Cash Flow Statement (With Adjustments)

  • In the accounting treatment of Provision of tax, provision made for tax will be added to net profits before tax.
  • For calculating cash from operations after tax, amount paid for tax will be deducted from it.
  • Proposed Dividend appearing in the previous year’s Balance Sheetis paid during the year and is shown under the head‘cash flow from financing activities.’
  • The balance appearing in the current year’s Balance Sheet is added back to net profits and is shown under the heading ‘cash flow from operating activities.’
  • Dividend or Interim Dividend paid during the year is added to Net Profits for computing ‘Cash Flow from OperatingActivities’ and appears under‘Cash Flow from Financing Activities’.
  • There is no need of preparing ‘Proposed Dividend Account.’
  • To identify whether there is an inflow or outflow of cash on account of fixed assets and investments, fixed account and accumulated depreciation account is prepared.
  • Profit/loss on sale of fixed assets will be added/ subtracted to/ from the net profits in order to find out cash flow from operating activities, as it is a non-operating cost.
  • Share Capital account is prepared to compute fresh issue of equity shares, any premium or discount on issue or buy back of equity shares.
  • Debenture account is preparedlike any other Liability Account and it helps to compute the debentures issued during the period.

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  • Q1

    Reliance Ltd. has following balances

    Investments on 31-12-2016 = INR50,000

    Investments on 31-12-2017 = INR40,000

    During the year company sold 30% of its original investments at a profit of INR 5,000.

    The value of investments sold and purchased is

    Marks:1
    Answer:

    INR20,000 and INR5,000 respectively.

    Explanation:

    Prepare investment A/c and debit it with INR50,000 (opening balance), INR5,000 (profit on sale of investment) and INR5,000 (purchase of investments as balancing figure) and credit it with INR20,000 (investments sold) & INR40,000 (closing balance).

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  • Q2

    Following information is given.

    Share Capital:

    Previous year = INR3,00,000.

    Current year= INR5,00,000.

    This means that

    Marks:1
    Answer:

    INR2,00,000 share capital have been issued in current year.

    Explanation:

    Share capital has increased in the current year means that new shares must have been issued in current year.

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  • Q3

    Assets

    2017

    2018

    INR INR

    Investments

    2,00,000

    2,00,000

    On 31st March, 2018 investments were purchased for INR1, 60,000 and some investments were sold at a profit of INR40,000.

    The sale price of investments will be

    Marks:1
    Answer:

    2,00,000.

    Explanation:

    The book value of investment at the end should be (after purchase during the year) = 2,00,000 + 1,60,000 = 3,60,000.

    It implies that book value of investment sold = 1,60,000 (3,60,000 - 2,00,000)

    Sale value of investment = book value + profit = 1,60,000+ 40,000 = 2,00,000.

     

     

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  • Q4

    Fixed assets having book value INR 50,000 are sold for at INR 41,000. INR 9,000 being loss on sale of asset would be

    Marks:1
    Answer:

    added to net profit in operating activity.

    Explanation:

    Loss on sale of fixed assets is added to net profit in operating activity.

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  • Q5

    From the following Balance Sheets of Easy Day Ltd. as at 31st March and the additional information provided, calculate the Cash Flow from Operating Activities.

    Additional Information:

    (1) Depreciation provided on Fixed Assets 30,000

    (2) Preference Shares were redeemed at a premium of 5 % on 31st March 2016.

    (3) Additional debentures were issued on 1st October, 2015.

    (4) The Company declared and paid dividend on equity shares @8%.

    Marks:3
    Answer:

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