Index

S.L NO Contents

1. Acknowledgement

2. Meaning of Cash Flow & Cash Flow Statement

3. Objectives of Cash Flow Statements

4. Question

5. Solution

6. Conclusion

7. Bibliography
Acknowledgement

I would like to express my special thanks of gratitude to my teacher (Name of the teacher) as well as
our principal (Name of the principal) who gave me the golden opportunity to do this wonderful project
on the topic (Write the topic name), which also helped me in doing a lot of Research and I came to
know about so many new things I am really thankful to them.

Secondly, I would also like to thank my parents and friends who helped me a lot in finalizing this
project within the limited time frame.
Meaning of cash flow and cash flow
statement

Balance sheet (or position statement) and statement of profit and loss (or income statement) of a
company do not give information about inflows and outflows of cash during an accounting period. It
is cash flow statement which gives information of cash flow of an enterprise for the accounting period.

Cash flow is movement of cash and cash equivalents, i.e., inflow and outflow of cash and cash
equivalents. Transactions that lead to increase in cash and cash equivalents are classified, i.e., shown
as inflow and transactions that lead to its decrease are classified, i.e., shown as outflow.

Cash and cash equivalents include cash on hand, balance with bank, short- term investments and
marketable securities. Thus,

Cash and cash equivalents = cash on hand + balance with bank + marketable securities + short-term
investments.

Cash flow statement, prepared as per accounting standards-3 [AS- 3 (Revised)] Cash flow statement,
is a statement that shows inflow and outflow of cash and cash equivalents during the period under
report, from:

1. Operating activities;
2. Investments activities; and
3. Financing activities.
Objective of cash flow statement

The objectives of preparing cash flow statement are:

• To show cash and cash equivalents generated, i.e., inflow under each activity (i.e., operating /
investing / financing activity) by the enterprise.
• To show cash and cash equivalents used, i.e., outflow under each activity (i.e., operating /
investing / financing activity) by the enterprise.
• To show net charge in cash and cash equivalents, i.e., the difference between inflow and outflow
under three activities between the two balance sheet dates.
Particulars Note 31st March 31st March
No. 2020 2019

I. EQUITY & Liabilities

1. Shareholders ‘Funds 1
(a) Share Capital 3,50,000 3,00,000
(b) Reserves & Surplus 70,000 50,000
2. Non- Current Liabilities
Long-term Borrowings (12% Debentures) 80,000 1,00,000
3. Current Liabilities
(a) Short-term Borrowings (Bank Loan) 15,000 25,000
(b) Trade Payables 1,65,000 60,000

Total 6,80,000 5,35,000

II. Assets
1. Non-Current Assets
(a) Fixed Assets (Tangible) 2 4,10,000 3,00,000
(b) Non-Current Investments 40,000 50,000
2. Current Assets
(a) Inventories 52,000 30,000
(b) Trade Receivables 60,000 50,000
(c) Cash & Bank Balances 118,000 115,000

Total 6,80,000 5,35,000

From the following Balance Sheet of Moon Ltd. at 31st March, 2020, prepare cash flow statement

Notes to Accounts

Particulars 31st 31st

March, March,
2020 2019

1.Reserves and surplus

Capital reserve 2,000 …
General reserve 33,000 20,000
Surplus, i.e., Balance in statement of profit and loss 35,000 30,000

70,000 50,000
2.Fixed Assets- Tangible
Machinery (cost) 4,70,000 3,50,000
Less: Accumulated Depreciation 60,000 50,000
4,10,000 3,00,000

Additional Information:

• During the year, Machinery costing Rs 20,000 (accumulated depreciation thereon

Rs 15,000) was sold for Rs 12,000.
• During the year, non-current Investment were sold at a profit of 20%, which is
transferred to capital reserve.
• Debentures were redeemed at par on 1st April, 2019.
• Tax of 15,000 was paid during the year.
• Interim Dividend paid during the year amounted to Rs 25,000.
Solution:
Moon Ltd

CASH FLOW STATEMENT for the year ended 31st March, 2020

Particulars Amount Amount

A. Cash flow from Operating Activities
Net profit Tax (WN1) 58,000
Add: Non-cash and Non-operating Expenses:
Depreciation on Machinery (WN3) 25,000
Interest on Debenture (12% of Rs 80,000) 9,600
92,600
Less: Gain on Sale of Machinery (WN2) 7,000
Operating profit before Working Capital Changes 85,600
Add: Increase in current liabilities:
Trade Payables 1,05,000
1,90,000
Less: Increase in current asset:
Inventories (Rs 22,000)
Trade Receivables (Rs 20,000) 42,000
Cash Generated from Operations 1,48,600
Less: Tax paid 15,000
Cash flow from Operating activities 1,33,600

B. Cash flow from Investing Activities

Purchase of Machinery (WN2) (1,40,000)
Proceeds from Sale of Machinery 12,000
Proceeds from Sale of Non-current Investment
(WN4) 12,000
Particulars Amount Amount

Cash Used in Investing Activities (116,000)

C. Cash flow from Financing Activities

Cash Proceeds from Issue of shares 50,000
Interim Dividend Paid (25,000)
Redemption of Debentures (20,000)
Interest on Debentures (9,600)
Bank Loan Paid (10,000)
Cash used in Financing Activities (14,600)

D. Net Increase in Cash and Bank Balance (A+B+C) 3,000

E. Cash and bank balances in the beginning of the period 1,15,000
F. Cash and bank balances at the end of the period (D+F) 1,18,000
Working notes:

1. Calculation of Net Profit before Tax: Rs

Surplus, i.e., Balance in Statement of Profit and Loss (Closing) 35,000

Less: Surplus, i.e., Balance in statement of Profit and Loss (Operating) 30,000

Profit of the year 5,000

Working notes: Rs

Add: Transfer to General Reserve ( Rs 33,000 – Rs 20,000) 13,000

Provision for Tax 15,000

Interim Dividend Paid 25,000

Net Profit before tax 58,000

2. Dr MACHINERY ACCOUNT Cr

Particulars Amount Particulars Amount

To Balance b/d 3,50,000 By Accumulated Depreciation
To gain on sale of Machinery A/c 15,000
A/c* 7,000 By Bank A/c (sales) 12,000
To Bank A/c 1,40,000 By Balance c/d 4,70,000
4,97,000 4,97,000
 Rs

*Sale value 12,000

Less: Book Value on the dates of sale (Rs 20,000 – Rs 15,000) 5,000

Gain on Sale of Machinery 7,000

3. Dr ACCUMULATED DEPRECIATION ACCOUNT Cr

Particulars Amount Particulars Amount

To Machinery A/c (transfer) 15,000 By Balance b/d 50,000
To Balance c/d 60,000 By Statement of Profit and loss 25,000
75,000 75,000

4. Dr NON- CURRENT INVESTMENTS ACCOUNT Cr

Particulars Amount Particular Amount

To Balance b/d 50,000 By Bank A/c (Sale Value*) 12,000
To Capital Reserve A/c (Gain) 2,000 By Balance c/d 40,000
52,000 52,000
 Cash Flow under Different Business Activities
Particulars RS
Cash Flow from Operating Activities 1,33,600

Cash Used in Investing Activities -1,16,000

Cash Used in Financing Activities -14,600

Cash Flow from Different Business Activities

1,50,000

1,00,000

50,000

0
Cash Fow From Operating Cash Used in Investing Cash Used in Financing
Activities Activities Activities
-50,000

-1,00,000

-1,50,000
Conclusion

The cash flow report is important because it informs the reader of the business cash position. It
needs cash to pay its expenses, to pay bank loans, to pay taxes and to purchase new assets. A
cash flow report determines whether a business has enough cash to do exactly this.

The three categories of cash flows are operating activities, investing activities, and financing
activities. Operating cash flow includes all cash generated by a company’s main business activities.

Investing cash flow includes all purchases of capital assets and investments in other business
ventures.

Financing cash flow includes all proceeds gained from issuing debt and equity as well as payments
made by the company.
Bibliography

I have taken this information from ISC T.S. Grewal's Management Accounting (section B) and from
google.