MEANING OF KEY TERMS USED IN THE CHAPTER

1. Cash Flow Statement It is the statement that shows flow of Cash and Cash Equivalents
during the period under report.
2. Cash Flows These are the inflows (receipts) and outflows (payments) of Cash and
Cash Equivalents.

3. Cash It comprises of Cash on Hand and demand deposits with banks.

4. Cash Equivalents These are short-term, highly liquid investments that are readily
convertible into known amount of cash and which are subject to
an insignificant risk of change 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,
i.e., purchase.

5. Operating Activities These are the principal revenue producing activities of the enterprise
and other activities that are not Investing and Financing Activities.

6. Investing Activities These are activities of acquisition and disposal of long-term assets
and other investments not included in cash equivalents.

7. Financing Activities These are the activities that result in change in the size and
composition of the owner’s capital (including Preference Share Capital
in the case of a company) and borrowings of the enterprise.

8. Extraordinary Activities These are incomes or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the
enterprise and, therefore, are not expected to recur frequently
or regularly.

C H A P T E R S U M M A RY

• Cash Flow Statement is a statement that shows flow of Cash and Cash Equivalents during the period
under report. The statement shows net increase or decrease of Cash and Cash Equivalents under each
activity separately (operating/investing/financing) and collectively.

• Preparation of Cash Flow Statement: Cash Flow Statement is prepared following the steps as follows:

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, i.e., Operating Activity, Investing Activity and Financing Activity as
computed under Steps 1, 2 and 3 are added in Cash Flow Statement and the resultant amount
is Net Increase or Decrease in Cash and Cash Equivalents.

1
 Step 5: Cash and Cash Equivalents balance in the beginning of the period is 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.

Proposed Dividend
Proposed Dividend, both on Equity Shares and Preference Shares are paid after being
declared (approved) by the shareholders in the Annual General Meeting. Annual General
Meeting is held after the end of the financial year, i.e., in the next financial year.
AS-4 (Revised), Contingencies and Events Occurring After the Balance Sheet Date
prescribes that Proposed Dividend is not to be provided in the books of account
but is to be disclosed (shown) in the Notes to Accounts as Contingent Liability being
payable upon being declared (approved) by the shareholders. Dividend is an appropriation
of Profit and is deducted from Surplus, i.e., Balance in Statement of Profit & Loss in
the Note to Accounts on Reserves and Surplus in the year in which dividend is paid.

FORMAT OF CASH FLOW STATEMENT (INDIRECT METHOD) for the year ended ...
[As per Accounting Standard-3 (Revised)]

Particulars `

I. Cash Flow from Operating Activities

(A) Net Profit before Tax and Extraordinary Items (as per Working Note) ...
Adjustment for Non-cash and Non-operating Items
(B) Add: Items to be Added
— Depreciation ...
— Goodwill, Patents and Trademarks Amortised ...
— Interest on Bank Overdraft/Cash Credit ...
— Interest on Borrowings (Short-term and Long-term) and Debentures ...
— Loss on Sale of Fixed Assets ...
— Increase in Provision for Doubtful Debts* ... ...
...
(C) Less: Items to be Deducted
— Interest Income ...
— Dividend Income ...
— Rental Income ...
— Gain (Profit) on Sale of Fixed Assets ...
— Decrease in Provision for Doubtful Debts* ... ...
(D) Operating Profit before Working Capital Changes (A + B – C) ...
(E) Add: Decrease in Current Assets and
Increase in Current Liabilities
— Decrease in Inventories (Stock) ...
— Decrease in Trade Receivables (Debtors/Bills Receivable) ...
— Decrease in Accrued Incomes ...
— Decrease in Prepaid Expenses ...
— Increase in Trade Payables (Creditors/Bills Payable) ...
— Increase in Outstanding Expenses ...
— Increase in Advance Incomes ... ...

2
 (F) Less: Increase in Current Assets and
Decrease in Current Liabilities
— Increase in Inventories (Stock) ...
— Increase in Trade Receivables (Debtors/Bills Receivable) ...
— Increase in Accrued Incomes ...
— Increase in Prepaid Expenses ...
— Decrease in Trade Payables (Creditors/Bills Payable) ...
— Decrease in Outstanding Expenses ...
— Decrease in Advance Incomes ... ...
(G) Cash Generated from Operations (D + E – F) ...
(H) Less: Income Tax Paid (Net of Tax Refund received) ...
(I) Cash Flow before Extraordinary Items ...
— Extraordinary Items (+/–) ...
(J) Cash Flow from (or Used in) Operating Activities ...
II. Cash Flow from Investing Activities
— Proceeds from Sale of Fixed Assets ...
— Proceeds from Sale of Investments (Other than Current Investments (to be
included in Cash and Cash Equivalents) and Marketable Securities) ...
— Proceeds from Sale of Intangible Assets ...
— Interest and Dividend received (For Non-financial Companies only) ...
— Rent Received ...
— Payment for Purchase of Fixed Assets (...)
— Payment for Purchase of Investments (Other than Marketable Securities) (...)
— Payment for Purchase of Intangible Assets like Goodwill (...)
— Extraordinary Items (e.g., Insurance Claim on Machinery against Fire) (+/–) ...
Cash Flow from (or Used in) Investing Activities ...
III. Cash Flow from Financing Activities
— Proceeds from Issue of Shares and Debentures ...
— Proceeds from Other Long-term Borrowings ...
— Increase/Decrease in Bank Overdraft and Cash Credit ...
— Final Dividend paid during the year (...)
— Interim Dividend paid during the year (...)
— Payment of Interest on Debentures and Loans (Short-term and Long-term) (...)
— Repayment of Loans (...)
— Redemption of Debentures/Preference Shares (...)
— Payment of Share Issue Expenses (...)
— Payment for Buy-back of Shares as Extraordinary Activity (...)
Cash Flow from (or Used in) Financing Activities ...
IV. Net Increase/Decrease in Cash and Cash Equivalents (I + II + III) ...
V. Add: Cash and Cash Equivalents in the beginning of the year
— Cash-in-Hand ...
— Cash at Bank ...
— Short-term Deposits ...
— Current Investments ...
— Marketable Securities ... ...
...
VI. Cash and Cash Equivalents at the end of the year
— Cash-in-Hand ...
— Cash at Bank ...
— Short-term Deposits ...
— Current Investments ...
— Marketable Securities ... ...
*Alternatively, increase/decrease in Provision for Doubtful Debts may be treated under increase/decrease in
Current Liabilities. In this situation, increase/decrease in Provision for Doubtful Debts is adjusted after Operating
Profit before Working Capital Changes.

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Working Note: Net Profit before Tax and Extraordinary Items: `
Net Profit as per Statement of Profit & Loss or Difference between Closing Balance and
Opening Balance of Surplus, i.e., Balance in Statement of Profit & Loss ...
Add: Transfer to Reserves ...
Dividend (Proposed Dividend of previous year) paid during the year ...
Interim Dividend paid during the year ...
Provision for Tax for the current year ...
Extraordinary Items, if any, debited to the Statement of Profit & Loss ...
...
Less: Extraordinary Items, if any, credited to the Statement of Profit & Loss ...
Refund of Tax credited to the Statement of Profit & Loss ... ...
Net Profit before Tax and Extraordinary Items ...

IMPORTANT NOTE

1. Current Investments to be taken as Marketable Securities unless otherwise specified.

2. Bank overdraft and cash credit is shown as part of Financing Activities.

4
Illustration 1.
From the following Balance Sheet of New Light Ltd. as at 31st March, 2022 and the additional
information, determine Cash Flow from Investing Activities:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 6,00,000 5,00,000
(b) Reserves and Surplus 8,50,000 7,00,000
2. Current Liabilities 4,10,000 3,55,000
Total 18,60,000 15,55,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
—Property Plant and Equipment 1 15,00,000 13,00,000
(b) Non-current Investments 1,00,000 50,000
2. Current Assets
(a) Trade Receivables 2 2,00,000 1,80,000
(b) Cash and Cash Equivalents 60,000 25,000
Total 18,60,000 15,55,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Property, Plant and Equipment
Plant and Machinery (Net) 8,00,000 6,00,000
Land and Building (Net) 7,00,000 7,00,000
15,00,000 13,00,000
2. Trade Receivables
Sundry Debtors 1,20,000 1,10,000
Bills Receivable 80,000 70,000
2,00,000 1,80,000

Additional Information: During the year, the company sold machinery at book value for ` 2,00,000.
Solution: CASH FLOW FROM INVESTING ACTIVITIES
Particulars `
Purchase of Plant and Machinery (WN) (4,00,000)
Proceeds from Sale of Plant and Machinery 2,00,000
Purchase of Non-current Investments (50,000)
Cash Used in Investing Activities (2,50,000)

Working Note:
Dr. PLANT AND MACHINERY ACCOUNT Cr.
Particulars
` Particulars `
To Balance b/d 6,00,000 By Bank A/c (Sale) 2,00,000
To Bank A/c (Balancing Figure) 4,00,000 By Balance c/d 8,00,000
(Purchase)
10,00,000 10,00,000

1
Illustration 2.
Following is the Balance Sheet of Wisben Ltd. as at 31st March, 2012:
Particulars Note No. 31st March, 31st March,
2012 (`) 2011 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 7,00,000 6,00,000
(b) Reserves and Surplus 2,00,000 1,10,000
(Surplus, i.e., Balance in Statement of Profit & Loss)
2. Non-Current Liabilities
Long-term Borrowings 3,00,000 2,00,000
3. Current Liabilities
Trade Payables 30,000 25,000
Total 12,30,000 9,35,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment (Machinery) 11,00,000 8,00,000
2. Current Assets
(a) Inventories 70,000 60,000
(b) Trade Receivables 32,000 40,000
(c) Cash and Cash Equivalents 28,000 35,000
Total 12,30,000 9,35,000

Additional Information: During the year a piece of machinery of the book value of ` 80,000 was sold
for ` 65,000. Depreciation provided on machinery assets during the year amounted to ` 2,00,000.
Prepare the Cash Flow Statement. (Delhi 2013, Modified)
Solution: CASH FLOW STATEMENT for the year ended 31st March, 2012
Particulars `
(A) Cash Flow from Operating Activities
Surplus, i.e., Balance in Statement of Profit & Loss (Closing) 2,00,000
Less: Surplus, i.e., Balance in Statement of Profit & Loss (Opening) 1,10,000
Net Profit before Tax and Extraordinary Items 90,000
Add: Non-Cash and Non-Operating Items:
Depreciation 2,00,000
Loss on Sale of Tangible Assets 15,000 2,15,000
Operating Profit before Working Capital Changes 3,05,000
Add: Decrease in Current Assets and Increase in Current Liabilities:
Trade Payables 5,000
Trade Receivables 8,000 13,000
3,18,000
Less: Increase in Current Assets:
Inventories 10,000
Cash Flow from Operating Activities 3,08,000
(B) Cash Flow from Investing Activities
Purchase of Property, Plant and Equipment (WN) (5,80,000)
Proceeds from Sale of Property, Plant and Equipment 65,000
Cash Used in Investing Activities (5,15,000)
(C) Cash Flow from Financing Activities
Cash Proceeds from Issue of Shares 1,00,000
Cash Proceeds from Long-term Borrowings 1,00,000
Cash Flow from Financing Activities 2,00,000
(D) Net Decrease in Cash and Cash Equivalents (A + B + C) (7,000)
Add: Cash and Cash Equivalents (Opening) 35,000
(E) Cash and Cash Equivalents (Closing) 28,000

2
Working Note:
Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 8,00,000 By Depreciation A/c 2,00,000
To Bank A/c (Balancing Figure) 5,80,000 By Bank A/c (Sale) 65,000
(Purchase) By Loss on Sale of Machinery A/c 15,000
(Statement of Profit & Loss)
By Balance c/d 11,00,000
13,80,000 13,80,000

Illustration 3.
Balance Sheet of Fox Ltd. as at 31st March, 2022 is:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 4,50,000 4,50,000
(b) Reserves and Surplus 1 3,78,000 3,56,000
2. Non-Current Liabilities
Long-term Borrowings: Mortgage Loan 2,70,000 ...
3. Current Liabilities
(a) Trade Payables 1,34,000 1,68,000
(b) Short-term Provisions: Provision for Tax 10,000 75,000
Total 12,42,000 10,49,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment (Machinery) 3,20,000 4,00,000
(b) Non-current Investments 60,000 50,000
2. Current Assets
(a) Current Investments 17,000 19,000
(b) Inventories 2,10,000 2,40,000
(c) Trade Receivables 4,55,000 2,10,000
(d) Cash and Cash Equivalents 1,80,000 1,30,000
Total 12,42,000 10,49,000

Note to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
General Reserve 3,10,000 3,00,000
Surplus, i.e., Balance in Statement of Profit & Loss 68,000 56,000
3,78,000 3,56,000

Additional Information:
1. Investments costing ` 8,000 were sold during the year for ` 8,500.
2. Provision for Tax made during the year was ` 9,000.
3. During the year, part of the machinery costing ` 10,000 was sold for ` 12,000 and the
gain (profit) was included in the Statement of Profit & Loss.
4. Interim Dividend declared and paid during the year amounted to ` 40,000.
Prepare Cash Flow Statement.
3
Solution: CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars   `
(A) Cash Flow from Operating Activities
(Closing) Surplus, i.e., Balance in Statement of Profit & Loss 68,000
Less: (Opening) Surplus, i.e., Balance in Statement of Profit & Loss 56,000
12,000
Add: Interim Dividend 40,000
Provision for Tax 9,000
Transfer to General Reserve 10,000 59,000
Net Profit before Tax and Extraordinary Items 71,000
Add: Non-cash Expenses:
Depreciation (WN 1) 70,000
1,41,000
Less: Non Operating Incomes:
Gain (Profit) on Sale of Investments 500
Gain (Profit) on Sale of Fixed Assets 2,000 2,500
Operating Profit before Working Capital Changes 1,38,500
Add: Decrease in Current Assets:
Inventories 30,000
1,68,500
Less: Increase in Current Assets and Decrease in Current Liabilities:
Trade Receivables 2,45,000
Trade Payables 34,000 2,79,000
Cash Outflow from Operating Activities before Tax (1,10,500)
Less: Income Tax Paid (WN 3) (74,000)
Cash Used in Operating Activities (1,84,500)
(B) Cash Flow from Investing Activities
Purchase of Investments (WN 2) (18,000)
Proceeds from Sale of Machinery 12,000
Proceeds from Sale of Investments 8,500
Cash Flow from Investing Activities 2,500
(C) Cash Flow from Financing Activities
Mortgage Loan Raised 2,70,000
Dividend Paid (40,000)
Cash Flow from Financing Activities 2,30,000
(D) Net Increase in Cash and Cash Equivalents (A + B + C) 48,000
Cash and Cash Equivalents in the beginning of the year (` 19,000 + ` 1,30,000) 1,49,000
(E) Cash and Cash Equivalents at the end of the year (` 17,000 + ` 1,80,000) 1,97,000

Working Notes:
1. Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 4,00,000 By Bank A/c 12,000
To Gain (Profit) on Sale of Machinery A/c 2,000 By Depreciation A/c (Balancing Figure) 70,000
(Statement of Profit & Loss) By Balance c/d 3,20,000
4,02,000 4,02,000

4
2. Dr. INVESTMENTS ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 50,000 By Bank A/c 8,500
To Gain (Profit) on Sale of Investments A/c 500 By Balance c/d 60,000
(Statement of Profit & Loss)
To Bank A/c (Balancing Figure) (Purchase) 18,000
68,500 68,500

3. Dr. PROVISION FOR TAX ACCOUNT Cr.

Particulars ` Particulars `
To Bank A/c (Tax Paid) (Balancing Figure) 74,000 By Balance b/d 75,000
To Balance c/d 10,000 By Statement of Profit & Loss 9,000
(Provision for Tax)
84,000 84,000

Illustration 4.
From the following Balance Sheet of Bull Ltd. as at 31st March, 2022, prepare Cash Flow
Statement:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 3,60,000 3,00,000
(b) Reserves and Surplus 2,00,000 1,60,000
(Surplus, i.e., Balance in Statement of Profit & Loss)
2. Non-Current Liabilities
Long-term Borrowings 1 3,78,000 2,62,000
3. Current Liabilities
(a) Trade Payables 2 28,000 28,000
(b) Other Current Liabilities (Outstanding Expenses) 2,000 6,000
Total 9,68,000 7,56,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i ) Property, Plant and Equipment 3 6,40,000 4,60,000
(ii ) Intangible Assets: Goodwill 10,000 20,000
2. Current Assets
(a) Inventories 34,000 40,000
(b) Trade Receivables 4 1,68,000 1,36,000
(c) Cash and Cash Equivalents:
Cash at Bank 1,16,000 1,00,000
Total 9,68,000 7,56,000

5
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Long-term Borrowings
12% Debentures 1,38,000 1,02,000
12% Public Deposits 2,40,000 1,60,000
3,78,000 2,62,000
2. Trade Payables
Creditors 20,000 16,000
Bills Payable 8,000 12,000
28,000 28,000
3. Property, Plant and Equipment
Building 4,40,000 3,00,000
Plant 2,00,000 1,60,000
6,40,000 4,60,000
4. Trade Receivables
Debtors 1,50,000 1,20,000
Bills Receivable 18,000 16,000
1,68,000 1,36,000

Additional Information:
1. Depreciation charged on Building ` 20,000 and Plant ` 10,000.
2. Debentures of ` 36,000 were issued on 1st October, 2021.
3. Public Deposits of ` 80,000 were taken on 31st March, 2022.

Solution: Bull Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `

(A) Cash Flow from Operating Activities

Net Profit before Tax and Extraordinary Items (` 2,00,000 – ` 1,60,000) 40,000
Add : Non-Cash and Non-Operating Expenses:
Goodwill amortised 10,000
Depreciation on Building 20,000
Depreciation on Plant 10,000
Interest on Debentures Paid (to be shown under Financing Activities) (WN 3) 14,400
Interest on Public Deposits (to be shown under Financing Activities) (WN 4) 19,200
Operating Profit before Working Capital Changes 1,13,600
Add: Decrease in Current Assets and Increase in Current Liabilities:
Inventories (` 40,000 – ` 34,000) 6,000
Creditors (` 20,000 – ` 16,000) 4,000
. 1,23,600
Less: Increase in Current Assets and Decrease in Current Liabilities:
Debtors (` 1,50,000 – ` 1,20,000) 30,000
Bills Receivable (` 18,000 – ` 16,000) 2,000
Bills Payable (` 12,000 – ` 8,000) 4,000
Outstanding Expenses (` 6,000 – ` 2,000) 4,000 40,000
Cash Flow from Operating Activities 83,600

6
(B) Cash Flow from Investing Activities
Payment for Building (WN 1) (1,60,000)
Payment for Plant (WN 2) (50,000)
Cash Used in Investing Activities (2,10,000)
(C) Cash Flow from Financing Activities
Proceeds from Issue of Equity Shares 60,000
Proceeds from Issue of Debentures 36,000
Proceeds from Public Deposits 80,000
Interest on Debentures Paid (14,400)
Interest on Public Deposits Paid (19,200)
Cash Flow from Financing Activities 1,42,400
(D) Net Increase in Cash and Cash Equivalents (A + B + C) 16,000
Add: Cash and Cash Equivalents in the beginning of the year 1,00,000
(E) Cash and Cash Equivalents at the end of the year 1,16,000

Working Notes:
1. Dr. BUILDING ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 3,00,000 By Depreciation A/c 20,000
To Bank A/c (Purchase) (Balancing Figure) 1,60,000 By Balance c/d
4,40,000
4,60,000 4,60,000

2. Dr. PLANT ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 1,60,000 By Depreciation A/c 10,000
To Bank A/c (Purchase) (Balancing Figure) 50,000 By Balance c/d
2,00,000
2,10,000 2,10,000

3. Interest on Debentures: `
12% on ` 1,02,000 for 12 months 12,240
12% on ` 36,000 for 6 months 2,160
14,400
4. Interest on Public Deposits:
12% on ` 1,60,000 for 12 months 19,200
Illustration 5.
From the following Balance Sheet of Grow More Ltd. as at 31st March, 2022, prepare Cash
Flow Statement:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 1 4,50,000 4,50,000
(b) Reserves and Surplus 2 1,86,000 (12,000)
2. Non-Current Liabilities
Long-term Borrowings (8% Debentures) 1,56,000 90,000
3. Current Liabilities
(a) Short-term Borrowings (8% Bank Loan) 24,000 30,000
(b) Trade Payables 72,000 66,000
(c) Short-term Provisions 3 30,000 24,000
Total 9,18,000 6,48,000

7
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment (Machinery) 5,16,000 3,72,000
(ii) Intangible Assets (Goodwill) 9,000 24,000
(b) Non-current Investments 75,000 48,000
2. Current Assets
(a) Current Investments 3,000 9,000
(b) Inventories 1,17,000 60,000
(c) Trade Receivables 1,20,000 1,20,000
(d) Cash and Cash Equivalents 78,000 15,000
Total 9,18,000 6,48,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Share Capital
Equity Share Capital 3,30,000 2,70,000
10% Preference Share Capital 1,20,000 1,80,000
4,50,000 4,50,000
2. Reserves and Surplus
Securities Premium 6,000 ...
General Reserve 90,000 72,000
Surplus, i.e., Balance in Statement of Profit & Loss 90,000 (84,000)
1,86,000 (12,000)
3. Short-term Provisions
Provision for Tax 30,000 24,000

Additional Information:
(i) During the year a piece of machinery costing ` 36,000 on which depreciation charged
was ` 12,000 was sold for ` 12,000. Depreciation provided on Tangible Assets ` 36,000.
(ii) Income Tax ` 27,000 was provided.
(iii) Additional Debentures were issued at par on 1st October, 2021 and Bank Loan was
repaid on the same date.
(iv) The shareholders approved the redemption of 10% Preference Shares of ` 60,000 at
a premium of 5% at their Annual General Meeting held on 20th September, 2021,
although the terms of issue did not provide for redemption at a premium. Accordingly,
the shares were redeemed.

8
Solution: CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `
A. Cash Flow from Operating Activities
Closing Balance as per Surplus, i.e., Balance in Statement of Profit & Loss 90,000
Less: Opening Balance as per Surplus, i.e., Balance in Statement of profit & Loss (84,000)
1,74,000
Add: Transfer to General Reserve 18,000
Provision for Tax (WN 2) 27,000
Net Profit before Tax and Extraordinary Items 2,19,000
Adjustment for Non-cash and Non-operating Items:
Depreciation on Property, Plant and Equipment 36,000
Loss on Sale of Machinery 12,000
Interest on Debentures [(` 90,000 × 8/100) + (` 66,000 × 8/100 × 6/12)] 9,840
Interest on Bank Loan [(` 30,000 × 8/100 × 6/12) + (` 24,000 × 8/100 × 6/12)] 2,160
Goodwill Amortised 15,000
Premium on Redemption of Preference Shares 3,000 78,000
Operating Profit before Working Capital Changes 2,97,000
Add: Increase in Current Liabilities (Trade Payables) 6,000
3,03,000
Less: Increase in Current Assets (Inventories) (57,000)
Cash Generated from Operating Activities before Tax 2,46,000
Less: Tax Paid 21,000
Cash Flow from Operating Activities 2,25,000
B. Cash Flow from Investing Activities
Sale of Machinery 12,000
Purchase of Machinery (WN 1) (2,04,000)
Purchase of Non-current Investments (27,000)
Cash Used in Investing Activities (2,19,000)
C. Cash Flow from Financing Activities
Proceeds from Issue of Equity Shares 60,000
Premium Received on Issue of Equity Shares 6,000
Proceeds from Issue of Debentures 66,000
Payment of Interest on Debentures (9,840)
Payment of Interest on Bank Loan (2,160)
Redemption of Preference Shares (60,000)
Premium Paid on Redemption of Preference Shares (3,000)
Bank Loan Repaid (6,000)
Cash Flow from Financing Activities 51,000
D. Net Increase in Cash and Cash Equivalents (A + B + C) 57,000
E. Opening Cash and Cash Equivalents* 24,000
F. Closing Cash and Cash Equivalents* (D + E) 81,000

*Cash and Cash Equivalents = Cash and Cash Equivalents + Current Investments.
Working Notes:
1. Dr. MACHINERY ACCOUNT Cr.
Particulars
` Particulars `
To Balance b/d 3,72,000 By Depreciation A/c 36,000
To Bank A/c (Purchase) (Bal. Fig.) 2,04,000 By Bank A/c (Sale) 12,000
By Loss on Sale of Machinery A/c 12,000
By Balance c/d 5,16,000
  5,76,000 5,76,000

9
2. Dr. PROVISION FOR TAX ACCOUNT Cr.

Particulars
` Particulars `

To Bank A/c (Paid) (Balancing Figure) 21,000 By Balance b/d 24,000

To Balance c/d 30,000 By Statement of Profit & Loss (Tax Provided) 27,000
  51,000 51,000

3. 10% Preference Shares of ` 60,000 have been redeemed at a premium of 5% (` 3,000) although they were not originally
redeemable at premium. Hence, premium payable on redemption of 10% Preference Shares of ` 3,000 was not accounted
at the time of issue. Therefore, premium paid on redemption of preference shares is debited to Statement of Profit & Loss
in the year of redemption and added to Net Profit before Tax and Extraordinary Items under Cash Flow from Operating
Activities and shown as Cash Outflow under Financing Activities.

Illustration 6.
From the following Balance Sheet as at 31st March, 2022, Statement of Profit & Loss for
the year ended 31st March, 2022 and additional information of Grow More Ltd., prepare
its Cash Flow Statement:

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 15,00,000 12,50,000
(b) Reserves and Surplus (Surplus) 4,71,000 1,38,000
2. Non-Current Liabilities
Long-term Borrowings (Debentures) 1,11,000 1,04,000
3. Current Liabilities
(a) Trade Payables 15,000 1,89,000
(b) Other Current Liabilities 1 23,000 10,000
(c) Short-term Provisions 2 40,000 1,00,000
Total 21,60,000 17,91,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:

—Property, Plant and Equipment 3 1,27,000 85,000
(b) Non-current Investments 16,00,000 13,75,000
2. Current Assets
(a) Current Investments 77,000 13,500
(b) Inventories 90,000 1,95,000
(c) Trade Receivables 1,70,000 1,20,000
(d) Cash and Cash Equivalents 96,000 2,500
Total 21,60,000 17,91,000

10
 STATEMENT OF PROFIT & LOSS
for the year ended 31st March, 2022
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. Revenue from Operations 32,20,000 29,50,000

II. Other Income 4 64,000 34,000
III. Total Revenue (I + II) 32,84,000 29,84,000
IV. Expenses:
Purchases of Stock-in-Trade 24,95,000 23,45,000
Change in Inventories of Stock-in-Trade 1,05,000 55,000
Finance Cost 40,000 30,000
Depreciation 45,000 30,000
Other Expenses 91,000 61,000
Total Expenses 27,76,000 25,21,000
V. Profit before Tax (III – VI) 5,08,000 4,63,000
VI. Less: Tax 50,000 40,000
VII. Profit after Tax (V – VI) 4,58,000 4,23,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)

1. Other Current Liabilities

Interest Payable 23,000 10,000
2. Short-term Provisions
Provision for Tax 40,000 1,00,000
3. Property, Plant and Equipment
Plant (Cost) 2,18,000 1,91,000
Less: Accumulated Depreciation (91,000) (1,06,000)
1,27,000 85,000
4. Other Income
Interest Income 30,000 24,000
Dividend Income 20,000 10,000
Insurance Proceeds from Machinery Breakdown 14,000 ...
64,000 34,000

Additional Information:
(i) Additional Debentures for ` 2,50,000 were issued at par during the year.
(ii) Proposed dividend for the years ended 31st March, 2022 and 2021 were 10% each.
(iii) Plant with original cost of ` 80,000 and accumulated depreciation provided thereon
` 60,000 was sold for ` 20,000.

11
Solution: Grow More Ltd.
CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `
A. Cash Flow from Operating Activities
Net Profit (as per Statement of Profit & Loss) 4,58,000
Add: Provision for Tax 50,000
5,08,000
Less: Extraordinary Items (Insurance Proceeds from Machinery Breakdown) 14,000
4,94,000
Add: Non Cash and Non-Operating Expenses:
Depreciation 45,000
Finance Cost 40,000 85,000
5,79,000
Less: Non-operating Incomes:
Interest Income 30,000
Dividend Income 20,000 50,000
Operating Profit before Working Capital Changes 5,29,000
Add: Decrease in Current Assets: Inventories 1,05,000
6,34,000
Less: Increase in Current Assets, and Decrease in Current Liabilities:
Trade Receivables 50,000
Trade Payables 1,74,000 2,24,000
Cash Generated from Operations 4,10,000
Less: Payment of Tax (WN 1) 1,10,000
Cash Flow from Operating Activities before Items Extraordinary 3,00,000
Add: Extraordinary Items (Insurance Proceeds) 14,000
Cash Flow from Operating Activities 3,14,000
B. Cash Flow from Investing Activities
Proceeds from Sale of Plant (WN 2) 20,000
Payment for Purchase of Plant (WN 2) (1,07,000)
Interest Received 30,000
Dividend Received 20,000
Payment for Purchase of Investments (2,25,000)
Cash Used in Investing Activities (2,62,000)
C. Cash Flow from Financing Activities
Proceeds from Issue of Shares 2,50,000
Proceeds from Issue of Debentures (WN 4) 2,50,000
Redemption of Debentures (WN 4) (2,43,000)
Dividend Paid (10% of ` 12,50,000) (1,25,000)
Finance Cost Paid (` 10,000 + ` 40,000 – ` 23,000) (27,000)
Cash Flow from Financing Activities 1,05,000
D. Net Increase in Cash and Cash Equivalents (A + B + C) 1,57,000
Add: Opening Cash and Cash Equivalents (` 2,500 + ` 13,500) 16,000
E. Closing Cash and Cash Equivalents (` 96,000 + ` 7,700) 1,73,000

Working Notes:
1. Dr. PROVISION FOR TAX ACCOUNT Cr.
Particulars
` Particulars `
To Bank A/c (Tax Paid) (Balancing Figure) 1,10,000 By Balance b/d 1,00,000
To Balance c/d 40,000 By Statement of Profit & Loss (Provision) 50,000
  1,50,000 1,50,000

12
2. Dr. PLANT ACCOUNT Cr.
Particulars
` Particulars `

To Balance b/d 1,91,000 By Accumulated Depreciation A/c (Asset Sold) 60,000

To Bank A/c (Purchase) (Bal. Fig.) 1,07,000 By Bank A/c 20,000
By Balance c/d 2,18,000
  2,98,000 2,98,000

3. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars
` Particulars `

To Plant A/c 60,000 By Balance b/d 1,06,000

To Balance c/d 91,000 By Depreciation A/c 45,000
  1,51,000 1,51,000

4. Dr. DEBENTURES ACCOUNT Cr.

Particulars
` Particulars `

To Bank A/c (Redemption) (Bal. Fig.) 2,43,000 By Balance b/d 1,04,000

To Balance c/d 1,11,000 By Bank A/c (Issue) 2,50,000
  3,54,000 3,54,000

5. Cash Flow Statement is started from Net Profit as per Statement of Profit & Loss. Since, Dividend paid is not accounted in
Statement of Profit & Loss, adjustments will not be made for dividend while calculating Net Profit before Tax and Extraordinary
Items.
Illustration 7.
Following is the Balance Sheet of Thermal Power Ltd. as at 31st March, 2014:
BALANCE SHEET OF THERMAL POWER LTD. as at 31st March, 2014
Particulars Note No. 31st March, 31st March,
2014 (`) 2013 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 12,00,000 11,00,000
(b) Reserves and Surplus 1 3,00,000 2,00,000
2. Non-Current Liabilities
Long-term Borrowings 2,40,000 1,70,000
3. Current Liabilities
(a) Trade Payables 1,79,000 2,04,000
(b) Short-term Provisions 50,000 77,000
Total 19,69,000 17,51,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i ) Property, Plant and Equipment 2 10,70,000 8,50,000
(ii) Intangible Assets 3 40,000 1,12,000
2. Current Assets
(a) Current Investments 2,40,000 1,50,000
(b) Inventories 1,29,000 1,21,000
(c) Trade Receivables 1,70,000 1,43,000
(d) Cash and Cash Equivalents 3,20,000 3,75,000
Total 19,69,000 17,51,000

13
Notes to Accounts
Particulars 31st March, 31st March,
2014 (`) 2013 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 3,00,000 2,00,000
2. Property, Plant and Equipment
Machinery 12,70,000 10,00,000
Less: Accumulated Depreciation (2,00,000) (1,50,000)
10,70,000 8,50,000
3. Intangible Assets
Goodwill 40,000 1,12,000

Additional Information:
During the year a piece of machinery, costing ` 24,000 on which accumulated depreciation
was ` 16,000, was sold for ` 6,000.
Prepare Cash Flow Statement. (Delhi 2015)

Solution: Thermal Power Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2014
Particulars ` `

I. Cash Flow from Operating Activities

Net profit before Tax and Extraordinary Items (` 3,00,000 – ` 2,00,000) 1,00,000
Add: Non-cash and Non-Operating Expenses:
Goodwill amortised 72,000
Depreciation on Machinery (WN 2) 66,000
Loss on sale of Machinery 2,000
Operating profit before Working Capital changes 2,40,000
Less: Increase in Current Assets and Decrease in Current Liabilities:
Trade Receivables 27,000
Inventories 8,000
Trade Payables 25,000
Short-term Provisions 27,000 87,000
Cash Flow from Operating Activities 1,53,000
II. Cash Flow from Investing Activities
Purchase of Machinery (WN 1) (2,94,000)
Proceeds from Sale of Machinery 6,000
Cash Used in Investing Activities (2,88,000)
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares 1,00,000
Money raised from Borrowings 70,000
Cash Flow from Financing Activities 1,70,000
IV. Net increase in Cash and Cash Equivalents (I + II + III) 35,000
V. Opening Balance of Cash and Cash Equivalents
Current Investments 1,50,000
Cash and Cash Equivalents 3,75,000 5,25,000
5,60,000
VI. Closing Balance of Cash and Cash Equivalents
Current Investments 2,40,000
Cash and Cash Equivalents 3,20,000 5,60,000

14
Working Notes:

1. Dr. MACHINERY ACCOUNT Cr.

Particulars ` Particulars `

To Balance b/d 10,00,000 By Bank A/c—Sale 6,000

To Bank A/c—Purchase 2,94,000 By Accumulated Depreciation A/c 16,000
(Balancing Figure) By Loss on Sale of Machinery A/c 2,000
(Statement of Profit & Loss)
By Balance c/d 12,70,000
12,94,000 12,94,000

2. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars ` Particulars `
To Machinery A/c 16,000 By Balance b/d 1,50,000
To Balance c/d 2,00,000 By Depreciation A/c (Balancing Figure) 66,000
2,16,000 2,16,000

Illustration 8.
Following is the Balance Sheet of K.K. Ltd. as at 31st March, 2022:

BALANCE SHEET as at 31st March, 2022

Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 10,00,000 8,00,000
(b) Reserves and Surplus 1 4,00,000 (1,00,000)
2. Non-Current Liabilities
Long-term Borrowings 2 9,00,000 10,00,000
3. Current Liabilities
(a) Short-term Borrowings 3 3,00,000 1,00,000
(b) Short-term Provisions 4 1,40,000 1,80,000
Total 27,40,000 19,80,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 5 20,06,000 14,40,000
(ii) Intangible Assets 6 40,000 60,000
(b) Non-current Investments 2,00,000 1,50,000
2. Current Assets
(a) Current Investments 1,00,000 1,20,000
(b) Inventories 7 2,14,000 90,000
(c) Cash and Cash Equivalents 1,80,000 1,20,000
Total 27,40,000 19,80,000

15
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000 (1,00,000)
2. Long-term Borrowings
12% Debentures 9,00,000 10,00,000
3. Short-term Borrowings
Bank Overdraft 3,00,000 1,00,000
4. Short-term Provisions
Provision for Tax 1,40,000 1,80,000
5. Property, Plant and Equipment
Machinery 24,06,000 16,42,000
Less: Accumulated Depreciation (4,00,000) (2,02,000)
20,06,000 14,40,000
6. Intangible Assets
Goodwill 40,000 60,000
7. Inventories
Stock-in-Trade 2,14,000 90,000

Additional Information:
(i) 12% Debentures were redeemed on 31st March, 2022.
(ii) Tax ` 1,40,000 was paid during the year.
Prepare Cash Flow Statement. (Delhi 2016, Modified)
Solution: K.K. Ltd.
CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `
I. Cash Flow from Operating Activities
Closing Balance as per Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000
Less: Opening Balance as per Surplus, i.e., Balance in Statement of Profit & Loss (Loss) (1,00,000)
5,00,000
Add: Provision for Tax (WN) 1,00,000
Net Profit before Tax and Extraordinary Items 6,00,000
Add: Non-cash and Non-operating Expenses:
Depreciation 1,98,000
Interest on 12% Debentures 1,20,000
Goodwill amortised 20,000 3,38,000
Operating Profit before Working Capital changes 9,38,000
Less: Increase in Current Assets:
Inventories 1,24,000
Cash Generated from Operations 8,14,000
Less: Payment of Tax 1,40,000
Cash Flow from Operating Activities 6,74,000
II. Cash Flow from Investing Activities
Payment for purchase of Machinery (7,64,000)
Purchase of Non-current Investments (50,000)
Cash Used in Investing Activities (8,14,000)

16
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares 2,00,000
Repayment of Long-term Borrowings (12% Debentures) (1,00,000)
Payment of Interest on 12% Debentures (1,20,000)
Increase in Bank Overdraft 2,00,000
Cash Flow from Financing Activities 1,80,000
IV. Net Increase in Cash and Cash Equivalents (I + II + III) 40,000
Add: Opening Balance of Cash and Cash Equivalents 2,40,000
(Cash and Cash Equivalents + Current Investments)
V. Closing Balance of Cash and Cash Equivalents 2,80,000
(Cash and Cash Equivalents + Current Investments)

Working Note:
Dr. PROVISION FOR TAX ACCOUNT Cr.
Particulars ` Particulars `
To Bank A/c (Tax Paid) 1,40,000 By Balance b/d 1,80,000
To Balance c/d 1,40,000 By Statement of Profit & Loss 1,00,000
(Provision made) (Balancing Figure)
2,80,000 2,80,000

Illustration 9.
Following is the Balance Sheet of Thermal Power Ltd. as at 31st March, 2022:

BALANCE SHEET OF THERMAL POWER LTD.

as at 31st March, 2022

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 15,00,000 10,00,000
(b) Reserves and Surplus 1 (2,12,500) (2,68,750)
2. Non-Current Liabilities
Long-term Borrowings 2 3,75,000 3,12,500
3. Current Liabilities
Trade Payables 2,37,500 3,37,500
Total 19,00,000 13,81,250
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment (Machinery) 8,62,500 6,25,000
(b) Non-current Investments 1,50,000 2,50,000
2. Current Assets
(a) Inventories 5,00,000 3,75,000
(b) Trade Receivables 3,00,000 56,250
(c) Cash and Cash Equivalents 87,500 75,000
Total 19,00,000 13,81,250

17
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss (2,12,500) (2,68,750)
2. Long-term Borrowings
10% Debentures 3,75,000 3,12,500

Additional Information:
(i) Debentures were issued on 1st April, 2021.
(ii) Depreciation charged during the year was ` 1,00,000.
(iii) Non-current Investments were sold at a profit of 20%.
(iv) During the year, a piece of machinery costing ` 2,50,000 on which depreciation charged
was ` 87,500, was sold for ` 1,87,500.
Prepare Cash Flow Statement.

Solution: Thermal Power Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2022

Particulars ` `

I. Cash Flow from Operating Activities

Net Profit before Tax and Extraordinary Items [– ` 2,12,500 – (– ` 2,68,750)] 56,250
Adjustment of Non-cash and Non-operating Items:
Depreciation on Machinery 1,00,000
Interest on Debentures (10% of ` 3,75,000) 37,500
Gain(Profit) on Sale of Machinery (WN) (25,000)
Gain(Profit) on Sale of Non-current Investment [(` 2,50,000 – ` 1,50,000) × 20/100] (20,000)
Operating profit before Working Capital changes 1,48,750
Less: Increase in Current Assets and Decrease in Current Liabilities:
Trade Receivables (2,43,750)
Inventories (1,25,000)
Trade Payables (1,00,000)
Cash Used in Operating Activities (3,20,000)
II. Cash Flow from Investing Activities
Purchase of Machinery (WN) (5,00,000)
Proceeds from Sale of Machinery 1,87,500
Sale of Non-current Investment 1,20,000
Cash Used in Investing Activities (1,92,500)
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares (` 15,00,000 – ` 10,00,000) 5,00,000
Money raised from Borrowings (10% Debentures ` 3,75,000 – ` 3,12,500) 62,500
Interest on Debentures (10% of ` 3,75,000) (37,500)
Cash Flow from Financing Activities 5,25,000
IV. Net increase in Cash and Cash Equivalents (I + II + III) 12,500
V. Opening Balance of Cash and Cash Equivalents 75,000
VI. Closing Balance of Cash and Cash Equivalents 87,500

18
Working Note:
Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 6,25,000 By Depreciation A/c 1,00,000
To Statement of Profit and Loss (Gain on Sale)* 25,000 By Bank A/c (Sale) 1,87,500
To Bank A/c (Purchase)—Balancing Figure 5,00,000 By Balance c/d 8,62,500
11,50,000 11,50,000

*Gain(Profit) on Sale of Machinery = Sale – Book Value

= ` 1,87,500 – ` 1,62,500 (` 2,50,000 – ` 87,500) = ` 25,000.

19
 1. From the following Balance Sheet of Combiplast Ltd. for the year ended 31st March, 2022 and additional
information, calculate Cash Flow from Investing Activities:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 7,50,000 5,00,000
(b) Reserves and Surplus 10,00,000 8,50,000
2. Current Liabilities 4,50,000 3,50,000
Total 22,00,000 17,00,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment 1 12,00,000 12,00,000
(b) Non-Current Investments 5,00,000 3,00,000
2. Current Assets
(a) Trade Receivables 3,00,000 1,10,000
(b) Cash and Cash Equivalents 2,00,000 90,000
Total 22,00,000 17,00,000

Note to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Property, Plant and Equipment
Land 3,00,000 3,00,000
Building 4,00,000 4,00,000
Plant and Machinery 5,00,000 5,00,000
12,00,000 12,00,000

Additional Information: During the year the company sold machinery at Book Value of ` 1,50,000.
[Ans.: Cash Used in Investing Activities = ` 2,00,000.]
2. From the following Balance Sheet of Kumar Ltd. as at 31st March, 2022, prepare Cash Flow Statement:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 1 16,00,000 10,40,000
(b) Reserves and Surplus 2 5,50,000 2,60,000
2. Non-Current Liabilities
Long-term Borrowings:
9% Debentures 4,00,000 6,00,000
3. Current Liabilities
Trade Payables 4,50,000 1,00,000
Total 30,00,000 20,00,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment (Machinery) 20,00,000 15,00,000
2. Current Assets
(a) Inventories 3,00,000 2,00,000
(b) Trade Receivables 2,00,000 1,00,000
(c) Cash and Cash Equivalents 5,00,000 2,00,000
Total 30,00,000 20,00,000

1
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Share Capital
Equity Share Capital 15,00,000 10,00,000
7% Preference Share Capital 1,00,000 40,000
16,00,000 10,40,000
2. Reserves and Surplus
General Reserve 4,00,000 60,000
Surplus, i.e., Balance in Statement of Profit & Loss 1,50,000 2,00,000
5,50,000 2,60,000

Additional Information:

1. During the year, a machinery costing ` 20,000 was sold for ` 6,000.
2. Dividend paid during the year ` 50,000. (Foreign 2008, Modified)
[Ans.: Cash Flow from Operating Activities = ` 5,58,000; Cash Used in Investing
Activities = ` 5,14,000; Cash Flow from Financing Activities = ` 2,56,000;
Net Increase in Cash and Cash Equivalents = ` 3,00,000.]
[Hint: Calculation of Net Profit before Tax and Extraordinary Items: `
Net Loss (50,000)
Add: Dividend Paid during the Year 50,000
Transfer to General Reserve 3,40,000
Net Profit before Tax and Extraordinary Items 3,40,000 .]

3. Following are the Balance Sheets of Krishtec Ltd. for the years ended 31st March, 2012 and 2011:
Particulars Note No. 31st March, 31st March,
2012 (`) 2011 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 12,00,000 8,00,000
(b) Reserves and Surplus 3,50,000 4,00,000
(Surplus, i.e., Balance in Statement of Profit & Loss)
2. Non-Current Liabilities
Long-term Borrowings 4,40,000 3,50,000
3. Current Liabilities
Trade Payables 60,000 50,000
Total 20,50,000 16,00,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment 12,00,000 9,00,000
2. Current Assets
(a) Inventories 2,00,000 1,00,000
(b) Trade Receivables 3,10,000 2,30,000
(c) Cash and Cash Equivalents 3,40,000 3,70,000
Total 20,50,000 16,00,000

Prepare a Cash Flow Statement after taking into account the following adjustments:
(a) The company paid interest ` 36,000 on its long-term borrowings.
(b) Depreciation charged on tangible fixed assets was ` 1,20,000. (AI 2013, Modified)
[Ans.: Cash Used in Operating Activities = ` 64,000; Cash Used in Investing Activities =
` 4,20,000; Cash Flow from Financing Activities = ` 4,54,000;
Net Decrease in Cash and Cash Equivalents = ` 30,000.]

2
 4. Prepare Cash Flow Statement from the following Balance Sheet:
Particulars Note No. 31st March, 31st March,
2013 2012
` `

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 6,00,000 5,00,000
(b) Reserves and Surplus 1 4,00,000 2,00,000
2. Current Liabilities
Trade Payables 2,80,000 1,80,000
Total 12,80,000 8,80,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment (Machinery) 5,00,000 3,00,000
2. Current Assets
(a) Inventories 1,00,000 1,50,000
(b) Trade Receivables 6,00,000 4,00,000
(c) Cash and Cash Equivalents 80,000 30,000
Total 12,80,000 8,80,000

Note to Accounts

Particulars 31st March, 31st March,

2013 (`) 2012 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000 2,00,000

Additional Information:
(i) An old machinery having book value of ` 50,000 was sold for ` 60,000.
(ii) Depreciation provided on Machinery during the year was ` 30,000. (AI 2014 C)
[Ans.: Cash Flow from Operating Activities = ` 1,70,000; Cash Used in Investing
Activities = ` 2,20,000; Cash Flow from Financing Activities = ` 1,00,000.]

5. From the following Balance Sheet, prepare Cash Flow Statement:

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 2,50,000 2,00,000
(b) Reserves and Surplus 1 90,600 80,500
2. Current Liabilities
(a) Short-term Borrowings: Bank Loan ... 70,000
(b) Trade Payables 1,35,200 1,50,000
(c) Short-term Provisions: Provision for Tax 35,000 30,000
Total 5,10,800 5,30,500

3
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 2 3,59,000 3,50,000
(ii) Intangible Assets: Goodwill 5,000 ...
2. Current Assets
(a) Inventories 74,000 1,00,000
(b) Trade Receivables 64,200 80,000
(c) Cash and Cash Equivalents 8,600 500
Total 5,10,800 5,30,500

Notes to Accounts

Particulars 31st March, 31st March,

2022 (`) 2021 (`)
1. Reserves and Surplus
General Reserve 60,000 50,000
Surplus, i.e., Balance in Statement of Profit & Loss 30,600 30,500
90,600 80,500
  2. Property, Plant and Equipment
Land and Building 1,90,000 2,00,000
Plant and Machinery 1,69,000 1,50,000
3,59,000 3,50,000

Additional Information:

1. Proposed Dividend for the year ended 31st March, 2022 was ` 25,000 and for the year ended
31st March, 2021 was ` 14,000.
2. Interim Dividend paid during the year was ` 9,000.
3. Income Tax paid during the year ` 28,000.
4. Machinery was purchased during the year ` 33,000.
5. Depreciation to be charged on machinery ` 14,000 and on building ` 10,000.
[Ans.: Cash Flow from Operating Activities = ` 89,100; Cash Used in Investing Activities =
` 38,000; Cash Used in Financing Activities = ` 43,000.]

6. From the following Balance Sheet and information of Volvo Ltd., prepare Cash Flow Statement:

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 1 2,25,000 2,50,000
(b) Reserves and Surplus 2 1,27,500 50,000
2. Non-Current Liabilities
Long-term Borrowings: 10% Debentures 1,00,000 50,000
3. Current Liabilities
(a) Trade Payables 72,500 35,000
(b) Other Current Liabilities—Premium on Redemption of Preference Shares 2,500 5,000
Total 5,27,500 3,90,000

4
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment (Machinery) 3,10,000 2,55,000
(b) Non-current Investments (10% Investments) 40,000 15,000
2. Current Assets
(a) Current Investments 5,000 4,000
(b) Inventories 45,000 50,000
(c) Trade Receivables 3 92,500 45,000
(d) Cash and Cash Equivalents 4 35,000 21,000
Total 5,27,500 3,90,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Share Capital
Equity Share Capital 1,75,000 1,50,000
12% Preference Share Capital 50,000 1,00,000
2,25,000 2,50,000
2. Reserves and Surplus
General Reserve 10,000 15,000
Surplus, i.e., Balance in Statement of Profit & Loss 1,17,500 35,000
1,27,500 50,000
3. Trade Receivables
Sundry Debtors 1,00,000 50,000
Less: Provision for Doubtful Debts 7,500 5,000
92,500 45,000
4. Cash and Cash Equivalents
Cash in Hand 12,500 6,000
Cash at Bank 22,500 15,000
35,000 21,000

Additional Information:
(i) You are informed that during the year:
Proposed Dividend: 31st March, 2022 31st March, 2021
Equity Share Capital Nil Nil
Preference Share Capital 12% 12%
(ii) A machine with a book value of ` 20,000 was sold for ` 12,500;
(iii) Depreciation charged during the year was ` 35,000;
(iv) Preference shares were redeemed on 31st March, 2021 at a premium of 5%;
(v) An interim dividend of ` 5,000 was paid on equity shares on 31st March, 2022 out of General Reserve;
(vi) Fresh equity shares were issued on 31st March, 2022; and
(vii) Additional investments were purchased on 31st March, 2022.
[Ans.: Cash Flow from Operating Activities = ` 1,35,500; Cash Used in
Investing Activities = ` 1,21,000; Cash Flow from Financing Activities = ` 500;
Net Increase in Cash and Cash Equivalents = ` 15,000.]

5
 7. Prepare Cash Flow Statement from the following:
STATEMENT OF PROFIT & LOSS for the year ended 31st March, 2022
Particulars Note No.  `
I. Revenue from Operations (Net Sales) 36,00,000
II. Expenses:
Purchases of Stock-in-Trade 28,16,000
Change in Inventories of Stock-in-Trade (65,000)
Finance Costs 15,000
Depreciation and Amortisation Expenses 80,000
Other Expenses 5,34,000
Total 33,80,000
III. Profit before Tax (I – II) 2,20,000
IV. Less: Provision for Tax 40,000
V. Profit after Tax (III – IV) 1,80,000

BALANCE SHEET as at 31st March, 2022

Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 6,00,000 5,00,000
(b) Reserves and Surplus 1 3,00,000 1,20,000
2. Non-Current Liabilities
Long-term Loan 1,20,000 1,50,000
3. Current Liabilities
(a) Short-term Borrowings: Bank Overdraft 13,000 ...
(b) Trade Payables (Creditors) 2,85,000 2,38,000
(c) Short-term Provisions: Provision for Tax 44,000 30,000
Total 13,62,000 10,38,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment 6,20,000 4,00,000
2. Current Assets
(a) Short-term Investments (Marketable Securities) 34,000 20,000
(b) Inventories 3,28,000 2,63,000
(c) Trade Receivables 3,48,000 3,10,000
(d) Cash and Cash Equivalents 2 32,000 45,000
Total 13,62,000 10,38,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 3,00,000 1,20,000
2. Cash and Cash Equivalents
Cash in Hand 32,000 17,000
Cash at Bank ... 28,000
32,000 45,000

[Ans.: Cash Flow from Operating Activities = ` 2,33,000; Cash Used in Investing Activities =
` 3,00,000; Cash Flow from Financing Activities = ` 68,000;
Net Increase in Cash and Cash Equivalents = ` 1,000.]
[Hint: Cash and Cash Equivalents = Cash in Hand + Cash at Bank + Short-term Investments.]

6
 8. Compute Cash Flow from Operating Activities from the following:
Particulars Closing Opening
Balances (`) Balances (`)

Surplus, i.e., Balance in Statement of Profit & Loss 65,000 60,000

Trade Receivables:
  Debtors 67,000 1,02,000
  Bills Receivable 1,03,000 62,000
General Reserve 2,37,000 2,02,000
Provision for Depreciation 30,000 20,000
Outstanding Expenses 12,000 30,000
Goodwill 70,000 80,000

An asset costing ` 40,000 having book value of ` 28,000 was sold for ` 36,000.
[Ans.: Cash Flow from Operating Activities = ` 40,000.]

9. From the following Balance Sheet, prepare Cash Flow Statement:

BALANCE SHEET as at...

Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 2,50,000 2,00,000
(b) Reserves and Surplus (General Reserve) 70,000 50,000
2. Non-Current Liabilities
Long-term Borrowings (12% Debentures) 80,000 1,00,000
3. Current Liabilities
(a) Trade Payables 1,60,000 60,000
(b) Other Current Liabilities 20,000 25,000
Total 5,80,000 4,35,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 4,10,000 3,00,000
(ii) Intangible Assets (Goodwill) 2,000 10,000
2. Current Assets
(a) Inventories 90,000 70,000
(b) Trade Receivables 60,000 40,000
(c) Cash and Cash Equivalents 18,000 15,000
Total 5,80,000 4,35,000

[Ans.: Cash Flow from Operating Activities = ` 95,000; Cash Used in Investing Activities = ` 1,10,000;
Cash Flow from Financing Activities = ` 18,000;
Net Increase in Cash and Cash Equivalents = ` 3,000.]

7
10. The Balance Sheet of Virendra Paper Ltd. as at 31st March, 2022 is given below:

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds

(a) Share Capital 7,20,000 6,00,000
(b) Reserves and Surplus:

Surplus, i.e., Balance in Statement of Profit & Loss 4,80,000 3,75,000
2. Non-Current Liabilities

Long-term Borrowings:
10% Debentures 2,70,000 4,50,000
3. Current Liabilities

Trade Payables 1,20,000 90,000
Total 15,90,000 15,15,000
II. ASSETS

1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment 1 7,50,000 7,20,000
2. Current Assets


(a) Inventories 3,60,000 4,20,000

(b) Trade Receivables 3,00,000 2,25,000
(c) Cash and Cash Equivalents 1,80,000 1,50,000
Total 15,90,000 15,15,000

Note to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Property, Plant and Equipment
Land 2,40,000 3,00,000
31st March, 31st March,
2022 (`) 2021(`)
Plant and Machinery 7,50,000 6,00,000
Less: Accumulated Depreciation 2,40,000 1,80,000
5,10,000 4,20,000 5,10,000 4,20,000
7,50,000 7,20,000

Additional Information:

1. Interim Dividend of ` 75,000 has been paid during the year.
2. Debenture Interest paid during the year ` 27,000.
You are required to prepare Cash Flow Statement.
[Ans.: Cash Flow from Operating Activities = ` 2,82,000; Cash Used in Investing Activities = ` 90,000;
Cash Used in Financing Activities = ` 1,62,000; Net Increase in Cash and Cash Equivalents = ` 30,000.]

8
11. Following is the Balance Sheet of Akash Ltd. as at 31st March, 2014:
Particulars Note No. 31st March, 31st March,
2014 (`) 2013 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 15,00,000 14,00,000
(b) Reserves and Surplus 1 2,50,000 1,10,000
2. Non-Current Liabilities
Long-term Borrowings 2,00,000 1,25,000
3. Current Liabilities
(a) Short-term Borrowings 2 12,000 10,000
(b) Trade Payables 15,000 83,000
(c) Short-term Provisions 3 18,000 11,000
Total 19,95,000 17,39,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 4 18,60,000 16,10,000
(ii) Intangible Assets 5 50,000 30,000
2. Current Assets
(a) Current Investments 8,000 5,000
(b) Inventories 37,000 59,000
(c) Trade Receivables 26,000 23,000
(d) Cash and Cash Equivalents 14,000 12,000
Total 19,95,000 17,39,000

Notes to Accounts
Particulars 31st March, 31st March,
2014 (`) 2013 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 2,50,000 1,10,000
2. Short-term Borrowings
Bank Overdraft 12,000 10,000
3. Short-term Provisions
Provision for Tax 18,000 11,000
4. Property, Plant and Equipment
Machinery 20,00,000 17,00,000
Less: Accumulated Depreciation (1,40,000) (90,000)
18,60,000 16,10,000
5. Intangible Assets
Patents 50,000 30,000

Additional Information:
(i) Tax paid during the year amounted to ` 16,000.
(ii) Machine with a net book value of ` 10,000 (Accumulated Depreciation ` 40,000) was sold for ` 2,000.
Prepare Cash Flow Statement. (CBSE Sample Paper 2016)
[Ans.: Cash Flow from Operating Activities = ` 1,96,000; Cash Used in Investing Activities = ` 3,68,000;
Cash Flow from Financing Activities = ` 1,77,000; Net Increase in Cash and Cash Equivalents = ` 5,000.]

9
12. From the following Balance Sheet as at 31st March, 2022 and Statement of Profit & Loss for the year ended
31st March, 2022 of RSB Ltd. and additional information, prepare Cash Flow Statement:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 7,50,000 5,00,000
(b) Reserves and Surplus 1 9,50,000 3,00,000
2. Non-Current Liabilities
Long-term Borrowings (5% Debentures) 7,00,000 4,00,000
3. Current Liabilities
(a) Trade Payables 1,10,000 90,000
(b) Other Current Liabilities 2 39,000 25,000
(c) Short-term Provisions (Provision for Tax) 2,60,000 2,25,000
Total 28,09,000 15,40,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment 3 6,85,000 7,45,000
(b) Non-current Investments 7,50,000 2,50,000
2. Current Assets
(a) Current Investments 6,74,000 95,000
(b) Inventories 1,00,000 2,00,000
(c) Trade Receivables 4,00,000 1,50,000
(d) Cash and Cash Equivalents 2,00,000 1,00,000
Total 28,09,000 15,40,000

STATEMENT OF PROFIT & LOSS

for the year ended 31st March, 2022
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. Revenue from Operations 4 40,00,000 35,00,000

II. Other Income 5 35,000 30,000
III. Total Revenue (I + II) 40,35,000 35,30,000
IV. Expenses:
Purchases of Stock-in-Trade 27,00,000 24,70,000
Change in Inventories of Stock-in-Trade 6 1,00,000 50,000
Finance Cost 27,500 20,000
Depreciation 40,000 45,000
Other Expenses 22,500 20,000
Total Expenses 28,90,000 26,05,000
V. Profit before Tax (III – IV) 11,45,000 9,25,000
VI. Less: Tax 3,45,000 2,25,000
VII. Profit after Tax (V – VI) 8,00,000 7,00,000

10
Notes to Accounts

Particulars 31st March, 31st March,

2022 (`) 2021 (`)

1. Reserves and Surplus

Debentures Redemption Reserve 1,00,000 1,00,000
Surplus, i.e., Balance in Statement of Profit & Loss 8,50,000 2,00,000
9,50,000 3,00,000
2. Other Current Liabilities
Interest on Debentures 35,000 20,000
Outstanding Expenses 4,000 5,000
39,000 25,000
3. Property, Plant and Equipment
Machinery (Cost) 8,90,000 9,90,000
Less: Accumulated Depreciation 2,05,000 2,45,000
6,85,000 7,45,000
4. Revenue from Operations
Sales 42,00,000 35,75,000
Less: Sales Return 2,00,000 75,000
40,00,000 35,00,000
5. Other Income
Interest on Deposits 15,000 12,500
Dividend on Investments 10,000 17,500
Gain (Profit) on Sale of Fixed Assets 10,000 ...
35,000 30,000
6. Change in Inventories of Stock-in-Trade
Opening Stock 2,00,000 2,50,000
Less: Closing Stock 1,00,000 2,00,000
1,00,000 50,000

Additional Information:
(i) Additional debentures were issued on 1st October, 2021 of ` 5,00,000. On the same date, part of outstanding
debentures were redeemed and interest was paid, whereas interest on outstanding debentures was paid
on 10th April, 2022.
(ii) Board of Directors proposed dividend in both the years @ 10%.
(iii) Interim Dividend of ` 1,00,000 was paid during the year.
(iv) A machinery with original cost of ` 1,00,000 on which depreciation till date was provided of ` 80,000 was
sold at a profit of ` 10,000.
[Ans.: Cash Flow from Operating Activities = ` 7,36,500; Cash Used in Investing Activities =
` 4,45,000; Cash Flow from Financing Activities = ` 3,87,500;
Net Increase in Cash and Cash Equivalents = ` 6,79,000.]

11
13. From the following information, calculate Net Profit before Tax and Extraordinary Items: `
Opening Surplus, i.e., Balance in Statement of Profit & Loss (2,00,000)
Closing Surplus, i.e., Balance in Statement of Profit & Loss 6,72,000
Dividend paid in current year (Last year’s proposed dividend) 1,44,000
Interim Dividend paid during the year 1,80,000
Transfer to Reserve 2,00,000
Provision for Tax for the current year 3,00,000
Refund of Tax 6,000
Loss due to Earthquake 4,00,000
Insurance proceeds from earthquake disaster settlement 2,00,000
[Ans.: Net Profit Tax and Extraordinary Items = ` 18,90,000.]
[Hint: Net Profit for the year = ` 6,72,000 + ` 2,00,000 (Loss) = ` 8,72,000.]

14. From the following Balance Sheet of SRS Ltd. and the additional information as on 31st March, 2022,
prepare a Cash Flow Statement:

SRS Ltd.
BALANCE SHEET
as on 31st March, 2022
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 4,50,000 3,50,000
(b) Reserves and Surplus 1 1,25,000 50,000
2. Non-Current Liabilities
Long-term Borrowings 2 2,25,000 1,75,000
3. Current Liabilities
(a) Short-term Borrowings 3 75,000 37,500
(b) Short-term Provisions 4 1,00,000 62,500
Total 9,75,000 6,75,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 5 7,32,500 4,52,500
(ii) Intangible 6 50,000 75,000
(b) Non-current Investments 75,000 50,000
2. Current Assets
(a) Current Investments 20,000 35,000
(b) Inventories 7 61,000 36,000
(c) Cash and Cash Equivalents 36,500 26,500
Total 9,75,000 6,75,000

12
Notes to Accounts

Particulars 31st March, 31st March,

2022 (`) 2021 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 1,25,000 50,000
2. Long-term Borrowings
12% Debentures 2,25,000 1,75,000
3. Short-term Borrowings
Bank Overdraft 75,000 37,500
4. Short-term Provisions
Provision for Tax 1,00,000 62,500
5. Property, Plant and Equipment
Machinery 8,37,500 5,22,500
Accumulated Depreciation (1,05,000) (70,000)
7,32,500 4,52,500
6. Intangible Assets
Goodwill 50,000 75,000
7. Inventories
Stock-in-Trade 61,000 36,000

Additional Information:
(i) ` 50,000, 12% Debentures were issued on 31st March, 2022.
(ii) During the year, a piece of machinery costing ` 40,000, on which accumulated depreciation was
` 20,000, was sold at a loss of ` 5,000. (AI 2017, Modified)

[Ans.: Cash Flow from Op0erating Activities = ` 1,93,500; Cash Used in Investing Activities = ` 3,65,000;
Cash Flow from Financing Activities = ` 1,66,500; Net Decrease in
Cash and Cash Equivalents = ` 5,000.]

13
 ANSWERS

1. (d)

2. (c)

3. (c)

4. (c)

5. (a)

6. (b)

7. (c)

8. (d)

9. (a)

10. (c)

11. (c)

12. (a)

13. (b)

14. (b)

15. (b)
Working Note:

Dr. MACHINERY ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 15,00,000 By Depreciation A/c 2,00,000
To Statement of Profit & Loss (Gain) 60,000 By Bank A/c (Sale) (Balancing Figure) 5,10,000
To Bank A/c (Purchase) 1,50,000 By Balance c/d 10,00,000
17,10,000 17,10,000

16. (d)
Working Note:
Calculation of Net Profit before Tax and Extraordinary Items:
`
Surplus, i.e., Balance in Statement of Profit & Loss (31st March, 2023) 11,00,000
Less: Surplus, i.e., Balance in Statement of Profit & Loss (31st March 2022) 5,00,000
6,00,000
Add: Proposed Dividend for the year ended 31st March, 2022 declared in the year 2023
7,00,000
13,00,000

Note: Dividend Payable (₹ 50,000) has no affect on Net Profit before Tax and Extraordinary Items.

1
17. (d)
Working Note:
Calculation of Net Profit before Tax and Extraordinary Items: `
Surplus, i.e., Balance in Statement of Profit & Loss (31st March, 2023) 6,00,000
Less: Surplus, i.e., Balance in Statement of Profit & Loss (31st March, 2022) 4,00,000
2,00,000
Add: Loss on Issue of Debentures
50,000
2,50,000

Note: Loss on Issue of Debentures (₹ 50,000) is added to Net Profit before Tax and Extraordinary Items as
it does not involve flow of cash and also proceeds from Issue of Debentures is shown at amount
received.

18. (b)
19. (a) Investing Activities include the acquisition and disposal of long-term assets and other investments
not included in cash equivalents.
Financing Activities are activities that result in changes in size and composition of owner’s capital
(including Preference Share Capital in the case of a company) and borrowings of the enterprise.

(b) Transactions which represent movement between items of Cash or Cash Equivalents are not cash
flows since these components are part of the cash management of an enterprise rather than part
of operating, investing and financing activities.

(c) Interest received on investments by a company is an Investing Activity.

20. Calculation of Net Cash Flow from Operating and Investing Activities:

Particulars `
I. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items (WN 1) 3,30,000
Adjustment for Non-cash and Non-Operating Items:
Add: Depreciation 1,30,000
Loss on Sale of Machinery 40,000
Operating Profit before Working Capital Changes 5,00,000
Add: Change in Current Assets and Increase in Current Liabilities:
Increase in Current Assets (60,000)
Increase in Trade Payables 1,10,000 50,000
Net Cash Flow from Operating Activities before Tax 5,50,000
Less: Tax Paid 30,000
Net Cash Flow from Operating Activities 5,20,000
II. Cash Flow from Investing Activities
Proceeds from Sale of Machinery 35,000
Purchase of Property, Plant and Equipment: Fixed Assets (WN 2) (3,65,000)
Net Cash used in Investing Activities (3,30,000)

2
Working Notes:
1. Calculation of Net Profit before Tax and Extraordinary Items: `
Surplus, i.e., Balance in Statement of Profit & Loss (Closing) 4,00,000
Less: Surplus, i.e., Balance in Statement of Profit & Loss (Opening) (1,00,000)
3,00,000
Add: Provision for Tax 30,000
Net Profit before Tax and Extraordinary Items 3,30,000

2. Dr. PROPERTY, PLANT AND EQUIPMENT ACCOUNT: FIXED ASSETS ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 7,50,000 By Bank A/c (Sale) 35,000
To Bank A/c— Purchase (Balancing Figure) 3,65,000 By Accumulated Depreciation A/c (Transfer) 70,000
By Statement of Profit & Loss A/c (Loss on Sale) 40,000
By Balance c/d 9,70,000
11,15,000 11,15,000

3. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars ` Particulars `
To Fixed Assets A/c (Balancing Figure) 70,000 By Balance b/d 1,80,000
To Balance c/d 2,40,000 By Statement of Profit & Loss A/c (Depreciation) 1,30,000
3,10,000 3,10,000

21. Aakashvani Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2023
Particulars Detail (`) `
I. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items (WN 1) 2,50,000
Adjustment for Non-cash and Non-Operating Items:
Goodwill Amortised 2,40,000
Depreciation Charged 50,000
Interest on Debentures 52,000
Operating Profit before Working Capital Changes 5,92,000
Add: Decrease in Current Assets and Increase in Current Liabilities:
Trade Receivables 10,000
6,02,000
Less: Increase in Current Assets and Decrease in Current Liabilities:
Inventories (1,10,000)
Trade Payables (20,000) (1,30,000)
Cash Generated from Operations 4,72,000
Less: Tax Paid Nil
Cash Flow from Operating Activities 4,72,000 4,72,000

3
 II. Cash Flow from Investing Activities
Purchase of Land and Building (5,00,000)
Purchase of Goodwill (WN 2) (40,000)
Proceeds from Sale of Non-current Investments 2,00,000
Loans and Advances Given (50,000)
Cash Used in Investing Activities (3,90,000)

III. Cash Flow from Financing Activities

Proceeds from Issue of Shares 5,00,000
Securities Premium 50,000
Redemption of 8% Debentures (` 3,00,000 + ` 30,000) (3,30,000)
Interest on Debentures (52,000)
Dividend Paid (WN 3) (1,40,000)
Cash Flow from Financing Activities 28,000
IV. Net Increase in Cash and Cash Equivalents (I + II + III) 1,10,000
Add: Cash and Cash Equivalents (Opening) (` 1,00,000 + ` 1,50,000) (WN 4) 2,50,000
V. Closing Cash and Cash Equivalents (` 1,10,000 + ` 2,50,000) 3,60,000

Working Notes:
1. Net Profit before Tax and Extraordinary Items: `
Net Profit as per Statement of Profit & Loss (` 1,50,000 – ` 1,10,000) 40,000
Add: Transfer to General Reserve 60,000
Proposed Dividend (Previous years) 1,50,000
Net Profit before Tax and Extraordinary Items 2,50,000

2. Dr. GOODWILL ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 6,00,000 By Statement of Profit & Loss 2,40,000
To Bank A/c (Balancing Figure) 40,000 By Balance c/d 4,00,000
6,40,000 6,40,000

3. Dr. DIVIDEND PAYABLE ACCOUNT Cr.

Particulars ` Particulars `
To Bank A/c (Balancing Figure) 1,40,000 By Balance b/d 30,000
To Balance c/d 40,000 By Surplus, i.e., Balance in Statement of Profit &
Loss A/c (Proposed Dividend of previous year) 1,50,000
1,80,000 1,80,000

4. Current Investment is a part of Cash and Cash Equivalents.