow from Investing Activities

 

 

 

Purchase of fixed assets  

(1,96,000)

 

 

Net cash outflow from Investing Activities

 

(1,96,000)

C.

Cash Flow from Financing Activities

 

 

 

Issue of equity shares

1,00,000

 

 

Issue of preference shares 

60,000

 

 

Dividend paid

(4,000)

 

 

Net cash from Financing Activities

 

1,56,000

D.

Net decrease in Cash and cash equivalents (A+B+C)

 

(52,000)

 

(+) Cash and cash equivalents in the beginning

 

80,000

E.

Cash and cash equivalents at the end of the period

 

28,000

 

Plant and Machinery A/c

Particulars

Particulars

To balance b/d

2,00,000

By Depreciation

32,000

To Bank – Pur.

1,96,000

By balance c/d

3,64,000

(B. figure)

 

 

 

 

3,96,000

 

3,96,000

Q:

From the following Balance Sheet of Yogeta Ltd. prepare cash flow statement:
Balance Sheet of Yogeta Ltd. As on….
Particulars Note 31/03/2017 31/03/2016
I) Equity & Liabilities
1. Shareholders’ Funds
a) share capital 1 4,00,000 2,00,000
b) Reserves & Surplus (surplus) 2,00,000 1,00,000
2. Non- Current liabilities
Long-term borrowings 2 1,50,000 2,20,000
3. Current Liabilities
a) short-term borrowings (Bank overdraft) 1,00,000
b) Trade payables 70,000 50,000
c) Short-term provision (provision for taxation) 50,000 30,000
Total 9,70,000 6,00,000
II) Assets
1. Non-current Assets
a) Fixed assets
i) Tangible assets 7,00,000 4,00,000
2. Current Assets
a) Inventories 1,70,000 1,00,000
b) Trade receivables 1,00,000 50,000
c) Cash & Cash equivalents -------- 50,000
Total 9,70,000 6,00,000
Notes to Accounts:
Particulars 31st March 2017 31st March 2016
1. Share capital
a) Equity share capital 3,00,000 2,00,000
b) Preference share capital 1,00,000 --------
4,00,000 2,00,000
2. Long-term borrowings
8% Long-term loan -------- 2,00,000
9% Loan from Rahul 1,50,000 20,000
1,50,000 2,20,000
Additional Information: Net Profit for the year after charging ₹50,000 as Depreciation was ₹1,50,000. Dividend paid on Share was ₹50,000, Tax Provision created during the year amounted to ₹60,000. 8% loan was repaid on March 31 2017 and an additional 9% loan of Rs. 1,30,000 was obtained from Rahul on April 01, 2016.

A:

Cash Flow Statement

 

Particulars

A

Cash flow from operating activities

 

 

 

Profit earned during the year

1,00,000

 

 

Add: 

 

 

 

Interest on 8% loan

16,000

 

 

Interest on 9% loan

13,500

 

 

Proposed dividend

50,000

 

 

Provision for taxation

60,000

 

 

Net profits before taxation and extraordinary items

 

2,39,500

 

Adjustments

 

 

 

Add: Depreciation

50,000

50,000

 

Operating profit before working capital changes

 

2,89,500

 

(-) Increase in Current Assets

 

 

 

Trade receivables

(50,000)

 

 

Inventories

(70,000)

 

 

(+)Increase in Current Liabilities

 

 

 

Trade payable

20,000

(1,00,000)

 

Net cash from operations

 

1,89,500

 

Less: Income tax paid

 

(40,000)

 

Net cash from operating activities

 

1,49,500

B.

Cash Flow from Investing Activities

 

 

 

Purchase of fixed assets  

 

(3,50,000)

 

Net cash outflow from Investing Activities

 

(3,50,000)

C.

Cash Flow from Financing Activities

 

 

 

Issue of equity shares

1,00,000

 

 

Issue of preference shares 

1,00,000

 

 

Loans raised

1,30,000

 

 

Repayment of loan

(2,00,000)

 

 

Dividend paid

(50,000)

 

 

Interest on 8% loan

(16,000)

 

 

Interest on 9% loan

(13,500)

 

 

Bank overdraft

1,00,000

 

 

Net cash from Financing Activities

 

1,50,500

D.

Net decrease in Cash and cash equivalents (A+B+C)

 

(50,000)

 

(+) Cash and cash equivalents in the beginning

 

50,000

E.

Cash and cash equivalents at the end of the period

 

NIL

 

Fixed Assets A/c

Particulars

Particulars

To balance b/d

4,00,000

By Depreciation

50,000

To Bank – Pur.

3,50,000

By balance c/d

7,00,000

(B. figure)

 

 

 

 

7,50,000

 

7,50,000

 

Provision for Taxation A/c

Particulars

Particulars

To Bank –paid

40,000

By balance b/d

30,000

(B. figure)

 

By S of P & L 

60,000

To balance c/d

50,000

 

 

 

90,000

 

90,000

 

Q:

From the following information, prepare cash flow statement:
Balance Sheet as on….
Particulars Note 31st March 2015 31st March 2014
I) Equity & Liabilities
1. Shareholders’ Funds
a) share capital 7,00,000 5,00,000
b) Reserves & Surplus 4,70,000 2,50,000
2. Non- Current liabilities
(8% Debentures) 4,00,000 6,00,000
3. Current Liabilities
Trade payables 9,00,000 6,00,000
Total 24,70,000 19,50,000
II) Assets
1. Non-current Assets
a) Fixed assets
i) Tangible assets 7,00,000 5,00,000
ii) Intangible- goodwill 1,70,000 2,50,000
2. Current Assets
a) Inventories 6,00,000 5,00,000
b) Trade receivables 6,00,000 4,00,000
c) Cash & Cash equivalents 4,00,000 3,00,000
Total 24,70,000 19,50,000
Additional Information:
Depreciation Charge on Plant amount to `80,000.

A:

Cash Flow Statement

 

Particulars

A

Cash flow from operating activities

 

 

 

Profit earned during the year

 

2,20,000

 

Add:  Interest on debentures  

48,000

 

 

Depreciation on fixed assets

80,000

 

 

Goodwill written off

80,000

2,08,000

 

Operating profit before working capital changes

 

4,28,000

 

(+) Increase in Current Liabilities

 

 

 

Trade payables

3,00,000

 

 

(-) Increase in Current Assets

 

 

 

Inventories

(1,00,000)

 

 

Trade receivables

(2,00,000)

---

 

Cash generated from operations

 

4,28,000

 

Less: Income tax

 

---

 

Net cash from operations

 

4,28,000

B.

Cash Flow from Investing Activities

 

 

 

Purchase of fixed assets

(2,80,000)

 

 

Net cash outflow from Investing Activities

 

(2,80,000)

C.

Cash Flow from Financing Activities

 

 

 

Issue of shares

2,00,000

 

 

Redemption of debentures  

(2,00,000)

 

 

Interest paid on debentures

(48,000)

 

 

Net cash from Financing Activities

 

48,000

D.

Net increase in Cash and cash equivalents (A+B+C)

 

1,00,000

 

(+) Cash and cash equivalents in the beginning

 

3,00,000

E.

Cash and cash equivalents at the end of the period

 

4,00,000

 

Fixed Assets A/c

Particulars

Particulars

To balance b/d

5,00,000

By Depreciation

80,000

To Bank – Pur.

2,80,000

By balance c/d

7,00,000

 

7,80,000

 

7,80,000

Q:

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 2016 & 31st March 2017
Particulars Note 31/03/2017 31/03/2016
I) Equity & Liabilities
1. Shareholders’ Funds
a) Share Capital 1 1,40,000 1,20,000
b) Reserves & Surplus 2 38,400 26,400
2. Current liabilities
a) Trade payables 3 21,200 14,000
b) Other current liabilities 4 2,400 3,200
c) Short-term provisions 5 12,800 11,200
Total 2,14,800 1,74,800
II) Assets
1. Non-current Assets
a) Fixed assets
i) Tangible assets 6 96,400 76,000
ii) Intangible assets 18,800 24,000
b) Non-current investments 14,000 4,000
2. Current Assets
a) Inventories 31,200 34,000
b) Trade receivables 43,200 30,000
c) Cash & Cash equivalents 11,200 6,800
Total 2,14,800 1,74,800
Notes to Accounts:
Particulars 2017 2016
1. Share Capital
Equity share capital 1,20,000 80,000
10% preference share capital 20,000 40,000
1,40,000 1,20,000
2. Reserves and surplus
General reserve 12,000 8,000
Balance in statement of profit and loss 26,400 18,400
38,400 26,400
3. Trade payables
Bills payable 21,200 14,000
4. Other current liabilities
Outstanding expenses 2,400 3,200
5. Short term provisions
Provision for taxation 12,800 11,200
28,400 22,400
6. Tangible assets
Land & building 20,000 40,000
Plant 76,400 36,000
96,400 76,000
Additional Information:
Proposed dividend for 2016-17 is Rs. 15,600 and for 2015-16 is Rs. 11,200.
Depreciation Charge on Land & Building ₹20,000 and Plant ₹10,000 during the year.

A:

Cash Flow Statement

 

Particulars

A.

Cash flow from operating activities

 

 

 

Profit earned during the year

8,000

 

 

Add:  General reserve 

4,000

 

 

Proposed dividend (Previous year 2016)

11,200

 

 

Provision for taxation (Current Year 2017)

12,800

 

 

Net profits before taxation and extraordinary items

 

36,000

 

Adjustments

 

 

 

Depreciation on land and building

20,000

 

 

Depreciation on plant

10,000

 

 

Goodwill written off 

5,200

35,200

 

Operating profit before working capital changes

 

71,200

 

(+) Decrease in Current Assets

 

 

 

Inventories 

2,800

 

 

(-) Increase in Current Assets

 

 

 

Trade receivables

(13,200)

 

 

(-) Decrease in Current Liabilities

 

 

 

Outstanding expenses 

(800)

 

 

(+)Increase in Current Liabilities

 

 

 

Bills payable

7,200

(4,000)

 

Net cash from operations

 

67,200

 

Less: Income tax paid

 

(11,200)

 

Net cash from operating activities

 

56,000

B.

Cash Flow from Investing Activities

 

 

 

Purchase of plant 

(50,400)

 

 

Purchase of Investment 

(10,000)

 

 

Net cash outflow from Investing Activities

 

(60,400)

C.

Cash Flow from Financing Activities

 

 

 

Issue of shares

40,000

 

 

Red. of preference shares 

(20,000)

 

 

Dividend paid

(11,200)

 

 

Net cash from Financing Activities

 

8,800

D.

Net increase in Cash and cash equivalents (A+B+C)

 

4,400

 

(+) Cash and cash equivalents in the beginning

 

6,800

E.

Cash and cash equivalents at the end of the period

 

11,200

Purchase of plant = 76,400 + 10,000 – 36,000 =50,400

Q:

From the following Balance Sheet of Mohan Ltd. Prepare cash flow statement:
Balance Sheet of Mohan Ltd As at 31st March 2016 & 31st March 2017
Particulars Note 31/03/2017 31/03/2016
I) Equity & Liabilities
1. Shareholders’ Funds
a) Equity share capital 3,00,000 2,00,000
b) Reserves & Surplus 2,70,000 2,20,000
2. Non-current liabilities
a) Long-term borrowings 1 80,000 1,00,000
3. Current liabilities
Trade Payables 1,20,000 1,40,000
Total 7,70,000 6,60,000
II)Assets
1. Non-current assets
Fixed assets 3 5,00,000 3,20,000
2. Current assets
a) Inventories 1,50,000 1,30,000
b) Trade receivables 4 90,000 1,20,000
c) Cash & cash equivalents 5 30,000 90,000
Total 7,70,000 6,60,000
Notes to accounts:
Particulars 2017 2016
1. Long-term borrowings
9% Bank Loan 80,000 1,00,000
2. Fixed assets 6,00,000 4,00,000
Less: Accumulated Depreciation 1,00,000 80,000
(Net) Fixed Assets 5,00,000 3,20,000
4. Trade receivables
Debtors 60,000 1,00,000
Bills Receivables 30,000 20,000
90,000 1,20,000
5. Cash & cash equivalents
Bank 30,000 90,000
Additional information: Machine Costing ₹80,000 on which accumulated depreciation was ₹50,000 was sold for ₹20,000. 9% Bank loan Rs. 20,000 was repaid on March 31, 2017. Proposed dividend for the year 2015-16 was Rs. 60,000.

A:

Cash Flow Statement

 

Particulars

A

Cash flow from operating activities

 

 

 

Net profits before tax

 

1,70,000

 

Adjustments

 

 

 

Add: Proposed dividend

60,000

 

 

Add: Depreciation

70,000

 

 

Add: Loss on sale of machine

10,000

 

 

Add: Interest on 9% Loan 

9,000

1,49,000

 

Operating profit before working capital changes

 

3,19,000

 

(+) Decrease in Current Assets

 

 

 

Trade receivables

30,000

 

 

(-) Increase in Current Assets

 

 

 

Inventories

(20,000)

 

 

(-) Decrease in Current Liabilities

 

 

 

Trade payables

(20,000)

(10,000)

 

Net cash from operating actives

 

3,09,000

B.

Cash Flow from Investing Activities

 

 

 

Receipts from sale of fixed assets

20,000

 

 

Purchase of fixed assets

(2,80,000)

 

 

Net cash outflow from Investing Activities

 

(2,60,000)

C.

Cash Flow from Financing Activities

 

 

 

Issue of shares

1,00,000

 

 

Bank loan paid

(20,000)

 

 

Payment of proposed dividend (for the year 2016)

(60,000)

 

 

Interest on 9% Loan

(9,000)

 

 

Net cash used in Financing Activities

 

11,000

D.

Net decrease in Cash and cash equivalents (A+B+C)

 

(60,000)

 

(+) Cash and cash equivalents in the beginning

 

90,000

E.

Cash and cash equivalents at the end of the period

 

30,000

 

Calculation of Net Profit before Tax:

Reserve & Surplus Balance on 31st March 2017

2,00,000

Less: Reserve & Surplus Balance on 31st March 2016

1,60,000

 

40,000

Add: Proposed Dividend for previous year

60,000

Add: Provision for tax made during the current year

70,000

Net Profit before Tax

1,70,000

Note 1:

9% Loan is assumed to be repaid on 31/03/2017

Proposed dividend for previous year (2016) will be added to Net profit before tax and will also be shown as ouflow under financing activities.

There will be no effect of proposed dividend of current year (2017).

Fixed Assets A/c

Particulars

Particulars

To balance b/d

4,00,000

By Bank a/c 

20,000

To Bank – Pur.

2,80,000

By S of P & L -L

10,000

(B. figure)

 

By Acc. Dep. 

50,000

 

 

By balance c/d

6,00,000

 

6,80,000

 

6,80,000

 

Accumulated Depreciation A/c

Particulars

Particulars

To fixed assets

50,000

By balance b/d

80,000

To balance c/d

1,00,000

By S of P & L

70,000

 

 

(B. figure)

 

 

1,50,000

 

1,50,000

Q:

From the following particulars of Bharat Gas Limited. Calculate Cash Flows from Investing Activities. Also show the workings clearly preparing the ledger accounts:
Balance Sheet of Bharat Gas Ltd As on 31 March 2016 and 31 March 2017
Particulars Note March 31, 2017 March 31, 2016
II) Assets
1. Non-current Assets
a) Fixed assets
(i) Tangible Assets 1 12,40,000 10,20,000
(ii) Intangible Assets 2 4,60,000 3,80,000
b) Non- current investments 3 3,60,000 2,60,000
Notes: 1) Tangible assets = Machinery 2) Intangible assets = Patents Notes to accounts:
Particulars March 31, 2017 March 31, 2016
1. Tangible Assets
Machinery 12,40,000 10,20,000
2. Intangible Assets
Goodwill 3,00,000 1,00,000
Patents 1,60,000 2,80,000
4,60,000 3,80,000
3. Non-current Investments
10% long term investments 1,60,000 60,000
Investment in land 1,00,000 1,00,000
Shares of Amartex Ltd. 1,00,000 1,00,000
3,60,000 2,60,000
Additional Information:
i. Patents were written-off to the extent of ₹40,000 and some Patents were sold at a profit of ₹20,000.
ii. A machine costing ₹1,40,000 (Depreciation provided there on ₹60,000) was sold for ₹50,000. Depreciation charged during the year was ₹1,40,000.
iii. On March 31, 2016, 10% Investments were purchased for ₹1,80,000 and some Investments were sold at a profit of ₹20,000. Interest on Investment was received on March 31, 2017.
iv. Amartax Ltd. paid Dividend @ 10% on its shares.
v. A plot of land had been purchased for investment purposes and let out for commercial use and rent received ₹30,000.

A:

Cash flow from operating activities

Particulars

Cash Inflow

 

 

Receipts from sale of patents  

1,00,000

 

Receipts from sale of machinery

50,000

 

Receipts from sale of 10% Invest.

1,00,000

 

Interest recd. on 10% Invest.

6,000

 

Dividend received on shares

10,000

 

Rent received from Land

30,000

2,96,000

Cash Outflow

 

 

Purchase of machinery

(4,40,000)

 

Purchase of 10% Investment

(1,80,000)

 

Purchase of goodwill

(2,00,000)

8,20,000

Net cash used in Investing Activities

 

5,24,000

 

Patents A/c

Particulars

Particulars

To balance b/d

2,80,000

By S of P & L

40,000

To S of P & L

20,000

By Bank

1,00,000

 

 

Purchase (B.F.)

 

 

 

By balance c/d

1,60,000

 

3,00,000

 

3,00,000

 

Machinery A/c

Particulars

Particulars

To balance b/d

10,20,000

By Bank a/c 

50,000

To Bank – Pur.

4,40,000

By S of P & L

30,000

(B. figure)

 

By Depreciation

1,40,000

 

 

By balance c/d

12,40,000

 

14,60,000

 

14,60,000

Loss on sale of machinery = ₹1,40,000 – ₹60,000 – ₹50,000 = ₹30,000

 

10% Investment A/c

Particulars

Particulars

To balance b/d

60,000

By Bank a/c 

1,00,000

To Bank – Pur.

1,80,000

(B. Figure)

 

To S of P & L

20,000

By balance c/d

1,60,000

 

2,60,000

 

2,60,000

Q:

Compute cash from operations from the following figures: Profit for the year 2016-17 is a sum of ₹10,000 after providing for depreciation of ₹2,000. The current assets and current liabilities of the business for the year ended March 31, 2016 and 2017 are as follows:
Particulars 31/03/2016 31/03/2017
Trade Receivables 14,000 15,000
Provision for doubtful debts 1,000 1,200
Trade Payables 13,000 15,000
Inventories 5,000 8,000
Other Current Assets 10,000 12,000
Expenses payable 1,000 1,500
Prepaid expenses 2,000 1,000
Accrued Income 3,000 4,000
Income received in advance 2,000 1,000

A:

Cash flow from operating activities

Particulars

Net profit during the year

 

10,000

Items to be adjusted

 

 

(+) Depreciation

 

2,000

Operating profit before working capital changes

 

12,000

(+) Increase in Current Liabilities

 

 

Provision for Doubtful debts

200

 

Trade payables

2,000

 

Expenses payable  

500

 

(+) Decrease in Current Assets

 

 

Prepaid expenses

1,000

 

(-) Increase in Current Assets

 

 

Trade receivables

(1,000)

 

Inventories

(3,000)

 

Accrued income

(1,000)

 

Other current assets

(2,000)

 

(-) Decrease in Current Liabilities

 

 

Income received in advance

(1,000)

(4,300)

Net cash from operations

 

7,700

Q:

The following is the Profit and Loss Account of Yamuna Limited:
Statement of Profit & Loss of Yamuna Ltd. for the year ended March 31, 2017
Particulars Note
1) Revenue from Operations 10,00,000
2) Expenses
Cost of Material Consumed 1 50,000
Purchase of Stock-in-trade 5,00,000
Other Expenses 2 3,00,000
Total Expenses 8,50,000
3) Profit before tax (1-2) 1,50,000
Additional Information:
  1. Trade receivables decrease by ₹30,000 during the year.
  2. Prepaid expenses increase by ₹5,000 during the year.
  3. Trade payables increase by ₹15,000 during the year.
  4. Outstanding expenses payable increased by ₹3,000 during the year.
  5. Other expenses included depreciation of ₹25,000.
Compute net cash from operations for the year ended March 31, 2017 by the indirect method.

A:

Cash flow from operating activities

Particulars

Net profit during the year

 

1,50,000

Items to be adjusted

 

 

(+) Depreciation

 

25,000

Operating profit before working capital changes

 

1,75,000

(+) Increase in outstanding exp.

3,000

 

(+) Decrease in trade receivables

30,000

 

Stock

50,000

83,000

(-) Decrease in trade payables

(15,000)

 

(-) Increase in prepaid exp.

(5,000)

20,000

Net cash from operations

 

2,38,000

Note: As per the solutions, the Net Cash from Operating Activities is ₹2,38,000, however, as per the answer given in the book is ₹2,18,000

Q:

Describe “Indirect” method of ascertaining Cash Flow from operating activities.

A:

Operating Activities: These are the activities that contribute the primary or main activities of an enterprise. These are the principal revenue generating activities of the enterprise and these activities are not investing or financing activities. They generally result from the transactions and other events that enter into the determination of net profit or loss.

Indirect method

Particulars

(`)

  1. Cash Flows From Operating Activities

 

          Net Profit before Tax (See Note No. 1)

--------

Adjustment for non cash and non operating items:

 

Add:

 

  • Depreciation                                                    ---

 

  • Increase in provision for doubtful debts              ---

 

  • Goodwill, Patents & Trademark amortised           ---

 

  • Interest on long term borrowings                       ---

 

  • Loss on Sale of Fixed Assets                        

-------

 

 

 

Less:

 

  • Interest Income                                              (---)

 

  • Dividend Income                                             (---)

 

  • Rental Income                                                (---)

 

  • Profit on Sale of fixed Assets                            (---)

(----)

Operating Profit before Working Capital  changes

-------

 

 

Add:

 

Decrease in Current Assets                                       ---

-----

Increase in Current Liabilities                                    ---

-----

(Current assets exclude cash and cash equivalents)

 

(Current liabilities exclude bank overdraft and cash credit)

-------

 

 

Less:

 

Increase in Current Assets                                      (---)

----

Decrease in Current Liabilities                                 (---)

(----)

 

-------

Cash Generated from operations

----

Less: Income Tax Paid (Net Tax Refund received)

 

 

 

Net Cash from (or used in) Operating Activities

 

 

Note No. 1: Calculation of Net Profit before Tax

                  and Extraordinary Items:

Particulars

(`)

Net Profit of the current year before tax and extraordinary items (after appropriations)

 

Add:

 

  • Transfer to reserves (all transfers to reserves

 

       from balances of statement of P&L)                    

-----

  • Proposed dividend for previous year

-----

  • Interim Dividend paid during the year

-----

  • Provision for tax for the current year

-----

  • Extraordinary items, if any, debited to Statement of Profit and Loss

 

Less:

 

  • Refund of Tax

-----

  • Extraordinary items, if any, credited to Statement of Profit and Loss

 

Net Profit before tax and Extraordinary items

--------

 

Note:

The effect of proposed dividend in Cash Flow Statements will be as follows:

Proposed dividend for previous year will be shown as outflow of cash assuming it has been declared at the annual general meeting in the current year and has also been paid during the current year. It is also added to Net Profit to determine the Net Profit before tax.

Proposed dividend for current year is shown in notes to accounts as Contingent Liability. Hence, no effect is to be given to Proposed Dividend of the current year while preparing cash flow statement.

Q:

Describe the procedure to prepare Cash Flow Statement.

A:

Following are the steps in preparation of Cash Flow Statement:

Step 1 Compute cash flow from operating activities.

Step 2 Compute cash flow from investing activities.

Step 3 Compute cash flow from financing activities.

Step 4 Cash flows under each activity (step 1,2 & 3) are added in Cash Flow Statement and the resultant figure is net increase or decrease in cash and cash equivalents.

Step 5 Cash and cash equivalents in the beginning of the period are added to the cash flows as arrived under step 4. The amount so determined should be equal to cash and cash equivalents balance at the end of the year.

Format of Cash Flow Statement (Indirect Method)

for the year ended…….

(As per Accounting Standard-3 (Revised)

 

Particulars

(₹)

  1. Cash Flows From Operating Activities

 

          Net Profit before Tax (See Note No. 1)

--------

Adjustment for non cash and non operating items:

 

Add:

 

  • Depreciation                                                    ---

 

  • Increase in provision for doubtful debts              ---

 

  • Goodwill, Patents & Trademark amortised           ---

 

  • Interest on long term borrowings                       ---

 

  • Loss on Sale of Fixed Assets                        

-------

 

 

 

Less:

 

  • Interest Income                                              (---)

 

  • Dividend Income                                             (---)

 

  • Rental Income                                                (---)

 

  • Profit on Sale of fixed Assets                            (---)

(----)

Operating Profit before Working Capital changes

-------

 

 

Add:

 

Decrease in Current Assets                                       ---

-----

Increase in Current Liabilities                                    ---

-----

(Current assets exclude cash and cash equivalents)

 

(Current liabilities exclude bank overdraft and cash credit)

 

 

-----

 

-------

Less:

 

Increase in Current Assets                                      (---)

----

Decrease in Current Liabilities                                 (---)

(----)

 

-------

Cash Generated from operations

----

Less: Income Tax Paid (Net Tax Refund received)

 

 

 

Net Cash from (or used in) Operating Activities

 

  1. Cash Flows from Investing Activities

 

  • Proceeds from Sale of Tangible Fixed Assets       ---

 

  • Proceeds from Sale of Intangible Fixed Assets     ---

 

  • Proceeds From Sale of Non-Current Investments ---

 

  • Interest and Dividend received                           ---

 

  • Rent Received                                                   ---

----

  • Purchase of Tangible Fixed Assets                    (---)

 

  • Purchase of Intangible Fixed Assets (goodwill)  ( ---)      

 

  • Purchase of Non-current Investments              ( ---)

 

Net Cash from (or used in) Investing Activities

 

 

 

  1. Cash Flow from Financing Activities

 

  • Proceeds from issue of Share & Debentures       ---

 

  • Proceeds from Short-term (includes bank overdraft and cash credit) and Long-term borrowings       ---

 

  • Final Dividend paid                                         (---)

 

  • Interim Dividend paid                                     (---)

 

  • Interest on borrowings paid                            (---)

 

  • Repayment of Loan                                         (---)

 

  • Redemption of Debentures                              (---)

 

Net Cash from (or used in) Financing Activities  ---

-------

 

 

Net Increase (or Decrease) in Cash and Cash equivalents

 

(A+B+C)

------

Add:

 

Cash and Cash Equivalents in the beginning

------

 

 

Cash and Cash Equivalents at the end of the year

 

Benefits of NCERT Solutions

It is highly recommended to refer to NCERT Solutions while preparing for class 12 board exams. Here are some of the benefits of using NCERT Solutions by Extramarks.
1. It is written in such a manner to help the student enjoy the learning journey.

2. It aims to help students grasp the concepts of every chapter.
3. It comes with in-depth explanations to help student boost their confidence.

4. Diagrams are provided, wherever required in the solution.
5. It is free of cost.

Tips & Strategies for Class 12 Exam Preparation

1. Start with making a time table. Prioritize the important topics and study them well.

2. Class 12 is important for your career, therefore follow your time table religiously.

3. Always make brief notes while studying a chapter as they will come in handy for revision before the exam.

4. Understand your concepts, diagrams etc. with NCERT Solutions given on the Extramarks website and the Extramarks – The Learning App.

5. Most importantly, be confident.

Why Opt for Extramarks NCERT Solutions for Class 12 ?

Class 12 board exams are the pillars of a successful career in your life. Thus, with the right study materials, students will be able to achieve their desired marks in exams. NCERT Solutions for class 12 by Extramarks will greatly help students in understanding chapters and will be like a companion in their learning journey.

Frequently Asked Questions

product
How to study for the Class 12 Maths CBSE exam? 

Math is a subject that analyses the critical and analytical thinking of a student and tests numerical questions. So, the best way to prepare for Math is by studying the NCERT solutions. Make a timetable, jot down the important formulas, and theorems, make time for revision and give as much time as you can give to practicing questions. Solve a maximum number of questions and time your efforts. Extramarks - The Learning App has several sample papers along with NCERT 12 solutions that can be used for practicing for class 12 Math exam.

How to Prepare for Class 12 Board Exams?

Class 12 exams seem like a major feat, but they are actually quite simple and really just a milestone that every student cross in his/her academic life. There is nothing to fear as you can easily prepare for the exams with the help of NCERT solutions for class 12 that are given on the Extramarks website or Extramarks – The Learning App

What part of the CBSE Class 12 exam syllabus is covered in the NCERT books?

The CBSE guide for class 12 study material NCERT contains all syllabus prescribed to students of class 12. Look for NCERT solutions on the Extramarks website in the footer section and you will find all solutions there. 

Do you provide solutions for All subjects for class 12 CBSE? 

Yes, Extramarks provides all NCERT class 12 solutions for all subjects for class 12. Extramarks - The Learning App also has solved and unsolved sample papers that you can use to practice for your exams. You can also find the previous year`s solved board question paper on the app.

What are some expert tips to score good marks in Class 12 CBSE?

To score good marks in class 12 CBSE board exams, you must follow these tips:

1. Make a timetable to study well. Organize and prioritize the topics you want to study and haven`t yet had the time to open. Start studying with the most crucial topics.

2. Follow your timetable religiously. Save time for relaxing activities like meditation, swimming or sleeping.

3. Make brief notes containing important answers, character sketches, theorems, formulae, etc. Make clear notes so you can study them before the exam.

4. Learn from class 12 NCERT solutions given on Extramarks website.

5. Be confident that you can crack these exams and take time off to relax.

6. Revise thoroughly before the exam.

Start Your
7-Days Free Trial
and experience it yourself
Start Trial
Play StoreApp Store
Flying Girl
A subscription
that’s worth your
money
Get the best classroom experience on
India’s leading learning platform

Get
in touch

Have a query about our services?
Get in touch with us and we will
guide you through a new world of
redefined learning

Union
Get OTP
Submit