INDAS – 7

CASH FLOW STATEMENTS

(TOTAL NO. OF QUESTIONS – 14)

INDEX
S.No. Particulars Page No.
1 RTP Questions 27.1
2 MTP Questions 27.12
3 Past Exam Questions 27.16

RTPs QUESTIONS
Q1 (May 18)
Company A acquires 70% of the equity stake in Company B on July 20, 20X1. The consideration paid for this
transaction is as below:
a) Cash consideration of Rs 15,00,000
b) 200,000 equity shares having face of Rs 10 and fair value of Rs 15 per share.
On the date of acquisition, Company B has cash and cash equivalent balance of Rs 2,50,000 in its books of
account. On October 10, 20X2, Company A further acquired 10% stake in Company B for cash consideration of
Rs 8,00,000.
Advise how the above transactions will be disclosed/presented in the statement of cash flows as per Ind AS 7.
SOLUTION
As per Ind AS 7, the aggregate cash flows arising from obtaining control of subsidiaries shall be presented
separately and classified as investing activities.
As per Ind AS 7, the aggregate amount of the cash paid or received as consideration for obtaining subsidiaries
is reported in the statement of cash flows net of cash and cash equivalents acquired or disposed of as part of
such transactions, events or changes in circumstances.
Further, investing and financing transactions that do not require the use of cash or cash equivalents shall be
excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial
statements in a way that provides all the relevant information about these investing and financing activities.
As per Ind AS 7, cash flows arising from changes in ownership interests in a subsidiary that do not result in a
loss of control shall be classified as cash flows from financing activities, unless the subsidiary is held by an
investment entity, as defined in Ind AS 110, and is required to be measured at fair value through profit or loss.
Such transactions are accounted for as equity transactions and accordingly, the resulting cash flows are
classified in the same way as other transactions with owners.

27. 1
Considering the above, for the financial year ended March 31, 20X2 total consideration of Rs. 15,00,000 less
Rs. 250,000 will be shown under investing activities as “Acquisition of the subsidiary (net of cash acquired)”.
There will not be any impact of issuance of equity shares as consideration in the cash flow statement however
a proper disclosure shall be given elsewhere in the financial statements in a way that provides all the relevant
information about the issuance of equity shares for non-cash consideration.
Further, in the statement of cash flows for the year ended March 31, 20X3, cash consideration paid for the
acquisition of additional 10% stake in Company B will be shown under financing activities.

Q2 (May 19)
Z Ltd. has no foreign currency cash flow for the year 2017. It holds some deposits in a bank in the USA. The
balances as on 31.12.2017 and 31.12.2018 were US$ 100,000 and US$ 102,000 respectively. The exchange rate on
December 31, 2017 was US$1 = Rs 45. The same on 31.12.2018 was US$1 = Rs 50. The increase in the balance
was on account of interest credited on 31.12.2018. Thus, the deposit was reported at Rs 45,00,000 in the
balance sheet as on December 31, 2017. It was reported at Rs 51,00,000 in the balance sheet as on 31.12.2018.
How these transactions should be presented in cash flow for the year ended 31.12.2018 as per Ind AS 7?
SOLUTION
The profit and loss account was credited by Rs. 1,00,000 (US$ 2000 × Rs. 50) towards interest income. It was
credited by the exchange difference of US$ 100,000 × (Rs. 50 - Rs. 45) that is, Rs. 500,000. In preparing the
cash flow statement, Rs 500,000, the exchange difference, should be deducted from the ―net profit before
taxes and extraordinary item‖. However, in order to reconcile the opening balance of the cash and cash
equivalents with its closing balance, the exchange difference Rs. 500,000, should be added to the opening
balance in note to cash flow statement.
Cash flows arising from transactions in a foreign currency shall be recorded in Z Ltd.‖s functional currency by
applying to the foreign currency amount the exchange rate between the functional currency and the foreign
currency at the date of the cash flow.

Q3 (Nov 19)
Following is the balance sheet of Kuber Limited for the year ended 31stMarch,20X2
(Rs. In lacs)
20X2 20X1
ASSETS
Non-current Assets
Property, plant and equipment 13,000 12,500
Intangible assets 50 30
Other financial assets 145 170
Deferred tax asset (net) 855 750
Other non-current assets 800 770
Total non-current assets 14,850 14,220
Current assets
Financial assets
Investments 2,300 2,500
Cash and cash equivalents 220 460

27. 2
 Other current assets 195 85
Total current assets 2,715 3,045
Total Assets 17,565 17,265
EQUITY AND LIABILITIES
Equity
Equity share capital Other equity 300 300
Total equity Liabilities 12,000 8,000
Non-current liabilities
Long-term borrowings 12,300 8,300

2,000 5,000
Other non-current liabilities 2,740 3,615
Total non-current liabilities 4,740 8,615
Current liabilities
Financial liabilities
Trade payables 150 90
Bank Overdraft 75 60
Other current liabilities 300 200

Total current liabilities 525 350

Total liabilities 5,265 8,965

Total Equity and Liabilities 17,565 17,265

Additional Information:
1. Profit after tax for the year ended 31stMarch, 20X2- Rs. 4,450 lacs
2. Interim Dividend paid during the year - Rs. 450lacs
3. Depreciation and amortization charged in the statement of profit and loss during the current year are
asunder
i. Property, Plant and Equipment - Rs. 500 lacs
ii. Intangible Assets - Rs. 20 lacs
4. During the year ended 31stMarch, 20X2 two machines were sold for Rs.10 lacs. The carrying amount of
these machines as on 31stMarch, 20X2 is Rs. 60 lacs.
5. Income taxes paid during the year Rs. 105 lacs
6. Other non-current/current assets and liabilities are related to operations of Kuber Ltd. and do not
contain any element of financing and investing activities.
Using the above information of Kuber Limited, construct a statement of cash flows under indirect method.
SOLUTION
Statement of Cash Flows
Rs. in lacs
Cash flows from Operating Activities
Net Profit after Tax 4,450
Add: Tax Paid 105

27. 3
 4,555
Add: Depreciation &Amortisation (500 + 20) 520
Less: Gain on Sale of Machine (70-60) (10)
Less: Increase in Deferred Tax Asset (855-750) (105)
4,960
Change in operating assets and liabilities
Add: Decrease in financial asset (170 - 145) 25
Less: Increase in other non-current asset (800 - 770) (30)
Less: Increase in other current asset (195 - 85) (110)
Less: Decrease in other non-current liabilities (3,615 – 2,740) (875)
Add: Increase in other current liabilities (300 - 200) 100
Add: Increase in trade payables (150-90) 60
4,130
Less: Income Tax (105)
Cash generated from Operating Activities 4,025

Cash flows from Investing Activities

Sale of Machinery 70
Purchase of Machinery [13,000-(12,500 – 500-60)] (1,060)
Purchase of Intangible Asset [50-(30-20)] (40)
Sale of Financial asset - Investment (2,500 – 2,300) 200
Cash outflow from Investing Activities (830)
Cash flows from Financing Activities
Dividend Paid (450)
Long term borrowings paid (5,000 – 2,000) (3,000)
Cash outflow from Financing Activities (3,450)
Net Cash outflow from all the activities (255)
Opening cash and cash equivalents (460 – 60) 400
Closing cash and cash equivalents (220 – 75) 145

Q4 (May 20)
Entity A acquired a subsidiary, Entity B, during the year. Summarised information from the Consolidated
Statement of Profit and Loss and Balance Sheet is provided, together with some supplementary information.
Consolidated Statement of Profit and Loss Amount (Rs)
Revenue 3,80,000
Cost of sales (2,20,000)
Gross profit 1,60,000
Depreciation (30,000)
Other operating expenses (56,000)
Interest cost (4,000)
Profit before taxation 70,000
Taxation (15,000)
Profit after taxation 55,000

27. 4
 Consolidated balance sheet 20X2 20X1
Assets Amount (Rs) Amount (Rs)
Cash and cash equivalents 8,000 5,000
Trade receivables 54,000 50,000
Inventories 30,000 35,000
Property, plant and equipment 1,60,000 80,000
Goodwill 18,000 —
Total assets 2,70,000 1,70,000
Liabilities
Trade payables 68,000 60,000
Income tax payable 12,000 11,000
Long term debt 1,00,000 64,000
Total liabilities 1,80,000 1,35,000
Shareholders‖ equity 90,000 35,000
Total liabilities and shareholders’ 2,70,000 1,70,000

Other information:
All of the shares of entity B were acquired for Rs 74,000 in cash. The fair values of assets acquired and
liabilities assumed were:
Particulars Amount (Rs)
Inventories 4,000
Trade receivables 8,000
Cash 2,000
Property, plant and equipment 1,10,000
Trade payables (32,000)
Long term debt (36,000)
Goodwill 18,000
Cash consideration paid 74,000
Prepare the Consolidated Statement of Cash Flows for the year 20X2, as per Ind AS 7.
SOLUTION
This information will be incorporated into the Consolidated Statement of Cash Flows as follows:
Statement of Cash Flows for the year ended 20X2 (extract)
Amount (Rs) Amount (Rs)
Cash flows from operating activities
Profit before taxation 70,000
Adjustments for non-cash items:
Depreciation 30,000
Decrease in inventories (W.N. 1) 9,000
Decrease in trade receivables (W.N. 2) 4,000
Decrease in trade payables (W.N. 3) (24,000)
Interest paid to be included in financing activities 4,000
Taxation (11,000 + 15,000 – 12,000) (14,000)
79,000
Net cash generated from operating activities
Cash flows from investing activities

27. 5
 Cash paid to acquire subsidiary (74,000 – 2,000) (72,000)
Net cash outflow from investing activities (72,000)
Cash flows from financing activities
Interest paid (4,000)
Net cash outflow from financing activities (4,000)
Increase in cash and cash equivalents during the year 3,000
Cash and cash equivalents at the beginning of the year 5,000
Cash and cash equivalents at the end of the year 8,000

Working Notes:
1. Calculation of change in inventory during the year Rs
Total inventories of the Group at the end of the year 30,000
Inventories acquired during the year from subsidiary (4,000)
26,000
Opening inventories 35,000
Decrease in inventories 9,000
2. Calculation of change in Trade Receivables during the year Rs
Total trade receivables of the Group at the end of the year 54,000
Trade receivables acquired during the year from subsidiary (8,000)
46,000
Opening trade receivables 50,000
Decrease in trade receivables 4,000
3. Calculation of change in Trade Payables during the year Rs
Trade payables at the end of the year 68,000
Trade payables of the subsidiary assumed during the year (32,000)
36,000
Opening trade payables 60,000
Decrease in trade payables 24,000

Q5 (November 20 & Also Newly Added in ICAI May 22 Module)

During the financial year 2019-2020, Akola Limited have paid various taxes & reproduced the below mentioned
records for your perusal:
- Capital gain tax of Rs. 20 crore on sale of office premises at a sale consideration of Rs. 100 crore.
- Income Tax of Rs. 3 crore on Business profits amounting Rs. 30 crore (assume entire business profit as cash
profit).
- Dividend Distribution Tax of Rs. 2 crore on payment of dividend amounting Rs. 20 crore to its shareholders.
- Income tax Refund of Rs. 1.5 crore (Refund on taxes paid in earlier periods for business profits).
You need to determine the net cash flow from operating activities, investing activities and financing activities
of Akola Limited as per relevant Ind AS.

27. 6
SOLUTION
Para 36 of Ind AS 7 inter alia states that when it is practicable to identify the tax cash flow with an
individual transaction that gives rise to cash flows that are classified as investing or financing activities the
tax cash flow is classified as an investing or financing activity as appropriate. When tax cash flows are
allocated over more than one class of activity, the total amount of taxes paid is disclosed.
Accordingly, the transactions are analysed as follows:
Particulars Amount (in crore) Activity
Sale Consideration 100 Investing Activity
Capital Gain Tax (20) Investing Activity
Business profits 30 Operating Activity
Tax on Business profits (3) Operating Activity
Dividend Payment (20) Financing Activity
Dividend Distribution Tax (2) Financing Activity
Income Tax Refund 1.5 Operating Activity
Total Cash flow 86.5

Activity wise Amount (in crore)

Operating Activity 28.5
Investing Activity 80
Financing Activity (22)
Total 86.5

Q6 (May 21)
From the following data, identify the nature of activities as per Ind AS 7.
S.no. Nature of transaction
1 Cash paid to employees
2 Cash paid for development of property costs Borrowings repaid
3 Cash paid to suppliers
4 Loan to Director
5 Bonus shares issued
7 Dividends paid
8 Cash received from trade receivables
9 Proceeds from sale of PPE
10 Depreciation of PPE
11 Advance received from customers
12 Purchased goodwill
13 Payment of promissory notes

SOLUTION
Sr. No. Nature of transaction Activity as per Ind AS 7
1 Cash paid to employees Operating activity
2 Cash paid for development costs Investing activity
3 Borrowings repaid Financing activity
4 Cash paid to suppliers Operating activity
5 Loan to Director Investing activity

27. 7
 6 Bonus shares issued Non – cash item
7 Dividends paid Financing activity
8 Cash received from trade receivables Operating activity
9 Proceeds from sale of PPE Investing activity
10 Depreciation of PPE Non –cash item
11 Advance received from customers Operating activity
12 Purchased goodwill Investing activity
13 Payment of promissory notes Financing activity

Q7 (Nov 21 & Also Newly Added in ICAI May 22 Module)

From the following data of Galaxy Ltd., prepare statement of cash flows showing cash generated from
Operating Activities using direct method as per Ind AS 7:
31.3.20X2 31.3.20X1
(Rs.) (Rs.)
Current Assets:
Inventory 1,20,000 1,65,000
Trade receivables 2,05,000 1,88,000
Cash & cash equivalents 35,000 20,500
Current Liabilities:
Trade payable 1,95,000 2,15,000
Provision for tax 48,000 65,000

Summary of Statement of Profit and Loss Rs.

Sales 85,50,000
Less: Cost of sales (56,00,000) 29,50,000
Other Income
Interest income 20,000
Fire insurance claim received 1,10,000 1,30,000
30,80,000
Depreciation (24,000)
Administrative and selling expenses (15,40,000)
Interest expenses (36,000)
Foreign exchange loss (18,000) (16,18,000)
Net Profit before tax and extraordinary income 14,62,000
Income Tax (95,000)
Net Profit 13,67,000

Additional information:
(i) Trade receivables and Trade payables include amounts relating to credit sale and credit purchase
only.
(ii) Foreign exchange loss represents increment in liability of a long-term borrowing due to exchange rate
fluctuation between acquisition date and balance sheet date.

27. 8
SOLUTION
Statement Cash Flows from operating activities of Galaxy Ltd. for the year ended 31 March 20X2 (Direct
Method)
Particulars Rs. Rs.
Operating Activities:

Cash received from Trade receivables (W.N. 3) 85,33,000

Less: Cash paid to Suppliers (W.N.2) 55,75,000
Payment for Administration and Selling expenses 15,40,000
Payment for Income Tax (W.N.4) 1,12,000 (72,27,000)
13,06,000
Adjustment for exceptional items (fire insurance claim) 1,10,000
Net cash generated from operating activities 14,16,000

Working Notes:
1. Calculation of total purchases
Cost of Sales = Opening stock + Purchases – Closing Stock
Rs. 56,00,000 = Rs. 1,65,000 + Purchases – Rs. 1,20,000
Purchases = Rs. 55,55,000

2. Calculation of cash paid to Suppliers

Trade Payables
Rs. Rs.
To Bank A/c (balancing figure) 55,75,000 By Balance b/d 2,15,000
To Balance c/d 1,95,000 By Purchases 55,55,000
(W.N. 1)
57,70,000 57,70,000

3. Calculation of cash received from Customers

Trade Receivables
Rs. Rs.
To Balance b/d 1,88,000 By Bank A/c (balancing figure) 85,33,000
To Sales 85,50,000 By Balance c/d 2,05,000
87,38,000 87,38,000

4. Calculation of tax paid during the year in cash

Provision for tax
Rs. Rs.
To Bank A/c (balancing figure) 1,12,000 By Balance b/d 65,000
To Balance c/d 48,000 By Profit and Loss A/c 95,000
1,60,000 1,60,000

27. 9
Q8 (RTP Nov. 22)
What will be the classification for following items in the statement of cash flows of both
(i) Banks / Financial institutions and (ii) Other Entities?

S. No. Particulars

1. Interest received on loans and advances given

2. Interest paid on deposits and other borrowings
3. Interest and dividend received on investments in subsidiaries, associates and in other entities
4. Dividend paid on preference and equity shares, including tax on dividend paid on preference and equity
shares by other entities
5. Finance charges paid by lessee under finance lease
6. Payment towards reduction of outstanding finance lease liability
7. Interest paid to vendor for acquiring fixed asset under deferred payment basis
8. Principal sum payment under deferred payment basis for acquisition of fixed assets
9 Penal interest received from customers for late payments
10. Penal interest paid to suppliers for late payments
11. Interest paid on delayed tax payments
12. Interest received on tax refunds

Solution
The following are the classification of various activities in the Statement of Cash Flows:
S. No. Particulars Classification for reporting cash flows
Banks / financial Other entities
institutions
1. Interest received on loans and advances Operating Activities Investing activities
given
2. Interest paid on deposits and other Operating Activities Financing activities
borrowings
3. Interest and dividend received on Investing activities Investing activities
investments in subsidiaries, associates and
in other entities
4. Dividend paid on preference and equity Financing activities Financing activities
shares, including tax on dividend paid on
preference and equity shares by other
entities
5. Finance charges paid by lessee under Financing activities Financing activities
finance lease
6. Payment towards reduction of outstanding Financing activities Financing activities
finance lease liability

27. 10
7. Interest paid to vendor for acquiring fixed Financing activities Financing activities
asset under deferred payment basis

8. Principal sum payment under deferred Investing activities Investing activities

payment basis for acquisition of fixed
assets
9. Penal interest received from customers for Operating Activities Operating Activities
late payments
10. Penal interest paid to suppliers for Operating Activities Operating Activities
late payments
11. Interest paid on delayed tax payments Operating Activities Operating Activities
12. Interest received on tax refunds Operating Activities Operating Activities

27. 11
 MTPs QUESTIONS

Q9 (October 19 – 6 Marks)
A Ltd., whose functional currency is Indian Rupee, had a balance of cash and cash equivalents of Rs. 2,00,000,
but there are no trade receivables or trade payables balances as on 1st April, 20X1. During the year 20X1-
20X2, the entity entered into the following foreign currency transactions:
❖A Ltd. purchased goods for resale from Europe for €2,00,000 when the exchange rate was €1 = Rs. 50. This
balance is still unpaid at 31st March, 20X2 when the exchange rate is €1 = Rs. 45. An exchange gain on
retranslation of the trade payable of Rs. 5,00,000 is recorded in profit or loss.
❖A Ltd. sold the goods to an American client for $ 1,50,000 when the exchange rate was $1 = Rs. 40. This
amount was settled when the exchange rate was $1 = Rs. 42. A further exchange gain regarding the trade
receivable is recorded in the statement of profit or loss.
❖A Ltd. also borrowed €1,00,000 under a long-term loan agreement when the exchange rate was €1 = Rs. 50
and immediately converted it to Rs. 50,00,000. The loan was retranslated at 31st March, 20X2 @ Rs. 45, with
a further exchange gain recorded in the statement of profit or loss.
❖A Ltd. therefore records a cumulative exchange gain of Rs. 18,00,000 (10,00,000 + 3,00,000 + 5,00,000) in
arriving at its profit for the year.
❖In addition, A Ltd. records a gross profit of Rs. 10,00,000 (Rs. 60,00,000 – Rs. 50,00,000) on the sale of
the goods.
❖Ignore taxation.
How cash flows arising from the above transactions would be reported in the statement of cash flows of A
Ltd. under indirect method?
SOLUTION
Statement of cash flows
Particulars Amount (Rs.)
Cash flows from operating activities
Profit before taxation (10,00,000 + 18,00,000) 28,00,000
Adjustment for unrealised exchange gains/losses:
Foreign exchange gain on long term loan [€ 2,00,000
(10,00,000)
x Rs. (50 – 45)]
Decrease in trade payables [1,00,000 x Rs. (50 – 45)]
(5,00,000)

Operating Cash flow before working capital changes 13,00,000

Changes in working capital (Due to increase in trade 50,00,000
payables)
Net cash inflow from operating activities 63,00,000
Cash inflow from financing activity 50,00,000
Net increase in cash and cash equivalents 1,13,00,000
Cash and cash equivalents at the beginning of the 2,00,000
period
Cash and cash equivalents at the end of the period 1,15,00,000

27. 12
Q10 (May 20 – 10 Marks)
Entity A acquired a subsidiary, entity B, during the year. Summarised information from the consolidated
statement of profit and loss and balance sheet is provided, together with some supplementary information.
Consolidated statement of profit and loss Amount (Rs.)
Revenue 3,80,000
Cost of sales (2,20,000)
Gross profit 1,60,000
Depreciation (30,000)
Other operating expenses (56,000)
Interest cost (4,000)
Profit before taxation 70,000
Taxation (15,000)
Profit after taxation 55,000

Consolidated balance sheet 20X2 20X1

Amount (Rs.) Amount (Rs.)
Assets
Cash and cash equivalents 8,000 5,000
Trade receivables 54,000 50,000
Inventories 30,000 35,000
Property, plant and equipment 1,60,000 80,000
Goodwill 18,000 —
Total assets 2,70,000 1,70,000
Liabilities
Trade payables 68,000 60,000
Income tax payable 12,000 11,000
Long term debt 1,00,000 64,000
Total liabilities 1,80,000 1,35,000
Shareholders‖ equity 90,000 35,000
Total liabilities and shareholders’ 2,70,000 1,70,000

Other information
All of the shares of entity B were acquired for Rs. 74,000 in cash. The fair values of assets acquired and
liabilities assumed were:
Particulars Amount (Rs.)
Inventories 4,000
Trade receivables 8,000
Cash 2,000
Property, plant and equipment 1,10,000
Trade payables (32,000)
Long term debt (36,000)
Goodwill 18,000
Cash consideration paid 74,000
Prepare statement of cash flows of Entity A.

27. 13
SOLUTION
This information will be incorporated into the consolidated statement of cash flows as follows:
Statement of cash flows for 20X2 (extract) Amount Amount
(Rs.) (Rs.)
Cash flows from opening activities
Profit before taxation 70,000
Adjustments for non-cash items:
Depreciation 30,000
Decrease in inventories (Note 1) 9,000
Decrease in trade receivables (Note 2) 4,000
Decrease in trade payables (Note 3) (24,000)
Interest paid to be included in financing activities 4,000
Taxation (11,000 + 15,000 – 12,000) (14,000)
Net cash inflow from operating activities 79,000
Cash flows from investing activities
Cash paid to acquire subsidiary (74,000 – 2,000) (72,000)
Net cash outflow from investing activities (72,000)
Cash flows from financing activities
Interest paid (4,000)
Net cash outflow from financing activities (4,000)
Increase in cash and cash equivalents 3,000
Cash and cash equivalents at the beginning of the year 5,000
Cash and cash equivalents at the end of the year 8,000
Working Notes:
1. Inventories
Total inventories of the Group at the end of the year Rs. 30,000
Inventories acquired during the year from subsidiary (Rs. 4,000)
Rs. 26,000
Opening inventory (Rs. 35,000)
Decrease in inventory Rs. 9,000
2. Trade Receivables
Total trade receivables of the Group at the end of the year Rs.54,000
Trade receivables acquired during the year from subsidiary (Rs.8,000)
Rs.46,000
Opening trade receivables (Rs.50,000)
Decrease in trade receivables Rs. 4,000
3. Trade Payables
Trade payables at the end of the year Rs. 68,000
Trade payables of the subsidiary assumed during the year (Rs.32,000)
Rs. 36,000
Opening Trade payable Decrease in Trade payables (Rs. 60,000)
Rs. 24,000

27. 14
Q11 (March 21 – 4 Marks)
During the financial year 20X1-20X2, Akola Limited have paid various taxes & reproduced the below
mentioned records for your perusal:
- Capital gain tax of Rs. 20 crore on sale of office premises at a sale consideration of Rs. 100 crore.
- Income Tax of Rs. 3 crore on Business profits amounting Rs. 30 crore (assume entire business profit as
cash profit).
- Dividend Distribution Tax of Rs. 2 crore on payment of dividend amounting Rs. 20 crore to its
shareholders.
- Income tax Refund of Rs. 1.5 crore (Refund on taxes paid in earlier periods for business profits).
You need to determine the net cash flow from operating activities, investing activities and financing activities
of Akola Limited as per relevant Ind AS.
SOLUTION
Para 36 of Ind AS 7 inter alia states that when it is practicable to identify the tax cash flow with an
individual transaction that gives rise to cash flows that are classified as investing or financing activities the
tax cash flow is classified as an investing or financing activity as appropriate. When tax cash flows are
allocated over more than one class of activity, the total amount of taxes paid is disclosed.
Accordingly, the transactions are analysed as follows:
Particulars Amount (in crore) Activity
Sale Consideration 100 Investing Activity
Capital Gain Tax (20) Investing Activity
Business profits 30 Operating Activity
Tax on Business profits (3) Operating Activity
Dividend Payment (20) Financing Activity
Dividend Distribution Tax (2) Financing Activity
Income Tax Refund 1.5 Operating Activity
Total Cash flow 86.5

Activity wise Amount (in crore)

Operating Activity 28.5
Investing Activity 80
Financing Activity (22)
Total 86.5

27. 15
 QUESTIONS FROM PAST EXAM PAPERS

Q12 (November 20 – 8 Marks)

Entity A acquired a subsidiary, Entity B, during the year ended March 3lst, 2020. Summarised information
from the Consolidated Statement of Profit and Loss and Balance Sheet is provided, together with some
supplementary information.
Consolidated Statement of Profit and Loss Amount (₹)
for the year ended March 31st, 2020.
Revenue 1,90,000
Cost of sales (1,10,000)
Gross profit 80,000
Depreciation (15,000)
Other operating expenses (28,000)
Interest cost (2,000)
Profit before taxation 35,000
Taxation (7,500)
Profit after taxation 27,500

Consolidated balance sheet March 31' 2020 March 31' 2019

Assets Amount (₹) Amount (₹)
Cash and cash equivalents 4,000 2,500
Trade receivables 27,000 25,000
Inventories 15,000 17,500
Property, plant and equipment 80,000 40,000
Goodwill 9,000 -
Total assets 1,35,000 85,000
Liabilities
Trade payables 34,000 30,000
Income tax payable 6,000 5,500
Long to debt 50,000 32,000
Total outside liabilities 90,000 67,500
Shareholders' equity 45,000 17,500
Total liabilities & shareholders' equity 1,35,000 85,000

Other information:
All of the shares of entity B were acquired. for ₹37,000 in cash. The fair values of assets acquired and
liabilities assumed were:
Particulars Amount (₹)
Inventories 2,000
Trade receivables 4,000
Cash 1,000
Property, plant and equipment 55,000
Trade payables (16,000)
Long term debt (18,000)

27. 16
 Goodwill 9,000
Cash consideration paid 37,000
You are required to prepare the Consolidated Statement of Cash Flows for the financial year ended March 31st,
2020 in accordance with Ind AS 7.
SOLUTION
Cash flow Statement for 31st March 2020
Cash from operating activities:
Net profit after tax 27,500
Adjustment for non-cash / non-operating items:
Provision for tax 7,500
Depreciation 15,000
Interest 2,000
Adjustment for changes in working capital:
Trade receivables (25000+4000-27000) 2,000
Inventories (17500+2000-15000) 4,500
Trade payables (30000+16000-34000) (12,000)
Cash flow from operations 46,500
Less: Tax paid (5500+7500-6000) (7,000)
Cash flow from Operating Activities (A) 39,500
Cash flow from investing activities
Subsidiary acquired (37000 – 1000) (36,000)
Cash flow from investing activities (B) (36,000)
Cash flow from financing activities
Interest paid (2,000)
Cash flow from financing activities (C) (2,000)
Cash flow Statements –
Opening balance of cash and cash equivalents 2,500
Net increase in cash and cash equivalents. (a + b + c) 1,500
Closing balance of cash and cash equivalents 4,000

Q13 (December 21 – 6 Marks)

In the year 2021-22, One Land was sold for Rs. 5 Crores and another land purchased for Rs. 3 Crores by XYZ
Limited. The company reported cash flow on a net basis in the cash flow statement i.e. Rs. 2 Crores in
Investing Activity as cash receipt from the sale of land. Advise whether the treatment given as above is
correct as per provisions of IND AS 7. Also, calculate the cash flow from operations from indirect method from
the following information:
Operating Statement of XYZ Limited for the year ended March 31, 2021
Particulars Amount
Sales 20,00,000
Less: Cost of Goods Sold 14,00,000
Administration and selling overheads 2,20,000
Depreciation 28,000
Interest paid 12,000

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 Loss on sale of Asset 8,000
Profit after tax 3,32,000
Less: Tax 1,20,000
Profit After Tax 2,12,000

Balance sheet as on March 31, 2021

2021 (Rs) 2020 (Rs)
Assets
Non-current Assets
Property, Plant and Equipment 3,00,000 2,60,000
Investment 48,000 40,000
Current Assets
Inventories 48,000 52,000
Trade receivables 40,000 28,000
Cash and cash equivalents 24,000 20,000
Total 4,60,000 4,00,000
Equity and Liabilities
Shareholders‖ Funds 2,40,000 2,00,000
Non-current Liabilities 1,32,000 1,40,000
Current Liabilities
Trade Payables 48,000 32,000
Payables for Expenses 40,000 28,000
Total 4,60,000 4,00,000

SOLUTION
Cash flow from Operations by Direct Method
Particulars Rs. See Note
Cash Sales 20,12,000 1
Less: Cash Purchases 13,80,000 2
Overheads 2,08,000 3
Interest - Financing
Depreciation - Non-cash item
Loss on sale of the asset - Investing item
Cash profit 4,24,000
Less: Tax (1,20,000)
Cash profit after tax 3,04,000

Note No 1 - Cash Receipts from Sales and Trade receivables

Particulars Rs.
Sales 20,00,000
Add: Opening Trade receivables 28,000
Less: Closing Trade receivables 40,000
Cash Receipts 20,12,000

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 Note No 2 - Payment to Trade Payables for Purchases
Particulars Rs.
Cost of goods sold 14,00,000
Closing inventories 48,000
Less: Opening inventories (52,000)
Purchases 13,96,000
Add: Opening Trade Payables 32,000
Less: Closing Trade Payables (48,000)
Payment to creditors 13,80,000
Particulars Rs.
Overheads 2,20,000
Add: Opening payables 28,000
Less: Closing payables (40,000)
Payment for Overheads 2,08,000

Cash flow from Operations by Indirect Method

Indirect Method Rs.
Profit After Tax 2,12,000
Add/(Less): Depreciation 28,000
Loss on Asset 8,000
Interest paid 12,000
Decrease in Inventory 4,000
Increase in Trade Receivables (12,000)
Increase in Trade Payables 16,000
Increase in Payables for expenses 12,000
Total 2,80,000

Q14 (Jan 21 – 5 Marks)

Z Ltd. (India) has an overseas branch in USA. It has a bank account having balance of USD 7,000 as on 1st
April 2019. During the financial year 2019-2020, Z Ltd. Acquired computers for its USA office for USD 280
which was paid on same date. There is no other transaction reported in USA or India.
Exchange rates between INR and USD during the financial year 2019-2020 were:

Date USD 1 to INR

1st April 2019 70.00

30th November 2019 71.00 (Date of purchase of computer)

31st March 2020 71.50

Average for 2019-2020 70.50

Please prepare the extract of Cash Flow Statement for the year ended 31st March 2020, as per the relevant
Ind AS and also show the foreign exchange profitability from these transactions for the financial year 2019-
2020?

27. 19
 Solution
In the books of Z Ltd.
Statement of Cash Flows for the year ended 31st March 2020
Rs. Rs.
Cash flows from operating activities
Net Profit (Refer Working Note) 10,360
Adjustments for non-cash items:
Foreign Exchange Gain (10,360)
Net cash outflow from operating activities 0
Cash flows from investing activities
Acquisition of Property, Plant and Equipment (19,880)
Net cash outflow from Investing activities (19,880)
Cash flows from financing activities 0
Net change in cash and cash equivalents (19,880)
Cash and cash equivalents at the beginning of the year i.e. 1st April 2019 4,90,000
Foreign Exchange difference 10,360
Cash and cash equivalents at the end of the year i.e. 31st March 2020 4,80,480

Working Note:
Computation of Foreign Exchange Gain
Bank Account USD Date USD Exchange Rs.
Rate
Opening balance 1.4.2019 7,000 70.00 4,90,000
Less: Purchase of Computer 30.11.2019 280 71.00 19,880
Closing balance calculated 6,720 4,70,120
Closing balance (at year end spot rate) 31.3.2020 6,720 71.50 4,80,480
Foreign Exchange Gain credited to Profit and
Loss account 10,360

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