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Very Short Answer Questions (1 Mark)
Question 1. State True or False: Interest paid on debentures is added to Net profit before tax and extraordinary items, being non-cash expenses.
Answer:
False. Interest paid on debentures is added back to net profit before tax because it is a non-operating (financing) expense; it is a cash expense and is shown as an outflow under financing activities.
Teacher's Note:
1. Interest on debentures is added back in operating activities and then shown separately as a financing outflow, so it is never left out.
Question 2. State True or False: Operating activities are the principal revenue producing activities of an enterprise and those activities which are not investing or financing activities.
Answer:
True.
Teacher's Note:
1. This is the AS-3 definition; any activity that is not investing or financing falls under operating activities.
Question 3. State True or False: Marketable securities are included in cash and cash equivalents.
Answer:
True.
Teacher's Note:
1. Short-term marketable securities are highly liquid and readily convertible into cash, so they are cash equivalents.
Question 4. State True or False: Income tax paid can never be shown as investing or financing activities.
Answer:
False.
Teacher's Note:
1. Tax paid is normally operating, but tax that can be specifically identified with an investing or financing transaction is shown under that activity.
Question 5. State True or False: Amount transferred to General Reserve is shown under financing activities in the Cash Flow Statement.
Answer:
False.
Teacher's Note:
1. Transfer to reserve is a non-cash appropriation; it is only added back to find net profit before tax.
Question 6. Fill in the blank: Purchase and sale of securities by a __________ company is an operating activity.
Answer:
financing
Teacher's Note:
1. For a financing (financial) company, dealing in securities is its main business, so it is an operating activity.
Question 7. Fill in the blanks: Patent purchased and completely amortised in the year of purchase is added under __________ and shown as Outflow under __________.
Answer:
operating activities, investing activities
Teacher's Note:
1. Amortisation is a non-cash charge added back in operating activities, while the purchase price paid is an investing outflow.
Question 8. Fill in the blank: Dividend paid is always shown as __________ in the Cash Flow Statement.
Answer:
financing activity
Teacher's Note:
1. Dividend paid is financing for every enterprise, financial or non-financial.
Question 9. Fill in the blank: Short-term deposits are shown as __________.
Answer:
cash and cash equivalents
Teacher's Note:
1. Only deposits with a maturity of three months or less from the date of acquisition count as cash equivalents.
Question 10. Fill in the blank: Proceeds from the sale of fixed assets is shown under __________ in the Cash Flow Statement.
Answer:
investing activities
Teacher's Note:
1. Show the full sale proceeds under investing; the profit or loss on sale is adjusted in operating activities.
Question 11. Short-term investments are not considered while preparing a cash flow statement. Why? [CBSE Delhi 2017]
Answer:
Short term investments are not considered while preparing cash flow statement as they, being Cash and Cash Equivalents, are part of Cash management of the enterprise.
Teacher's Note:
1. Movements between cash and short-term investments are not cash flows, since both are part of cash and cash equivalents.
Question 12. Net increase in working capital other than cash and cash equivalents will increase, decrease or not change cash flow from operating activities. Give reason in support of your answer. [CBSE Delhi 2017]
Answer:
Decrease.
Reason: Net increase in working capital implies the outflow of cash from operating activities.
Teacher's Note:
1. More money locked in inventories and receivables (net of payables) means less cash from operations.
Question 13. ‘Payment and Receipt of interest and dividend’ is classified as which type of activity while preparing cash flow statement? [CBSE Delhi 2017]
Answer:
Payment of interest and Dividend is classified as Financing Activity.
Receipt of Interest and Dividend is classified as Investing Activity (for a non-financial company).
Teacher's Note:
1. For a financial company, interest paid and interest and dividend received are operating activities; only dividend paid stays financing.
Question 14. State any two advantages of preparing cash flow statement. [CBSE 2019 (67/3/2)]
Answer:
(i) It helps in short-term financial planning by providing information about sources and application of cash and cash equivalents for a specific period.
(ii) It helps in efficient cash management as it gives information relating to surplus and deficit of cash.
Teacher's Note:
1. Write advantages as full statements; one-word points like ‘planning’ often lose marks.
Question 15. Normally, what should be the maturity period for a short-term investment from the date of its acquisition to be qualified as cash equivalents? [CBSE (AI) 2017]
Answer:
Maximum maturity period is 90 days or 3 months for a short term investment from the date of acquisition to be qualified as cash equivalents.
Teacher's Note:
1. The three months are counted from the date of acquisition, not from the balance sheet date.
Question 16. State the primary objective of preparing a cash flow statement. [CBSE 2018, 2019 (67/2/1)]
Answer:
The primary objective of preparing cash flow statement is to find out the inflows and outflows of cash and cash equivalents from Operating, Investing and Financing activities during a specific period.
Teacher's Note:
1. Mention all three activities in the answer; that is what the examiner looks for.
Question 17. State whether the following will increase, decrease or have no effect on cash flow from operating activities while preparing ‘Cash Flow Statement’:
(i) Decrease in outstanding employees benefit expenses by ₹ 3,000.
(ii) Increase in prepaid insurance by ₹ 2,000. [CBSE (AI) 2017]
Answer:
(i) Decrease, (ii) Decrease.
Teacher's Note:
1. A decrease in a current liability and an increase in a current asset both reduce cash from operating activities.
Question 18. Will ‘acquisition of machinery by issue of equity shares’ be considered while preparing ‘Cash Flow Statement’? Give reason in support of your answer. [CBSE (AI) 2017]
Answer:
No, because it is a non-cash transaction which doesn’t result in any inflow or outflow of cash.
Teacher's Note:
1. Non-cash investing and financing transactions are left out of the statement (they may be disclosed separately).
Question 19. What is meant by ‘Cash Flow Statement’? [CBSE 2019 (67/5/2)]
Answer:
A Cash Flow Statement shows inflows and outflows of cash and cash equivalents from various activities of a company during a specified period.
Teacher's Note:
1. Include the words ‘cash and cash equivalents’ and ‘during a period’ in the definition.
Question 20. What is meant by ‘Cash Flow from Investing Activities’? [CBSE (F) 2017]
Answer:
Cash flow from Investing activities means Inflows and outflows of cash and cash equivalents from sale or acquisition of fixed assets and non-current investments.
Teacher's Note:
1. Investments that are cash equivalents are excluded from investing activities.
Question 21. J.K. Ltd. purchased machinery on deferred payment basis. During the year ended 31.3.2016 the company paid an instalment of ₹ 4,00,000 which included interest of ₹ 40,000. While preparing cash flow statement, under which type of activities will this payment be classified? Also, mention the amount involved in each activity. [CBSE (F) 2017]
Answer:
Payment of instalment ₹ 3,60,000 will be shown under cash outflows from Investing Activities. Payment of interest of ₹ 40,000 will be shown under cash outflows from Financing Activities.
Teacher's Note:
1. Split the instalment: the principal part is for the asset (investing) and the interest part is a cost of finance (financing).
Question 22. ‘Cash advances and loans’ made by financial enterprises will be shown under which type of activity while preparing cash flow statement? Give reason in support of your answer. [CBSE (F) 2017]
Answer:
Operating Activity
Reason: Advances and Loans made by financial enterprises is their main operating activity.
Teacher's Note:
1. The same loans given by a non-financial company would be an investing activity.
Short Answer Questions (2 Marks)
| Particulars | (₹) |
|---|---|
| Land Acquired during the year | 5,00,000 |
| Non-current Investment purchased | 2,70,000 |
| Fixed Tangible Assets (Machinery) purchased | 4,50,000 |
| Fixed Tangible Assets (Building) sold | 6,00,000 |
| Sale of Non-current Investments | 1,60,000 |
| Sale of Tangible Fixed Assets (Machinery) | 2,10,000 |
| Receipt for permission of use of Trademarks | 90,000 |
| Interest received on Debentures held as investments | 20,000 |
| Dividend received on shares held as investment | 30,000 |
Answer:
Calculation of Cash Flows from Investing Activities:
| Particulars | (₹) | (₹) |
|---|---|---|
| Cash received from sale of Building | 6,00,000 | |
| Cash received from sale of Investment | 1,60,000 | |
| Cash received from sale of Machinery | 2,10,000 | |
| Cash received for permission granted for use of Trademarks | 90,000 | |
| Cash received for interest on Debentures held as investment | 20,000 | |
| Cash received for dividend on shares held as investment | 30,000 | 11,10,000 |
| Cash used for purchase of Land | (5,00,000) | |
| Cash used for purchase of non-current Investment | (2,70,000) | |
| Cash used for purchase of Machinery | (4,50,000) | (12,20,000) |
| Net Cash used in Investing Activities | (1,10,000) |
Teacher's Note:
1. For a non-financial company, interest and dividend received on investments are investing inflows, not operating inflows.
Short Answer Questions (3 Marks)
Income Statement for the year ended 31st March, 2015
| Particulars | Note No. | (₹) |
|---|---|---|
| I. Revenue from Operations | 2,00,000 | |
| II. Other Income | 1 | 1,00,000 |
| III. Total Revenue (I + II) | 3,00,000 | |
| IV. Expenses | ||
| Cost of Materials Consumed | 80,000 | |
| Employee Benefit Expenses | 60,000 | |
| Depreciation and Amortisation Expenses | 30,000 | |
| Other Expenses | 2 | 15,000 |
| Total Expenses | 1,85,000 | |
| V. Profit before Tax (III − IV) | 1,15,000 | |
| VI. Income Tax Paid | 20,000 | |
| VII. Profit after Tax (V − VI) | 95,000 |
| Particulars | (₹) |
|---|---|
| 1. Other Income: | |
| Profit on Sale of Land | 1,00,000 |
| 2. Other Expenses: | |
| Loss on sale of machinery | 15,000 |
| Particulars | 31st March 2015 (₹) | 31st March 2014 (₹) |
|---|---|---|
| Trade Receivables | 45,000 | 50,000 |
| Accrued Incomes | 6,000 | 4,000 |
| Advance Incomes | 15,000 | 12,000 |
| Trade Payables | 40,000 | 35,000 |
| Outstanding Expenses | 3,000 | 4,000 |
| Prepaid Expenses | 1,500 | 1,000 |
| Inventories | 60,000 | 80,000 |
Answer:
Calculation of Cash from Operating Activities [As per AS-3 (Revised)]
| Particulars | (₹) | (₹) |
|---|---|---|
| Net Profit before tax | ||
| (Net profit ₹ 95,000 + Income tax ₹ 20,000) | 1,15,000 | |
| Add: Items to be added back | ||
| Depreciation and Amortisation Expenses | 30,000 | |
| Loss on sale of machinery | 15,000 | |
| Less: Profit on Sale of Land | (1,00,000) | |
| Operating profit before working capital changes | 60,000 | |
| Add: Decrease in Current Assets: | ||
| Trade Receivables | 5,000 | |
| Inventories | 20,000 | |
| Add: Increase in Current Liabilities: | ||
| Trade Payables | 5,000 | |
| Advance Incomes | 3,000 | 33,000 |
| 93,000 | ||
| Less: Increase in Current Assets: | ||
| Accrued Incomes | (2,000) | |
| Prepaid Expenses | (500) | |
| Less: Decrease in Current Liabilities: | ||
| Outstanding Expenses | (1,000) | (3,500) |
| Cash generated from operations | 89,500 | |
| Less: Income Tax Paid | 20,000 | |
| Net Cash generated from Operating Activities | 69,500 |
Teacher's Note:
1. Start from profit before tax, not profit after tax; income tax paid is deducted only at the end, after cash generated from operations.
| Particulars | 31st March, 2015 (₹) | 31st March, 2016 (₹) |
|---|---|---|
| Plant and Machinery | 8,50,000 | 10,00,000 |
| Non-current Investments | 40,000 | 1,00,000 |
| Land (At cost) | 2,00,000 | 1,00,000 |
(i) Depreciation charges on Plant and Machinery ₹ 50,000.
(ii) Plant and Machinery with a book value of ₹ 60,000 was sold for ₹ 40,000.
(iii) Land was sold at a profit of ₹ 60,000.
(iv) No investment was sold during the year. [Question from CBSE Guiding Notes]
Answer:
Calculation of Cash Flows from Investing Activities:
| Particulars | (₹) |
|---|---|
| Sale of Plant and Machinery | 40,000 |
| Sale of Land (see W.N. 1) | 1,60,000 |
| Purchase of Plant and Machinery (see W.N. 2) | (2,60,000) |
| Purchase of Investments | (60,000) |
| Net Cash used in Investing Activities | (1,20,000) |
Working Notes:
1. Land Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 2,00,000 | By Cash A/c (Sale) (Bal. Fig.) | 1,60,000 |
| To Statement of Profit and Loss (Profit on sale of land) | 60,000 | By Balance c/d | 1,00,000 |
| 2,60,000 | 2,60,000 | ||
2. Plant and Machinery Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 8,50,000 | By Depreciation A/c | 50,000 |
| To Cash A/c (Purchase) (Bal. Fig.) | 2,60,000 | By Cash A/c (Sale) | 40,000 |
| By Loss on Sale of Machinery | 20,000 | ||
| By Balance c/d | 10,00,000 | ||
| 11,10,000 | 11,10,000 | ||
Teacher's Note:
1. Prepare the asset account to find the purchase as the balancing figure; depreciation and the book value of the asset sold must both be credited.
Long Answer Questions (5 Marks)
Balance Sheet as at 31st March, 2015
| Particulars | Note No. | 31st March, 2015 (₹) | 31st March, 2014 (₹) |
|---|---|---|---|
| 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) Fixed Assets: | |||
| (i) Tangible | 5 | 20,06,000 | 14,40,000 |
| (ii) Intangible | 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 |
| Particulars | 31st March, 2015 (₹) | 31st March, 2014 (₹) |
|---|---|---|
| 1. Reserves and Surplus (Surplus, i.e., Balance in Statement of Profit and 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. Tangible Assets: | ||
| Machinery | 24,06,000 | 16,42,000 |
| 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 |
(i) 12% Debentures were redeemed on 31st March, 2015.
(ii) Tax ₹ 1,40,000 was paid during the year.
Prepare Cash Flow Statement. [CBSE Delhi 2016]
Answer:
Cash Flow Statement of KK Ltd. for the year ended 31st March, 2015 as per AS-3 (Revised)
| Particulars | (₹) | (₹) |
|---|---|---|
| A. Cash Flows from Operating Activities: | ||
| Net Profit before tax and extraordinary items (note 1) | 6,00,000 | |
| Add: Non-cash and non-operating charges | ||
| Goodwill written off | 20,000 | |
| Depreciation on machinery | 1,98,000 | |
| Interest on debentures | 1,20,000 | |
| Operating profit before working capital changes | 9,38,000 | |
| Less: Increase in Current Assets: | ||
| Increase in Inventories | (1,24,000) | |
| Cash from operations | 8,14,000 | |
| Less: Tax paid | (1,40,000) | |
| Net Cash generated from Operating Activities (A) | 6,74,000 | |
| B. Cash Flows from Investing Activities: | ||
| Purchase of machinery | (7,64,000) | |
| Purchase of non-current investments | (50,000) | |
| Net Cash used in investing activities (B) | (8,14,000) | |
| C. Cash Flows from Financing Activities: | ||
| Issue of share capital | 2,00,000 | |
| Redemption of 12% debentures | (1,00,000) | |
| Interest on debentures paid | (1,20,000) | |
| Bank overdraft raised | 2,00,000 | |
| Net Cash flow from financing activities (C) | 1,80,000 | |
| Net increase in cash and cash equivalents (A + B + C) | 40,000 | |
| Add: Cash and Cash Equivalents in the beginning of the year | ||
| Current investments | 1,20,000 | |
| Cash and Cash Equivalents | 1,20,000 | 2,40,000 |
| Cash and Cash Equivalents at the end of the year | ||
| Current investments | 1,00,000 | |
| Cash and Cash Equivalents | 1,80,000 | 2,80,000 |
Working Notes:
1. Calculation of Net Profit before tax:
| Particulars | (₹) |
|---|---|
| Net profit as per Statement of Profit and Loss (4,00,000 + 1,00,000) | 5,00,000 |
| Add: Provision for tax made | 1,00,000 |
| Net Profit before tax and extraordinary items | 6,00,000 |
2. Provision for Taxation Account
| Dr. | 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 and Loss (Balancing Figure) | 1,00,000 |
| 2,80,000 | 2,80,000 | ||
Teacher's Note:
1. The opening debit balance of surplus is a loss, so the year’s profit is 4,00,000 + 1,00,000 = 5,00,000; a sign slip here changes every later figure.
2. Interest on debentures is for the full year at 12% on 10,00,000 because the debentures were redeemed only on the last day.
| Particulars | Note No. | 31st March, 2017 (₹) | 31st March, 2016 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| (1) Shareholders’ Funds | |||
| (a) Share Capital | 2,10,000 | 1,80,000 | |
| (b) Reserves and Surplus | 1 | 1,32,000 | 24,000 |
| (2) Non-current Liabilities | |||
| (a) Long-term borrowings | 1,50,000 | 1,50,000 | |
| (3) Current Liabilities | |||
| (a) Trade Payables | 75,000 | 27,000 | |
| Total | 5,67,000 | 3,81,000 | |
| II. ASSETS | |||
| (1) Non-current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | 2,94,000 | 2,52,000 | |
| (b) Non-current Investment | 48,000 | 18,000 | |
| (2) Current Assets | |||
| (a) Current Investments (marketable) | 54,000 | 60,000 | |
| (b) Inventories | 1,07,000 | 24,000 | |
| (c) Trade Receivables | 40,000 | 17,500 | |
| (d) Cash and Cash Equivalents | 24,000 | 9,500 | |
| Total | 5,67,000 | 3,81,000 |
| Particulars | 2017 (₹) | 2016 (₹) |
|---|---|---|
| 1. Reserves and Surplus: Surplus (Balance in Statement of Profit and Loss) | 1,32,000 | 24,000 |
Answer:
Cash Flow Statement of Liva Ltd. for the year ended 31st March, 2017
| Particulars | (₹) | (₹) |
|---|---|---|
| 1. Cash Flow from Operating Activities: | ||
| (A) Net Profit before Taxation | 1,08,000 | |
| (B) Adjustments for non-cash and non-operating items | — | |
| (C) Operating profit before working capital changes | 1,08,000 | |
| (D) Add: Decrease in Current Assets and Increase in Current Liabilities | ||
| Increase in Trade Payables | 48,000 | |
| (E) Less: Increase in Current Assets and Decrease in Current Liabilities | ||
| Increase in Trade Receivables | (22,500) | |
| Increase in Inventories | (83,000) | |
| Cash generated from Operating Activities: (C + D − E) (X) | 50,500 | |
| 2. Cash Flow from Investing Activities: | ||
| Purchase of Fixed Assets | (42,000) | |
| Purchase of Non-Current Investments | (30,000) | |
| Net Cash used in Investing Activities (Y) | (72,000) | |
| 3. Cash Flow from Financing Activities: | ||
| Issue of Share Capital | 30,000 | |
| Net Cash from Financing Activities (Z) | 30,000 | |
| 4. Net Increase in Cash and Cash Equivalents (X − Y + Z) | 8,500 | |
| 5. Add: Cash and Cash Equivalents at the beginning of the year (60,000 + 9,500) | 69,500 | |
| 6. Cash and Cash Equivalents at the end of the year (54,000 + 24,000) | 78,000 |
Teacher's Note:
1. Marketable current investments are cash equivalents, so add them to cash at both the beginning and the end instead of showing their change as an investing flow.
| Particulars | Note No. | 31st March, 2017 (₹) | 31st March, 2016 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| Shareholders’ Funds | |||
| Share Capital | 7,00,000 | 6,00,000 | |
| Reserves and Surplus, i.e., Balance in Statement of Profit and Loss | 2,00,000 | 1,10,000 | |
| Non-Current Liabilities | |||
| Long-term borrowings | 3,00,000 | 2,00,000 | |
| Current Liabilities | |||
| Trade Payables | 30,000 | 25,000 | |
| Total | 12,30,000 | 9,35,000 | |
| II. ASSETS | |||
| Non-Current Assets | |||
| Fixed Assets | |||
| Tangible Assets | 11,00,000 | 8,00,000 | |
| Current Assets | |||
| Inventories | 70,000 | 60,000 | |
| Trade Receivables | 32,000 | 40,000 | |
| Cash and Cash Equivalents | 28,000 | 35,000 | |
| Total | 12,30,000 | 9,35,000 |
During the year a piece of machinery of the book value of ₹ 80,000 was sold for ₹ 65,000. Depreciation provided on tangible assets during the year amounted to ₹ 2,00,000.
Prepare a Cash Flow Statement. [CBSE Delhi 2013]
Answer:
Cash Flow Statement for the year ending 31st March, 2017
| Particulars | (₹) | (₹) |
|---|---|---|
| A. Cash Flow from Operating Activities: | ||
| Net Profit before Taxation (2,00,000 − 1,10,000) | 90,000 | |
| Adjustments for non-cash and non-operating Items to be added back: | ||
| Depreciation for the year | 2,00,000 | |
| Loss on Sale of Machinery | 15,000 | |
| Operating profit before working capital changes | 3,05,000 | |
| Add: Decrease in Current Assets and Increase in Current Liabilities | ||
| Decrease in Trade Receivables | 8,000 | |
| Increase in Trade Payables | 5,000 | |
| Less: Increase in Current Assets: Increase in Inventories | (10,000) | |
| Net Cash Flow from Operating Activities | 3,08,000 | |
| B. Cash Flow from Investing Activities: | ||
| Purchase of Machinery | (5,80,000) | |
| Sale of Machinery | 65,000 | |
| Net Cash used in Investing Activities | (5,15,000) | |
| C. Cash Flow from Financing Activities: | ||
| Proceeds from issuance of Share Capital | 1,00,000 | |
| Proceeds from Long-term Borrowings | 1,00,000 | |
| Net Cash Flow from Financing Activities | 2,00,000 | |
| Net Decrease in Cash and Cash Equivalents (A − B + C) | (7,000) | |
| Add: Cash and Cash Equivalents in the beginning of the year | 35,000 | |
| Cash and Cash Equivalents at the end of the year | 28,000 |
Working Note:
Fixed Assets Account (Tangible)
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 8,00,000 | By Depreciation A/c | 2,00,000 |
| To Bank A/c (Purchase of Machinery) (Balancing figure) | 5,80,000 | By Bank A/c (Sale) | 65,000 |
| By Statement of Profit and Loss (Loss on Sale of Machinery) | 15,000 | ||
| By Balance c/d | 11,00,000 | ||
| 13,80,000 | 13,80,000 | ||
Teacher's Note:
1. When fixed assets are shown at book value (net of depreciation), credit the asset account with depreciation, sale proceeds and loss on sale to find the purchase.
Balance Sheet of Mayur Ltd. as at 31st March, 2018
| Particulars | Note No. | 31st March, 2018 (₹) | 31st March, 2017 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders’ Funds | |||
| (a) Share Capital | 30,00,000 | 20,00,000 | |
| (b) Reserves and Surplus | 1 | 3,00,000 | 4,00,000 |
| 2. Non-current Liabilities | |||
| (a) Long-term Borrowings | 2 | 4,00,000 | 3,00,000 |
| 3. Current Liabilities | |||
| (a) Trade Payables | 1,70,000 | 2,50,000 | |
| (b) Short-term Provisions | 3 | 76,000 | 64,000 |
| Total | 39,46,000 | 30,14,000 | |
| II. ASSETS | |||
| 1. Non-Current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | 4 | 29,00,000 | 23,00,000 |
| (ii) Intangible Assets | 5 | 2,70,000 | 1,60,000 |
| 2. Current Assets | |||
| (a) Inventories | 2,20,000 | 2,30,000 | |
| (b) Trade Receivables | 1,10,000 | 1,30,000 | |
| (c) Cash and Cash Equivalents | 4,46,000 | 1,94,000 | |
| Total | 39,46,000 | 30,14,000 |
| Particulars | 31st March, 2018 (₹) | 31st March, 2017 (₹) |
|---|---|---|
| 1. Reserves and Surplus: Surplus, i.e., Balance in Statement of Profit and Loss | 3,00,000 | 4,00,000 |
| 2. Long-term Borrowings: 9% Debentures | 4,00,000 | 3,00,000 |
| 3. Short-term Provisions: Provision for Taxation | 76,000 | 64,000 |
| 4. Tangible Assets: | ||
| Machinery | 36,00,000 | 28,00,000 |
| Accumulated Depreciation | (7,00,000) | (5,00,000) |
| 29,00,000 | 23,00,000 | |
| 5. Intangible Assets: Goodwill | 2,70,000 | 1,60,000 |
(i) During the year, a piece of machinery costing ₹ 4,00,000 on which accumulated depreciation was ₹ 73,000 was sold for ₹ 3,10,000.
(ii) 9% Debentures of ₹ 1,00,000 were issued on 31st March, 2018. [CBSE 2019 (67/3/1)]
Answer:
Cash Flow Statement of Mayur Ltd. for the year ended 31st March, 2018 as per AS-3 (Revised)
| Particulars | (₹) | (₹) |
|---|---|---|
| A. Cash Flow from Operating Activities: | ||
| Net Profit before Tax & Extraordinary Items (WN 1) | (24,000) | |
| Add: Non cash and non-operating charges | ||
| Loss on Sale of Machinery (total assets) | 17,000 | |
| Depreciation | 2,73,000 | |
| Interest on Debentures | 27,000 | 3,17,000 |
| Operating profit before working capital changes | 2,93,000 | |
| Add: Decrease in Current Assets/Increase in Current Liabilities | ||
| Decrease in inventories | 10,000 | |
| Decrease in trade receivables | 20,000 | 30,000 |
| 3,23,000 | ||
| Less: Increase in Current Assets/Decrease in Current Liabilities | ||
| Decrease in trade payables | (80,000) | (80,000) |
| Cash generated from Operations | 2,43,000 | |
| Less: Tax Paid during the year | (64,000) | |
| Net Cash generated from Operating Activities | 1,79,000 | |
| B. Cash Flow from Investing Activities: | ||
| Purchase of Machinery (Total Assets) (WN 2) | (12,00,000) | |
| Sale of Machinery (Total Assets) | 3,10,000 | |
| Purchase of Goodwill (Intangible assets) | (1,10,000) | |
| Net Cash used in Investing Activities | (10,00,000) | |
| C. Cash Flow from Financing Activities: | ||
| Issue of Share Capital | 10,00,000 | |
| Issue of 9% Debentures | 1,00,000 | |
| Interest on 9% Debentures | (27,000) | |
| Net Cash flow from financing activities | 10,73,000 | |
| Net increase in Cash & Cash Equivalents during the year (A + B + C) | 2,52,000 | |
| Add: Cash and Cash Equivalents in the beginning of the year | 1,94,000 | |
| Cash and Cash Equivalents at the end of the year | 4,46,000 |
Working Notes:
1. Calculation of Net Profit before Taxation
| Particulars | (₹) |
|---|---|
| Net Profit (3,00,000 − 4,00,000) | (1,00,000) |
| Provision for Taxation in current year | 76,000 |
| Net Profit before tax (loss) | (24,000) |
2. Machinery Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 28,00,000 | By Bank A/c (Sales) | 3,10,000 |
| To Bank A/c (Purchase being Bal. Fig.) | 12,00,000 | By Accumulated Depreciation A/c | 73,000 |
| By Statement of Profit and Loss (loss) | 17,000 | ||
| By Balance c/d | 36,00,000 | ||
| 40,00,000 | 40,00,000 | ||
3. Accumulated Depreciation Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Machinery A/c | 73,000 | By Balance b/d | 5,00,000 |
| To Balance c/d | 7,00,000 | By Statement of Profit and Loss (Bal. figure) | 2,73,000 |
| 7,73,000 | 7,73,000 | ||
Teacher's Note:
1. Interest is on the old debentures only (9% of 3,00,000), because the new debentures were issued on the last day of the year.
2. With no information on tax paid, the opening provision (64,000) is taken as paid and the closing provision as the current year’s provision.
Thermal Power Ltd. Balance Sheet as at 31-3-2014
| Particulars | Note No. | 2013-14 (₹) | 2012-13 (₹) |
|---|---|---|---|
| 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 | |||
| (a) Fixed Assets | |||
| (i) Tangible | 2 | 10,70,000 | 8,50,000 |
| (ii) Intangible | 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 |
| Particulars | 2013-14 (₹) | 2012-13 (₹) |
|---|---|---|
| 1. Reserves and Surplus: Surplus, i.e., Balance in Statement of Profit and Loss | 3,00,000 | 2,00,000 |
| 2. Tangible Assets: | ||
| 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 |
Prepare Cash Flow Statement. [CBSE Delhi 2015]
Answer:
Cash Flow Statement of Thermal Power Ltd. for the year ended 31st March, 2014 as per AS-3 (Revised)
| Particulars | (₹) | (₹) |
|---|---|---|
| Cash Flow from Operating Activities: | ||
| Net Profit before tax & extraordinary items | 1,00,000 | |
| Add: Non-cash and Non-operating charges | ||
| Goodwill written off | 72,000 | |
| Depreciation on machinery (WN 2) | 66,000 | |
| Loss on sale of machinery (WN 1) | 2,000 | |
| Operating profit before working capital changes | 2,40,000 | |
| Less: Increase in Current Assets: | ||
| Increase in trade receivables | (27,000) | |
| Increase in inventories | (8,000) | |
| Less: Decrease in Current Liabilities: | ||
| Decrease in trade payables | (25,000) | |
| Decrease in Short-term provisions | (27,000) | |
| Cash generated from Operating Activities (A) | 1,53,000 | 1,53,000 |
| Cash Flow from Investing Activities: | ||
| Purchase of Machinery | (2,94,000) | |
| Sale of Machinery | 6,000 | |
| Cash used in Investing Activities (B) | (2,88,000) | (2,88,000) |
| Cash Flows from Financing Activities: | ||
| Issue of share capital | 1,00,000 | |
| Money raised from borrowings | 70,000 | |
| Cash flow from financing activities (C) | 1,70,000 | 1,70,000 |
| Net increase in cash and cash equivalents (A − B + C) | 35,000 | |
| Add: Opening balance of cash and cash equivalents: | ||
| Current Investments | 1,50,000 | |
| Cash and Cash equivalents | 3,75,000 | 5,25,000 |
| Closing balance of cash and cash equivalents: | ||
| Current Investments | 2,40,000 | |
| Cash and Cash equivalents | 3,20,000 | 5,60,000 |
Working Notes:
1. Machinery Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 10,00,000 | By Bank A/c | 6,000 |
| To Bank A/c (Bal. Figure) | 2,94,000 | By Accumulated Depreciation A/c | 16,000 |
| By Statement of Profit and Loss (Loss on sale of machinery) | 2,000 | ||
| By Balance c/d | 12,70,000 | ||
| 12,94,000 | 12,94,000 | ||
2. Accumulated Depreciation Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Machinery A/c | 16,000 | By Balance b/d | 1,50,000 |
| To Balance c/d | 2,00,000 | By Statement of Profit and Loss (Bal. fig.) | 66,000 |
| 2,16,000 | 2,16,000 | ||
Teacher's Note:
1. A fall in goodwill with no sale given means goodwill written off, a non-cash charge added back to net profit.
2. Loss on sale = cost 24,000 − accumulated depreciation 16,000 − sale price 6,000 = 2,000.
| Particulars | Note No. | 31st March, 2018 (₹) | 31st March, 2017 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders’ Funds | |||
| (a) Share Capital | 7,50,000 | 5,00,000 | |
| (b) Reserves and Surplus | 3,75,000 | 3,00,000 | |
| 2. Non-current Liabilities | |||
| (a) Long-term Borrowings | 1 | 50,000 | 1,00,000 |
| 3. Current Liabilities | |||
| (a) Trade Payables | 50,000 | 55,000 | |
| (b) Short-term Provisions | 2 | 47,500 | 40,000 |
| Total | 12,72,500 | 9,95,000 | |
| II. ASSETS | |||
| 1. Non-current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | 3 | 5,05,000 | 6,00,000 |
| (ii) Intangible Assets | 4 | 90,000 | 1,00,000 |
| (b) Non-current Investments | 3,00,000 | — | |
| 2. Current Assets | |||
| (a) Inventories | 90,000 | 50,000 | |
| (b) Trade Receivables | 1,00,000 | 75,000 | |
| (c) Cash and Cash Equivalents | 5 | 1,87,500 | 1,70,000 |
| Total | 12,72,500 | 9,95,000 |
| Particulars | 31st March, 2018 (₹) | 31st March, 2017 (₹) |
|---|---|---|
| 1. Long-term Borrowings | ||
| 1000, 10% Debentures of ₹ 100 each | — | 1,00,000 |
| Bank Loan | 50,000 | — |
| 50,000 | 1,00,000 | |
| 2. Short-term Provisions: Provision for Tax | 47,500 | 40,000 |
| 3. Tangible Assets | ||
| Land and Building | 3,25,000 | 4,00,000 |
| Plant and Machinery | 1,80,000 | 2,00,000 |
| 5,05,000 | 6,00,000 | |
| 4. Intangible Assets: Goodwill | 90,000 | 1,00,000 |
| 5. Cash and Cash Equivalents | ||
| Cash in Hand | 35,000 | 25,000 |
| Bank Balance | 1,52,500 | 1,45,000 |
| 1,87,500 | 1,70,000 |
| Particulars | 31st March, 2018 | 31st March, 2017 |
|---|---|---|
| (i) Contingent Liability: Proposed Dividend | 10% | 7.5% |
(iii) Land and Building of book value ₹ 75,000 was sold at a profit of 10%.
(iv) The rate of depreciation on Plant and Machinery is 10%.
Answer:
Cash Flow Statement for the year ended 31st March, 2018
| Particulars | (₹) | (₹) |
|---|---|---|
| I. Cash Flow from Operating Activities: | ||
| Net Profit before Tax and Extraordinary items (WN 1) | 1,60,000 | |
| Add: Non-cash/Non-operating Expenses: | ||
| Depreciation | 20,000 | |
| Goodwill Amortised | 10,000 | 30,000 |
| 1,90,000 | ||
| Less: Non-operating Income: | ||
| Gain (Profit) on Sale of Land and Building | 7,500 | |
| Operating Profit before Working Capital Changes | 1,82,500 | |
| Less: Decrease in Current Liabilities and Increase in Current Assets: | ||
| Trade Payables | 5,000 | |
| Trade Receivables | 25,000 | |
| Inventories | 40,000 | 70,000 |
| Cash Generated from Operating Activities: | 1,12,500 | |
| Less: Income Tax Paid (₹ 40,000 − ₹ 7,500) | 32,500 | |
| Cash Flow from Operating Activities (A) | 80,000 | |
| II. Cash Flow from Investing Activities: | ||
| Proceeds from Sale of Land and Building (WN 3) | 82,500 | |
| Purchase of Non-current Investments | (3,00,000) | |
| Cash used in Investing Activities (B) | (2,17,500) | |
| III. Cash Flow from Financing Activities: | ||
| Proceeds from Issue of Shares | 2,50,000 | |
| Payments for Redemption of 10% Debentures | (1,00,000) | |
| Proceeds from Bank Loan | 50,000 | |
| Payment of Dividend (Proposed dividend of previous year) | (37,500) | |
| Payment of Dividend Distribution Tax | (7,500) | |
| Cash Flow from Financing Activities (C) | 1,55,000 | |
| IV. Net Increase in Cash and Cash Equivalents (A + B + C) | 17,500 | |
| Add: Opening Cash and Cash Equivalents | 1,70,000 | |
| V. Closing Cash and Cash Equivalents | 1,87,500 |
Working Notes:
1. Calculation of Net Profit before Tax and Extraordinary items:
| Particulars | (₹) |
|---|---|
| Net Profit for the year: | |
| Closing Balance of Surplus, i.e., Balance in Statement of Profit and Loss | 3,75,000 |
| Less: Opening Balance of Surplus, i.e., Balance in Statement of Profit and Loss | 3,00,000 |
| 75,000 | |
| Add: Provision for Tax | 47,500 |
| Dividend Paid (Proposed dividend of previous year) | 37,500 |
| Net Profit before Tax and Extraordinary Activities | 1,60,000 |
2. It is presumed that 10% Debentures have been redeemed in the beginning of the year, therefore, interest is not provided.
3. Land and Building Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 4,00,000 | By Bank A/c (Sale) (₹ 75,000 + ₹ 7,500) | 82,500 |
| To Statement of Profit and Loss (Gain) | 7,500 | By Balance c/d | 3,25,000 |
| 4,07,500 | 4,07,500 | ||
4. No effect is given to proposed dividend of the current year as it is not accounted in the books in the current year.
Teacher's Note:
1. Only the previous year’s proposed dividend (7.5% of 5,00,000 = 37,500) is paid this year; the current year’s 10% is a contingent liability and is ignored.
2. Depreciation on plant is 10% of the opening 2,00,000 = 20,000, which exactly explains its fall to 1,80,000.
| Particulars | Note No. | 31st March, 2016 (₹) | 31st March, 2015 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders’ Funds | |||
| (a) Share Capital | 1 | 1,00,000 | 80,000 |
| (b) Reserves and Surplus | 2 | 6,400 | 6,000 |
| 2. Non-Current Liabilities | |||
| (a) Long-term Borrowings | 3 | 14,000 | 12,000 |
| 3. Current Liabilities | |||
| (a) Short-term Borrowings | 4 | 13,600 | 25,000 |
| (b) Trade Payables | 22,000 | 24,000 | |
| (c) Short term provisions | 5 | 8,400 | 6,000 |
| Total | 1,64,400 | 1,53,000 | |
| II. ASSETS | |||
| 1. Non-Current Assets | |||
| (a) Fixed Assets (Tangible) | 6 | 50,000 | 60,000 |
| 2. Current Assets | |||
| (a) Inventories | 58,400 | 50,000 | |
| (b) Trade Receivables | 48,000 | 40,000 | |
| (c) Cash and Cash Equivalents | 7,000 | 2,400 | |
| (d) Other Current Assets | 7 | 1,000 | 600 |
| Total | 1,64,400 | 1,53,000 |
| Particulars | 31st March, 2016 (₹) | 31st March, 2015 (₹) |
|---|---|---|
| 1. Share Capital: | ||
| Equity Share Capital | 80,000 | 80,000 |
| 12% Preference Share Capital | 20,000 | — |
| 1,00,000 | 80,000 | |
| 2. Reserves and Surplus: | ||
| General Reserve | 4,000 | 4,000 |
| Surplus, i.e., Statement of Profit and Loss | 2,400 | 2,000 |
| 6,400 | 6,000 | |
| 3. Long-term Borrowings: 15% Debentures | 14,000 | 12,000 |
| 4. Short-term Borrowings: Bank Overdraft | 13,600 | 25,000 |
| 5. Short-term Provisions: Provision for Taxation | 8,400 | 6,000 |
| 6. Fixed Assets: | ||
| Tangible Assets | 80,000 | 82,000 |
| Less: Accumulated Depreciation | 30,000 | 22,000 |
| 50,000 | 60,000 | |
| 7. Other Current Assets: Prepaid Expenses | 1,000 | 600 |
(a) Fixed Assets sold for ₹ 10,000, their cost ₹ 20,000 and accumulated depreciation till the date of sale on them ₹ 6,000.
(b) Interim Dividend paid during the year ₹ 9,000.
(c) Provision for tax made ₹ 9,400.
(d) Proposed Dividend for previous year was ₹ 10,000 and current year is ₹ 11,600.
Answer:
Cash Flow Statement for the year ended 31st March, 2016
| Particulars | (₹) | (₹) |
|---|---|---|
| 1. Cash Flow from Operating Activities: | ||
| (A) Net Profit before Taxation: | 28,800 | |
| (B) Items to be added: | ||
| Depreciation | 14,000 | |
| Loss on Sale of Fixed Assets | 4,000 | |
| Interest on Debentures | 1,800 | |
| (C) Operating profit before working capital changes (A + B) | 48,600 | |
| (D) Less: Increase in Current Assets: | ||
| Trade Receivables | (8,000) | |
| Inventories | (8,400) | |
| Prepaid Expenses | (400) | |
| Less: Decrease in Current Liabilities: | ||
| Trade Payables | (2,000) | |
| (E) Cash generated from operations (C − D) | 29,800 | |
| (F) Less: Tax paid | (7,000) | |
| (G) Net Cash generated from Operating Activities (E − F) (X) | 22,800 | |
| 2. Cash Flow from Investing Activities: | ||
| Sale of fixed assets | 10,000 | |
| Purchase of fixed assets | (18,000) | |
| Net Cash used in Investing Activities (Y) | (8,000) | |
| 3. Cash Flow from Financing Activities: | ||
| Issue of Preference Shares | 20,000 | |
| Issue of Debentures | 2,000 | |
| Interim Dividend Paid | (9,000) | |
| Payment of Dividend (Proposed Dividend of previous year) | (10,000) | |
| Payment of Bank Overdraft | (11,400) | |
| Interest on Debentures | (1,800) | |
| Net Cash used in Financing Activities (Z) | (10,200) | |
| Net Increase in Cash and Cash Equivalents (X − Y − Z) | 4,600 | |
| 4. Add: Cash and Cash Equivalents in the beginning of the period | 2,400 | |
| 5. Cash and Cash Equivalents at the end of the period | 7,000 |
Working Notes:
(1) Calculation of Net Profit before Taxation
| Particulars | (₹) |
|---|---|
| Closing Surplus i.e., Balance in Statement of Profit and Loss | 2,400 |
| Less: Opening Surplus, i.e., Balance in Statement of Profit and Loss | 2,000 |
| 400 | |
| Add: Proposed Dividend (for Previous year) | 10,000 |
| Provision for tax for the current year | 9,400 |
| Interim Dividend Paid | 9,000 |
| 28,800 |
(2) Fixed Assets Account (at cost)
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 82,000 | By Accumulated Depreciation A/c | 6,000 |
| To Bank A/c (Purchase) (Balancing Figure) | 18,000 | By Bank A/c (Sale) | 10,000 |
| By Statement of Profit & Loss (Loss) | 4,000 | ||
| By Balance c/d | 80,000 | ||
| 1,00,000 | 1,00,000 | ||
(3) Accumulated Depreciation Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Fixed Assets A/c | 6,000 | By Balance b/d | 22,000 |
| To Balance c/d | 30,000 | By Statement of Profit and Loss (current year’s depreciation) | 14,000 |
| 36,000 | 36,000 | ||
(4) Provision for Taxation Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Bank A/c (Balancing figure) | 7,000 | By Balance b/d | 6,000 |
| To Balance c/d | 8,400 | By Statement of Profit and Loss | 9,400 |
| 15,400 | 15,400 | ||
(5) It has been assumed that new debentures and preference shares have been issued at the end of the current accounting period.
Teacher's Note:
1. Interest on debentures is 15% of the opening 12,000 = 1,800, as the new debentures are assumed issued at the year end.
2. The current year’s proposed dividend of 11,600 is not provided for, so it does not appear anywhere in the statement.
| Particulars | Note No. | 31st March, 2017 (₹) | 31st March, 2016 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 1 | 90,000 | 90,000 |
| (b) Reserves and Surplus | 2 | 75,600 | 71,200 |
| 2. Non-Current Liabilities | |||
| (a) Long-term Borrowings | 3 | 54,000 | — |
| 3. Current Liabilities | |||
| (a) Trade Payables | 26,800 | 33,600 | |
| (b) Short-term Provisions | 4 | 2,000 | 15,000 |
| Total | 2,48,400 | 2,09,800 | |
| II. ASSETS | |||
| 1. Non-Current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | 5 | 64,000 | 80,000 |
| (ii) Intangible Assets | 6 | 12,000 | 10,000 |
| 2. Current Assets | |||
| (a) Inventories | 42,000 | 48,000 | |
| (b) Trade Receivables | 91,000 | 42,000 | |
| (c) Cash and Cash Equivalents | 39,400 | 29,800 | |
| Total | 2,48,400 | 2,09,800 |
| Particulars | 31st March, 2017 (₹) | 31st March, 2016 (₹) |
|---|---|---|
| 1. Share Capital: | ||
| Equity Share Capital | 90,000 | 90,000 |
| 2. Reserves and Surplus: | ||
| Surplus, i.e., Balance in Statement of Profit and Loss | 75,600 | 71,200 |
| 3. Long-term Borrowings: | ||
| Mortgage Loan | 54,000 | — |
| 4. Short-term Provisions: | ||
| Provision for Taxation | 2,000 | 15,000 |
| 5. Tangible Assets: | ||
| Land | 28,000 | 50,000 |
| Plant and Machinery | 36,000 | 30,000 |
| 64,000 | 80,000 | |
| 6. Intangible Assets | ||
| Goodwill | 12,000 | 10,000 |
(i) Gain on Sale of Land ₹6,000.
(ii) Depreciation on Plant and Machinery was provided at 10% on last year's balance.
(iii) Mortgage loan was taken on 1st April, 2016 @ 9% p.a. and interest has been paid up to date.
(iv) Provision for Income Tax made during the year ₹18,000.
Answer:
Cash Flow Statement for the year ended 31st March, 2017
| Particulars | ₹ | ₹ |
|---|---|---|
| A. Cash Flow from Operating Activities: | ||
| Net Profit before Tax (WN1) | 22,400 | |
| Adjustments for: | ||
| Depreciation on Plant and Machinery | 3,000 | |
| Interest on Mortgage Loan | 4,860 | |
| 30,260 | ||
| Less: Gain on Sale of Land | (6,000) | |
| Operating profit before working capital changes | 24,260 | |
| Add: Decrease in Current Assets: | ||
| Inventories | 6,000 | |
| 30,260 | ||
| Less: Increase in Current Assets: | ||
| Trade Receivables (49,000) | ||
| Decrease in Current Liabilities: | ||
| Trade Payables (6,800) | (55,800) | |
| (25,540) | ||
| Less: Income Tax paid | (31,000) | |
| Net Cash used in Operating Activities (X) | (56,540) | |
| B. Cash Flow from Investing Activities: | ||
| Purchase of Plant and Machinery | (9,000) | |
| Purchase of Goodwill | (2,000) | |
| Sale of Land | 28,000 | |
| Net Cash from Investing Activities (Y) | 17,000 | |
| C. Cash Flow from Financing Activities: | ||
| Proceeds from Mortgage Loan | 54,000 | |
| Interest on Mortgage Loan | (4,860) | |
| Net Cash flow from Financing Activities (Z) | 49,140 | |
| Net Increase in Cash and Cash Equivalents (X + Y + Z) | 9,600 | |
| Add: Cash and Cash Equivalents in the beginning of the period | 29,800 | |
| Cash and Cash Equivalents at the end of the period | 39,400 |
Working Notes:
(1) Calculation of Net Profit before Tax
| Particulars | ₹ |
|---|---|
| Net Profit after taxation: (75,600 – 71,200) | 4,400 |
| Provision for Taxation for 2017 | 18,000 |
| Profit before tax | 22,400 |
(2) Plant and Machinery Account (on written down value)
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 30,000 | By Depreciation A/c | 3,000 |
| To Bank A/c (Balancing figure being purchase) | 9,000 | By Balance c/d | 36,000 |
| 39,000 | 39,000 | ||
(3) Land Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 50,000 | By Bank A/c (Balancing figure being sale) | 28,000 |
| To Statement of Profit and Loss (Gain) | 6,000 | By Balance c/d | 28,000 |
| 56,000 | 56,000 | ||
(4) Provision for Taxation Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Bank A/c (Payment of tax) | 31,000 | By Balance b/d | 15,000 |
| To Balance c/d | 2,000 | By Statement of Profit and Loss (Provision made) | 18,000 |
| 33,000 | 33,000 | ||
Teacher's Note:
1. Interest on the mortgage loan is added back in operating activities and shown as an outflow under financing activities; the gain on sale of land is deducted because the full sale price appears under investing activities.
2. Tax paid is found from the Provision for Taxation Account, not taken as the provision made for the year.
Balance Sheet as at 31st March, 2018
| Particulars | Note No. | 31st March, 2018 (₹) | 31st March, 2017 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 3,00,000 | 2,00,000 | |
| (b) Reserves and Surplus | 1 | 1,00,000 | 50,000 |
| 2. Non-Current Liabilities | |||
| Long-term Borrowings | 50,000 | 1,00,000 | |
| 3. Current Liabilities | |||
| (a) Short-term Borrowings | — | 5,000 | |
| (b) Trade Payables | 22,500 | 30,000 | |
| (c) Short-term Provisions | 2 | 35,000 | 20,000 |
| Total | 5,07,500 | 4,05,000 | |
| II. ASSETS | |||
| 1. Non-Current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | 3 | 3,00,000 | 3,00,000 |
| (ii) Intangible Assets | 4 | 22,500 | 25,000 |
| (b) Non-Current Investments | 37,500 | — | |
| 2. Current Assets | |||
| (a) Inventories | 7,500 | 5,000 | |
| (b) Trade Receivables | 97,500 | 60,000 | |
| (c) Cash and Cash Equivalents | 42,500 | 15,000 | |
| Total | 5,07,500 | 4,05,000 |
| Particulars | 31st March, 2018 (₹) | 31st March, 2017 (₹) |
|---|---|---|
| 1. Reserves and Surplus | ||
| Surplus, i.e., Balance in Statement of Profit and Loss | 1,00,000 | 50,000 |
| 2. Short-term Provisions | ||
| Provision for Taxation | 35,000 | 20,000 |
| 3. Tangible Assets | ||
| Building | 3,00,000 | 3,00,000 |
| 4. Intangible Assets | ||
| Patents | 22,500 | 25,000 |
(i) Building costing ₹37,500 was purchased.
(ii) An old building, the book value of which was ₹31,500, was sold at a loss of ₹2,500.
(iii) Tax provided during the year was ₹40,000.
(iv) Dividend proposed for the year 2016-17 and 2017-18 are ₹30,000 and ₹40,000 respectively.
Answer:
Karma Ltd.
Cash Flow Statement for the year ended 31st March, 2018
| Particulars | ₹ | ₹ |
|---|---|---|
| I. Cash Flow from Operating Activities: | ||
| Net Profit before Tax and Extraordinary Items (WN1) | 1,20,000 | |
| Add: Non-cash and Non-operating Expenses: | ||
| Depreciation (WN3) | 6,000 | |
| Amortisation of Patents | 2,500 | |
| Loss on Sale of Building | 2,500 | 11,000 |
| Operating profit before working capital changes | 1,31,000 | |
| Less: Increase in Current Assets and Decrease in Current Liabilities: | ||
| Inventories | 2,500 | |
| Trade Receivables | 37,500 | |
| Trade Payables | 7,500 | 47,500 |
| Cash Generated from Operating Activities | 83,500 | |
| Less: Tax paid (WN2) | 25,000 | |
| Cash Flow from Operating Activities (A) | 58,500 | |
| II. Cash Flow from Investing Activities: | ||
| Proceeds from Sale of Building | 29,000 | |
| Payment for Purchase of Building | (37,500) | |
| Payment for Purchase of Non-current Investments | (37,500) | |
| Cash used in Investing Activities (B) | (46,000) | |
| III. Cash Flow from Financing Activities: | ||
| Proceeds from Issue of Share Capital | 1,00,000 | |
| Repayment of Long-term Borrowings | (50,000) | |
| Repayment of Short-term Borrowings | (5,000) | |
| Payment of Dividend (Previous Year's Proposed Dividend) | (30,000) | |
| Cash Flow from Financing Activities (C) | 15,000 | |
| IV. Net Increase in Cash and Cash Equivalents (A + B + C) | 27,500 | |
| Add: Opening Cash and Cash Equivalents | 15,000 | |
| V. Closing Cash and Cash Equivalents | 42,500 |
Working Notes:
(1) Net Profit before Tax and Extraordinary Items:
| Particulars | ₹ | ₹ |
|---|---|---|
| Closing Surplus, i.e., Balance in Statement of Profit and Loss | 1,00,000 | |
| Less: Opening Surplus, i.e., Balance in Statement of Profit and Loss | 50,000 | |
| 50,000 | ||
| Add: Provision for Tax | 40,000 | |
| Dividend Paid (Proposed dividend of Previous year) | 30,000 | 70,000 |
| Net Profit before Tax and Extraordinary Items | 1,20,000 |
(2) Provision for Tax Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Bank A/c (Tax Paid) (Balancing Figure) | 25,000 | By Balance b/d | 20,000 |
| To Balance c/d | 35,000 | By Statement of Profit and Loss | 40,000 |
| 60,000 | 60,000 | ||
(3) Building Account
| Dr. | Cr. | ||
|---|---|---|---|
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 3,00,000 | By Bank A/c (Sale) | 29,000 |
| To Bank A/c (Purchase) | 37,500 | By Loss on Sale of Building A/c (Statement of Profit and Loss) | 2,500 |
| By Depreciation A/c (Balancing Figure) | 6,000 | ||
| By Balance c/d | 3,00,000 | ||
| 3,37,500 | 3,37,500 | ||
Teacher's Note:
1. Only the previous year's proposed dividend (₹30,000) is paid this year; the dividend proposed for 2017-18 is not provided for, so it is neither added back nor shown as an outflow.
2. Depreciation on the building is the balancing figure of the Building Account after recording the purchase, the sale proceeds and the loss on sale.
| Particulars | Note No. | 31st Mar., 2016 (₹) | 31st Mar., 2015 (₹) |
|---|---|---|---|
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 5,00,000 | 4,00,000 | |
| (b) Reserves and Surplus | 1 | 1,80,000 | 1,00,000 |
| 2. Non-current Liabilities | |||
| (a) Long-term Borrowings | 2 | 1,50,000 | 2,00,000 |
| 3. Current Liabilities | |||
| (a) Trade Payables | 3 | 1,35,000 | 1,20,000 |
| (b) Other Current Liabilities | 65,000 | 55,000 | |
| Total | 10,30,000 | 8,75,000 | |
| II. ASSETS | |||
| 1. Non-current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | 4 | 9,30,000 | 6,20,000 |
| (ii) Intangible Assets | 5 | 50,000 | 70,000 |
| 2. Current Assets | |||
| (a) Inventories | 20,000 | 1,40,000 | |
| (b) Trade Receivables | 20,000 | 10,000 | |
| (c) Cash and Cash Equivalents | 10,000 | 35,000 | |
| Total | 10,30,000 | 8,75,000 |
| Particulars | 31st Mar., 2016 (₹) | 31st Mar., 2015 (₹) |
|---|---|---|
| 1. Reserves and Surplus | ||
| General Reserve | 1,80,000 | 1,00,000 |
| 2. Long-term Borrowings | ||
| 12% Debentures | 1,50,000 | 2,00,000 |
| 3. Trade Payables | ||
| Creditors | 60,000 | 40,000 |
| Bills Payable | 75,000 | 80,000 |
| 1,35,000 | 1,20,000 | |
| 4. Tangible Assets | ||
| Land and Building | 8,00,000 | 5,00,000 |
| Machinery | 1,30,000 | 1,20,000 |
| 9,30,000 | 6,20,000 | |
| 5. Intangible Assets | ||
| Goodwill | 50,000 | 70,000 |
| Particulars | ₹ | ₹ |
|---|---|---|
| I. Cash Flow from Operating Activities: | ||
| Profit for the year (Transferred to General Reserve) | 80,000 | |
| Add: Adjustments for: | ||
| Goodwill written off | .......... | |
| Interest on Long-term Borrowings [Debentures (12% of 2,00,000)] | .......... | |
| .......... | 1,24,000 | |
| Add: Increase in Current Liabilities: | ||
| Creditors | .......... | |
| Outstanding Expenses | .......... | |
| Decrease in Current Assets: | ||
| Inventories | 1,20,000 | 1,50,000 |
| .......... | ||
| Less: Decrease in Current Liabilities: | ||
| Bills Payable | (5,000) | |
| Increase in Current Assets: | ||
| Debtors | .......... | (15,000) |
| Net Cash from Operating Activities (A) | .......... | |
| II. Cash Flow from Investing Activities: | ||
| Purchase of Tangible Asset (Land and Building) | .......... | |
| Purchase of Tangible Asset (Machinery) | (10,000) | |
| Net Cash used in Investing Activities (B) | .......... | |
| III. Cash Flow from Financing Activities: | ||
| Issue of Equity Share Capital | 1,00,000 | |
| Redemption of Long-term Borrowings (Debentures) | .......... | |
| Interest on Long-term Borrowings (Debentures) | .......... | |
| Net Cash from Financing Activities (C) | .......... | |
| IV. .......... (A + B + C) | (25,000) | |
| V. .......... | .......... | |
| VI. .......... | .......... |
Answer:
Cash Flow Statement for the year ended 31st March, 2016
| Particulars | ₹ | ₹ |
|---|---|---|
| I. Cash Flow from Operating Activities: | ||
| Profit for the year (Transferred to General Reserve) | 80,000 | |
| Add: Adjustments for: | ||
| Goodwill written off | 20,000 | |
| Interest on Long-term Borrowings [Debentures (12% of 2,00,000)] | 24,000 | |
| Operating profit before working capital changes | 1,24,000 | |
| Add: Increase in Current Liabilities: | ||
| Creditors | 20,000 | |
| Outstanding Expenses | 10,000 | |
| Decrease in Current Assets: | ||
| Inventories | 1,20,000 | 1,50,000 |
| 2,74,000 | ||
| Less: Decrease in Current Liabilities: | ||
| Bills Payable | (5,000) | |
| Increase in Current Assets: | ||
| Debtors | (10,000) | (15,000) |
| Net Cash from Operating Activities (A) | 2,59,000 | |
| II. Cash Flow from Investing Activities: | ||
| Purchase of Tangible Asset (Land and Building) | (3,00,000) | |
| Purchase of Tangible Asset (Machinery) | (10,000) | |
| Net Cash used in Investing Activities (B) | (3,10,000) | |
| III. Cash Flow from Financing Activities: | ||
| Issue of Equity Share Capital | 1,00,000 | |
| Redemption of Long-term Borrowings (Debentures) | (50,000) | |
| Interest on Long-term Borrowings (Debentures) | (24,000) | |
| Net Cash from Financing Activities (C) | 26,000 | |
| IV. **Net Decrease in Cash and Cash Equivalents (A + B + C) | (25,000) | |
| V. **Cash and Cash Equivalents in the beginning | 35,000 | |
| VI. **Cash and Cash Equivalents at the end | 10,000 |
The missing figures are shown in bold.
Teacher's Note:
1. Each blank can be checked from the Balance Sheet: Goodwill fell by ₹20,000 (written off), Creditors rose by ₹20,000, Other Current Liabilities rose by ₹10,000 and Debtors rose by ₹10,000.
2. Interest on debentures is calculated on the opening ₹2,00,000 because the debentures are taken as redeemed at the end of the year.
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