NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6

NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6

Accountancy introduces students to the world of business while emphasising the subject’s foundations. Class 11 Accountancy forms the basis for Class 12 Accountancy. Hence, it becomes essential for the students to focus on the syllabus in Class 11 to achieve good grades in the Board Examination in Class 12.

Chapter 6- The  Cash Flow Statement is an essential topic which focuses mainly on the inflows and outflows of cash and cash equivalents. This Chapter forms the foundation for any student who wants to pursue Accountancy at a higher level. 

Receiving low grades is any student’s worst nightmare.  To avoid this, they must start preparing well in advance. One of the best ways to prepare for the Class 12 Board Examination is through NCERT Solutions. Extramarks presents NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6- Cash Flow Statement to make it easier for the students to prepare for their forthcoming examinations. These solutions work wonders for a subject such as Accountancy, which requires constant practice. 

In addition to these Solutions, students can use the Extramarks website to access several other study tools such as NCERT books, CBSE revision notes, CBSE sample papers, CBSE past years’ question papers, etc. 

Key Topics Covered In NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6

Mentioned below is the list of some of the major topics explained in Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6- Cash Flow Statement:

What Is A Cash Flow Statement?
Advantages of Cash Flow Statement
Elements of The Cash Flow Statements
How is Cash Flow calculated?
Methods of Cash Flow Statements
Accounts Receivable and Cash Flow
Objectives of Cash Flow Statement
Inflow and Outflow of Cash
Limitations of Cash Flow Statements

Let us now dive right into Extramarks detailed notes on each sub-topic given in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6- Cash Flow Statement.

What Is A Cash Flow Statement?

Cash flow statements demonstrate the flow of entering and exiting cash, as defined by the Financial Accounting Standards Board. This statement is one of the methods used to assess the company’s liquidity and solvency.

A cash flow statement is a financial statement that shows the total amount of money coming in and going out. It includes all cash inflows and outflows that pay for trade operations and finances over a certain period and all cash inflows and outflows that pay for continuous progress and external funding sources. A cash flow statement, in other terms, is a financial statement that estimates the cash produced or utilised by a company over a given period.

The cash flow statement provides information on a company’s change in the position of Cash Equivalents and Cash over time. This change’s objectives are implemented in investment, finance, and operations. However,

  • Under these titles relating to the net cash flow, detailed descriptions of outflows and inflows are provided when describing a cash flow statement (or use).
  • The amount of cash and cash equivalents at the start is totalled, and the quantity of ‘cash equivalents and cash at the end is reported.
  • The sum will equal the total cash in the bank, cash equivalents (if any), and money in hand shown on the balance sheet. 
  • The cash that flows from operational operations will be called a ‘direct method Cash Flow Statement’ if created using the direct technique when detailing the cash flow statement.
  • Unless a specific strategy is specified, the cash flow statement may initially be defined using an indirect way, as most businesses do at work.

Advantages of Cash Flow Statement

Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6 states the following advantages of Cash Flow Statement:

  • When combined with other financial reports, a cash flow statement allows users to examine changes in a company’s net assets and its economic system. It entails liquidity and stability and the flexibility to modify the amounts and timings of cash flows in response to changing circumstances and opportunities.
  • Cash flow data assesses a company’s capacity to generate cash and cash equivalents. It allows users to create models to measure and analyse the current worth of various firms’ projected cash flows.
  • It also aids in the stabilisation of cash inflow and outflow in response to the changing scenario. It’s also essential for confirming the accuracy of previous projections of expected cash flows and investigating the relationship between net cash flow and profitability due to changing cost prices.

The cash flow statement provides information that helps an investor understand the health of a company’s operations, where the money comes from, and how effectively it is spent. The statement is important because it helps investors determine whether or not an organisation’s financial situation is dependable.

On the other hand, Creditors evaluate this statement to determine how much cash (liquid cash) a firm has to cover its operational expenses and pay its obligations.

Elements of The Cash Flow Statements

Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6 lists the elements of the Cash Flow Statements as follows:

  • Cash flow from Operating Activities:

A firm’s operations directly engaged in providing its commodities and services to the marketplace are known as operating activities. Producing, assigning, selling, and promoting an item or service are examples of the enterprise’s primary trading interests. Operating operations are a company’s primary source of revenue and expenditure.

The cash flow statement’s operating activities include a variety of uses and sources of cash from the company’s operations. It displays how much money a business has made from its products or services.

Operating operations comprise the following items:

  • Vouchers are obtained via the sale of products and services.
  • Interest accrues again.
  • Taxes must be paid.
  • Payment to suppliers for goods and services utilised in the manufacturing process.
  • Salaries and wages are paid.
  • Due rent.
  • Additional operational costs

Vouchers from the loans, sale of debt, or stock are also incorporated for an investment and trading firm. Deferred tax, amortisation, depreciation, dividends or revenue received from investments, and profits or losses on non-current assets are all included in creating a cash flow statement. However, the purchase or sale of long-term investments is excluded.

  • Cash flow from Investing Activities:

Investing activities cover the full use of cash from a company’s investments. The sale or ownership of an asset, credits issued to merchants or collected from consumers, and payments related to an acquisition or merger are all included in this category.

  • Cash flow from Financing Activities:

It includes all financial sources, including banks and investors, and funds utilised to pay shareholders. A settlement for shares repurchased, interest payments, and debt compensation are also reported in this category. When money is raised, it is referred to as “cash in,” and when dividends are paid, it is called “cash out.”

How is Cash Flow calculated?

Cash flow is estimated by altering a few variables in a company’s net income. For Example, variations in costs, income, credit transactions, and expenses might be added or subtracted from one period to the next. As non-cash items are assessed using net income (income statement) and total assets and liabilities, adjustments are required (balance sheet).

As a result, determining cash flows requires careful attention. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6 states a a few  examples given below:

  • A straightforward way for revealing relevant areas of gross cash payments and gross cash receipts. 

Similarly, an indirect technique in which net profit or loss is appropriately adjusted for:

  • Proceeding of a non-monetary nature.
  • Any past/future working cash receipt accruals or deferrals.
  • Expenses and revenues are connected with investing and financing cash flows. It is important to note that the beginning point for the indirect method is net profit and loss before taxation and unusual items as reported on the company’s statement of Profit and Loss. Then this amount is adjusted for non-cash items, etc., to calculate cash flows from operating activities.

Methods of Cash Flow Statements

Both indirect and direct approaches can calculate cash flow from operational operations. The following procedures are described in detail:

  • Direct Methods: 

The significant categories of cash withdrawals and inflows (such as employee benefits expenditures paid, cash collected from trade receivables, and so on) are considered here. It’s important to note that the profit and loss statement items are reported using accrual data. As a result, various adjustments are necessary to convert them to a cash basis.

  • Indirect Methods: 

The amount of net profit and loss is the starting point for the indirect technique of calculating cash flow from active pursuits. The results of a company’s whole operating operations are included in this statement. A profit and loss account, on the other hand, is prepared on an accrual basis rather than a cash basis. It includes non-operating elements like profit and loss on fixed asset sales, interest payments, and non-cash items.

For Example, the goodwill that will be written off, depreciation, etc. 

As a result, controlling the net profit and loss as shown on a profit and loss statement is critical for achieving cash flows from operational operations.

Extramarks provides NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6, which gives students comprehensive and authentic answers of the questions given at the end of the Chapter. Browse through Extramarks for these handy notes.

Accounts Receivable and Cash Flow

All changes in the balance sheet’s Accounts Receivable (AR) from one accounting year to the next should be shown in cash flow.

If accounts receivable decrease, more money is credited to the firm from consumers who have paid their credit accounts. As a result, the reduced amount is merged with net sales. However, if the number of funds receivable increases from one accounting period to the next, the growth is removed from net sales since these sums are shown as revenue rather than cash.

Objectives of Cash Flow Statement

Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6 states the following objectives of Cash flow statements:

  • To give data on cash inflows and outflows related to operating, investing, and financing operations.
  • Calculate movements of net cash and cash equivalents. 

Inflow and Outflow of Cash

  • The inflow of cash:

The inflow of cash refers to all transactions that result in a rise in cash and cash equivalents.

  • The outflow of cash:

Outflows of Cash are any transactions that result in a reduction in cash and cash equivalents.

Limitations of Cash Flow Statements

The following are some limitations of Cash Flow Statements as per Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6:

  • Ignore Cashless transactions
  • Ignore the idea of accumulation.
  • Nature is historical.
  • Not a substitute for an Income Statement 
  • Fails at  determining the enterprise’s liquidity or solvency.

NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 6 Accounting for Share Capital

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Q.1 What is a Cash flow statement?

Ans.

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

Ans.

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

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.

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.

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.3 State the objectives of cash flow statement.

Ans.

Cash flow statement provides the following benefits:

A cash flow statement aims at highlighting the cash generated from operating activities.

It is useful in planning the replacement of an asset, repayment of loan etc.

It is very useful in the evaluation of cash position of an enterprise.

Banks and financial institutions mostly prefer cash flow statement to analyse liquidity of the borrowing firm.

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.4 What are the objectives of preparing cash flow statement?

Ans.

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

Ans.

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.6 Prepare a format of cash flow from operating activities.

Ans.

Indirect Method

Particulars (₹)
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.7 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.

Ans.

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

Ans.

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.9 Describe the procedure to prepare Cash Flow Statement.

Ans.

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 (₹)
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
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
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

Q.10 Describe “Indirect” method of ascertaining Cash Flow from operating activities.

Ans.

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 (`)
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.11 Explain the major Cash Inflows and Outflows from investing activities.

Ans.

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.12 Explain the major Cash Inflows and Outflows from financing activities.

Ans.

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.13 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.

Ans.

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.14 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

Ans.

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.15 For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow, viz., operating, investing and financing.

(a) Acquired machinery for ₹2,50,000 paying 20% by cheque and executing a bond for the balance payable.

(b) Paid ₹2,50,000 to acquire shares in Informa Tech. and received a dividend of ₹50,000 after acquisition.

(c) Sold machinery of original cost ₹2,00,000 with an accumulated depreciation of ₹1,60,000 for ₹60,000.

Ans.

(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.16 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:

Trade receivables decrease by ₹30,000 during the year.

Prepaid expenses increase by ₹5,000 during the year.

Trade payables increase by ₹15,000 during the year.

Outstanding expenses payable increased by ₹3,000 during the year.

Other expenses included depreciation of ₹25,000.

Compute net cash from operations for the year ended March 31, 2017 by the indirect method.

Ans.

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.17 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

Ans.

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.18 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.

Ans.

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.19 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.

Ans.

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.20 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.

Ans.

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.21 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.

Ans.

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.22 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.

Ans.

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.23 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.

Ans.

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.24 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

Ans.

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

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Related Chapters

Chapter 1 - Accounting for Share Captial

Chapter 2 - Issue and Redemption of Debentures

Chapter 3 - Financial Statements of a Company

Chapter 4 - Analysis of Financial Statements

Chapter 5 - Accounting Ratios

FAQs (Frequently Asked Questions)

The Cash Flow Statement is a crucial component of the Accounting subject . This Chapter will help students better understand the Cash Flow Statement than what was taught before in Class 11. This Chapter teaches students how to read and understand a cash flow statement. Many essential concerns are addressed in this Chapter, including how to produce a cash flow statement, its meaning, and its aims.

A cash flow statement is a financial statement that displays the influx and outflow of cash and cash equivalents from the company’s financing, operating, and investment operations. It keeps track of all cash and cash equivalent payments that a company can make within an accounting year. This cash flow statement assists firms in determining their capacity and position to create cash for their requirements.