APS INSTITUTE

ACCOUNTS
CLASS-XII
CHAPTER 6 CASH FLOW STATEMENT

1. What is a cash flow statement?

A financial statement that represents the inflow and outflow of cash and cash
equivalents of a company is called a cash flow statement. It shows how well a
company can manage its cash position and generates enough cash to pay the
obligations in the form of debt and also run the operational expenses.

2. State the uses of the cash flow statement.

The following are the uses of the cash flow statement:

i. Useful for evaluating the cash position of a firm

ii. Helpful in finding deficiencies and variations in firms’ performance which helps
in effective decision making

iii. It helps in the assessment of the liquidity of a company

iv. It analyses cash receipts and payments from the various activities of a
company and helps in short-term planning

v. It helps in segregating cash flows obtained from the various activities of the
business

vi. It helps in providing decisions about the distribution of profit.

vii. It is useful for short-term financial analysis

3. What are the objectives of preparing a cash flow statement?

The following are the objectives of preparing a cash flow statement:

i. To determine the inflow and outflow of cash and the cash equivalents obtained
from different kinds of activities.

ii. To seek out various reasons responsible for the change in cash balances
during the accounting period
 iii. It helps in depicting the position of the company in terms of liquidity and
solvency

iv. It also helps in determining the requirement and the corresponding availability
of cash for business in future.

4. State the meaning of the terms: Cash Equivalents, Cash flows.

Cash equivalents are investments that are highly liquid in nature and do not
change value easily. Cash equivalents are essential for managing short-term
cash requirements or any such investments. For example, treasury bills.

Cash Flows: It is the inflow and outflow of cash and cash equivalents. Cash inflows
boost cash balance, and cash outflow has a negative impact on cash balance

5. From the following particulars of Bharat Gas Limited, calculate cash

flows from investing activities. Also, show the workings clearly
preparing the ledger accounts:

Balance Sheet of Bharat Gas Ltd. as on 31 Mar. 2016 and 31 Mar. 2017

Particulars Note No. Figures as the end of 2017 Figures as at the

(₹) end of reporting 2016
(₹)

II) Assets

1. Non-current Assets

a) Fixed assets

i) Tangible assets 1 12,40,000 10,20,000

ii) Intangible assets 2 4,60,000 3,80,000

b) Non-current investments 3 3,60,000 2,60,000

Notes 1 Tangible assets = Machinery

2 Intangible assets = Patents

Notes

Figures of the current year Figures of the previous year

1. Tangible Assets

Machinery 12,40,000 10,20,000

2. Intangible Assets

Goodwill 3,00,000 1,00,000

Patents 1,60,000 2,80,000

4,60,000 3,80,000

3. Non-current Investments

10% long-term investments 1,60,000 60,000

Investment in land 1,00,000 1,00,000

Shares of Amartex Ltd. 1,00,000 1,00,000

3,60,000 2,60,000

Additional Information:

(a) Patents were written off to the extent of ₹. 40,000, and some patents were
sold at a profit of ₹. 20,000.

(b) A machine costing ₹ 1,40,000 (Depreciation provided thereon ₹ 60,000) was

sold for ₹ 50,000. Depreciation charged during the year was ₹ 1,40,000.

(c) On March 31, 2016, 10% of investments were purchased for ₹ 1,80,000, and
some investments were sold at a profit of ₹ 20,000. Interest on investment was
received on March 31, 2017.

(d) Amartax Ltd. paid dividends @ 10% on its shares.

(e) A plot of land had been purchased for investment purposes and let out for
commercial use, and rent received ₹ 30,000.

Cash Flow from Investing Activities

Particulars Amount Amount

₹
₹
Cash Inflow
 Proceeds from Sale of Patents 1,00,000
Proceeds from Sale of Machinery 50,000
Proceeds from Sale of 10% Long-term Investment 1,00,000
Interest received on 10% Long-term Investment 6,000
Dividend Received from Amartax Ltd. 10,000
Rent Received 30,000 2,96,000
Cash Outflow
Purchase of Goodwill (2,00,000)
Purchase of Machinery (4,40,000)
Purchase of 10% Long-term Investment (1,80,000) (8,20,000)
Net Cash used in Investing Activities (5,24,000)

Patents Account

Dr. Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount

₹
₹
Balance b/d 2,80,000 Profit and Loss (written off) 40,000
Profit and Loss (Profit on sale) 20,000 Bank (sale- Balancing figure) 1,00,000
Balance c/d 1,60,000
3,00,000 3,00,000

Machinery Account

Dr. Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount

₹
₹
Balance b/d 10,20,000 Depreciation 1,40,000
Bank (Purchases- Balancing figure) 4,40,000 Bank 50,000
Profit and Loss 30,000
Balance c/d 12,40,000
14,60,000 14,60,000

10% Long-term Investment Account

Dr. Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount

₹
₹
Balance b/d 60,000 Bank (Balancing figure) 1,00,000
Bank 1,80,000
 Profit and Loss (Profit on sale) 20,000 Balance c/d 1,60,000
2,60,000 2,60,000

6. From the following Balance Sheet of Mohan Ltd., prepare the cash flow
Statement.

Balance Sheet of Mohan Ltd.,

as on 31st March 2016 and 31 March 2017

Particulars Note No. March 31, 2017 March 31, 2016

(₹) (₹)

I) Equity and Liabilities

1. Shareholders’ Funds

a) Equity share capital 3,00,000 2,00,000

b) Reserves and surplus 2,00,000 1,60,000

2. Non-current liabilities

a) Long-term borrowings 1 80,000 1,00,000

3. Current liabilities

Trade payables 1,20,000 1,40,000

Short-term provisions 2 70,000 60,000

Total 7,70,000 6,60,000

II) Assets

1. Non-current assets

Fixed assets 3 5,00,000 3,20,000

2. Current assets

a) Inventories 1,50,000 1,30,000

b) Trade receivables 4 90,000 1,20,000

c) Cash and cash equivalents 5 30,000 90,000

Total 7,70,000 6,60,000

Notes to accounts:

2017 2016

1. Long-term borrowings

Bank Loan 80,000 1,00,000

2. Short-term provision

Proposed dividend 70,000 60,000

3. Fixed assets 6,00,000 4,00,000

Less: Accumulated Depreciation 1,00,000 80,000

(Net) Fixed Assets 5,00,000 3,20,000

4. Trade receivables

Debtors 60,000 1,00,000

Bills receivables 30,000 20,000

90,000 1,20,000

5. Cash and cash equivalents

Bank 30,000 90,000

Additional Information:

Machine Costing ₹ 80,000 on which accumulated depreciation was ₹ 50,000

was sold for ₹ 20,000.

The solution to this question is as follows:

Cash Flow Statement of Mohan Ltd.

Particulars Amount Amount

₹
₹
A. Cash Flow from Operating Activities
 Profit as per the Balance Sheet (2,00,000 – 1,60,000) 40,000
Proposed Dividend 70,000
Net Profit before Taxation and Extraordinary items 1,10,000
Adjustments:
Depreciation 70,000
Loss on Sale of Machine 10,000 80,000
Operating Profit before Working Capital changes 1,90,000
Add: Decrease in Current Assets
Debtors 40,000 40,000
2,30,000
Less: Increase in Current Assets
Inventories (20,000)
Bills Receivable (10,000)
Less: Decrease in Current Liabilities
Trade Payables (20,000) (50,000)
Net Cash from Operations 1,80,000
B. Cash Flow from Investing Activities
Proceeds from Sale of Fixed Assets 20,000
Purchases of Fixed Assets (2,80,000)
Net Cash Outflow from Investing Activity (2,60,000)
C. Cash Flow from Financing Activities
Issue of Shares 1,00,000
Bank Loan Paid (20,000)
Dividend Paid (60,000)
Net Cash from Financing Activities 20,000
D. Net Decrease in Cash and Cash Equivalents (A+B+C) (60,000)
Add: Cash and Cash Equivalents in the beginning 90,000
E. Cash and Cash equivalents at the end 30,000

Fixed Assets Account

Dr. Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount

₹
₹
Balance b/d 4,00,000 Bank 20,000
Bank (Purchases- Balancing fig.) 2,80,000 Profit and Loss 10,000
Accumulated Depreciation 50,000
Balance c/d 6,00,000
6,80,000 6,80,000

Accumulated Depreciation Account

Dr. Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount

₹
₹
Fixed Assets 50,000 Balance b/d 80,000
Balance c/d 1,00,000 Profit and Loss (Balance fig.) 70,000
1,50,000 1,50,000

7.From the following information, prepare a cash flow statement.

Particulars Note No. 31st March 31st March

2015 2014
(₹) (₹)

I) Equity and Liabilities

1. Shareholders’ Funds

a) Share capital 7,00,000 5,00,000

b) Reserves and surplus 4,70,000 2,50,000

2. Non-current Liabilities

(8% Debentures) 4,00,000 6,00,000

3. Current Liabilities

a) Trade payables 9,00,000 6,00,000

Total 24,70,000 19,50,000

II) Assets

1. Non-current assets

a) Fixed assets

i) Tangible 7,00,000 5,00,000

ii) Intangible-Goodwill 1,70,000 2,50,000

2. Current assets

a) Inventories 6,00,000 5,00,000

b) Trade Receivables 6,00,000 4,00,000

c) Cash and cash equivalents 4,00,000 3,00,000

Total 24,70,000 19,50,000

Additional Information:

Depreciation Charge on the plant amount to ₹ 80,000.

SOLUTION:

Cash Flow Statement

for the year ending March 31, 2015

Particulars Details Amount
(₹) (₹)
A. Cash from Operating Activities
Net Profit 2,20,000
Items to be Added:
Interest on Debentures 48,000
Depreciation on Fixed Assets 80,000
Goodwill Written-off 80,000 2,08,000
Operating Profit before Working Capital 4,28,000
Adjustments
Add: Increase in Current Liabilities
Creditors 3,00,000
Less: Increase in Current Assets
Inventories (1,00,000)
Trade Receivables (2,00,000) –
Cash Generated from Operations 4,28,000
Less: Tax Paid –
Net Cash From Operating Activities 4,28,000
B. Cash From Investing Activities
Purchase of Fixed Assets (WN) (2,80,000)
Net Cash From Investing Activities (2,80,000)
C. Cash From Financing Activities
Issue of Share Capital 2,00,000
 Redemption of Debentures (2,00,000)
Interest Paid on Debentures (48,000) (48,000)
Net Cash From Financing Activities (C) (48,000)
Net Increase in Cash (A + B + C) 1,00,000
Add: Opening Cash and Cash Equivalents 3,00,000
Closing Cash and Cash Equivalents 4,00,000

Working Note:

Fixed Assets Account

Dr. Cr.

Particulars J.F. Amount Particulars J.F. Amount

(₹)
(₹)
Balance b/d 5,00,000 Depreciation 80,000
Purchases (Balancing Figure) 2,80,000 Balance c/d 7,00,000
7,80,000 7,80,000

8. The following is the Profit and Loss Account of Yamuna Limited:

Statement of Profit and Loss of Yamuna Ltd.,

for the Year ended March 31, 2017
Note Amount
Particulars
No. (Rs)
i) Revenue from Operations 10,00,000
ii) Expenses
Cost of Materials Consumed 1 50,000
Purchase of Stock-in-trade 5,00,000
Other Expenses 2 3,00,000
Total Expenses 8,50,000
iii) Profit before Tax (i – ii) 1,50,000

Additional information:
(i) Trade receivables decrease by Rs 30,000 during the year.
(ii) Prepaid expenses increase by Rs 5,000 during the year.
(iii) Trade payables increase by Rs 15,000 during the year.
(iv) Outstanding expenses payable increased by Rs 3,000 during the year.
(v) Other expenses included depreciation of Rs 25,000.
Compute net cash from operations for the year ended March 31, 2017 by
the indirect method.
ANSWER:
Cash Flow from Operating Activities of Yamuna Limited as on March 31, 2017
Amount Amount
Particulars Rs Rs

Net Profit earned during the year 1,50,000

Items to be added:
Depreciation 25,000
Operating Profit before Working Capital changes 1,75,000
Add: Increase in Current Liabilities
Outstanding Expenses 3,000
Add: Decrease in Current Assets
Trade Receivables 30,000
Stock 50,000 83,000
Less: Decrease in Current Liabilities
Trade Creditors (15,000)
Less: Increase in Current Assets
Prepaid Expenses (5,000) (20,000)
Net Cash from Operations 2,38,000