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


    INR20,000 and INR5,000 respectively.


    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


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


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

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  • Q3








    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




    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


    added to net profit in operating activity.


    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%.


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