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Cash Flow Statement IPCC Paper 1/2: Accounting/Financial Management Chapter 2-Unit 2: Cash Flow Statement
1
CA. Pankaj Goel
MCQ - Fill in the Blanks 2
MCQ: Fill In The Blanks - 1 While calculating cash from operating activities .................. are added. • • • •
Decrease in current assets Increase in debtors Decrease in current liabilities All the above.
Ans: a
3
MCQ: Fill In The Blanks - 2
Cash from operation will increase due to .......................... • • • •
a) Decrease in current assets b) Increase in current liabilities c) Neither of the two d) both (a) and (b) above
Ans: d
4
MCQ: Fill In The Blanks - 3
Inflow of cash will take due to ........................ • • • •
a) issue of shares b) Decrease in current assets c) Increase in the value of land d) Payment of tax
Ans: a
5
MCQ: Fill In The Blanks - 4
Cash from operating activities consists of ....................... • • • •
a) b) c) d)
Operational net profit Decrease in current assets increase in current liabilities all the above
Ans: d
6
MCQ – True/ False Questions 7
True/ False Questions Cash flow statement is based upon accrual basis of accounting. • False
Cash paid to employees is shown under cash flows from Operating activities. • True
Increase in the value of fixed assets will increase cash in the business. • False
Outflow of cash will take place if debentures are issued. • False 8
True/ False Questions Provision for taxes may be treated as both current and non-current liabilities • True
Cash flow statement closes by the disclosing the closing balance of cash. • True
Cash flow statement forecasts outflow of cash only. • False
Depreciation is non-cash charge. • True
9
Illustration 1 10
Problem Statement Harish Ltd. gives you the following information for the year ended 31st March, 2006: Prepare CFS as per Indirect Method 1. Sales for the year totaled Rs. 96,00,000. The company sells goods for cash only 2. Cost of goods sold was 60% of sales. 3. Closing inventory was higher than opening inventory by Rs. 43,000. Trade creditors on 31st March, 2001 exceeded those on 31st March, 2000 by Rs. 23,000. 11
Contd: 4.
PBT 1380000,Tax Paid 700000,Dep on fixed assets for the year was Rs. 3,15,000 whereas other expenses totaled Rs. 21,45,000.
5.
Outstanding expenses on 31st March, 2000 and 31st March, 2001 totaled Rs. 82,000 and Rs. 91,000 respectively.
6.
New machinery and furniture costing Rs. 10,27,500 in all were purchased.
7.
A rights issue was made of 50,000 equity shares of Rs. 10 each at a premium of Rs. 3 per share. The entire money was received with applications.
8.
Dividends and corporate dividend tax totalling Rs. 4,07,000 were paid. Cash in hand and at bank as at 31st March, 2000 totaled Rs. 2,13,800 12
Solution-1 Cash Flow Statement For the Year Ended 31 March 2006 (A) Cash Flows from Operating Activities Net profit before tax
Rs.
Rs.
13,80,000
Adjustment for: Depreciation
3,15,000
Operating profit before Working Capital changes 16,95,000 Increase in inventory Increase in trade creditors Increase in outstanding expenses Cash generated from operations Tax paid Net cash from operating activities
(43,000) 23,000 9,000 16,84,000 7,00,000 9,84,000
( 13
Contd: Cash flows from Investing Activities Purchase of fixed assets
(10,27,500)
Net cash used in investing activities
(10,27,500)
(C) Cash Flows from Financing Activities Issue of Equity Share Capital (Including premium)6,50,000 Dividends and Corporate Dividend Tax
(4,07,000)
Net cash generated from financing activities
2,43,000
Net increase in cash and cash equivalents (A + B + C)
1,99,500
Cash and cash equivalents on 31-3-2005
2,13,800
Cash and cash equivalents on 31-3-2006
4,13,300
14
Illustration 2 15
Problem Statement •From the following condensed comparative Balance Sheets of Jatin Ltd. And additional information, prepare a Cash Flow for the year 2006. Liabilities
2005 Rs.
2006 Assets Rs.
Share Capital Security Premium
70,000 80,000 Plant & Machinery 9,000 11,000 Accumulated
Retained earnings
23,820 30,820 Depreciation on
2005
2006
Rs.
Rs.
62,000 66,000
7% Mortgage loan — 20,000 plant and machinery(37,000)(26,200) Creditors 6,900 6,000 Building 95,000 1,16,000 Outstanding salaries 2,000 1,400 Accumulated Provision for taxation 1,000
1,400 depreciation on building( 43,000) (45,000) Land 10,000 12,000 Stock 10,220 9,620 Debtors 8,600 7,600 Prepaid expenses 720 800 Cash 6,180 9,800 1,12,720 1,50,620 1,12,720 1,50,620
16
Contd: 1.
2.
3. 4.
Additional information : Plant costing Rs. 16,000 (accumulated depreciation Rs. 14,800) was sold during the year for Rs. 1,200. Building was acquired during the year at a cost of Rs. 21,000. In addition to cash payment of Rs. 1,000, a 7% mortgage loan was raised for the balance. Dividend of Rs. 8,000 was paid during the year. A sum of Rs. 13,900 was transferred to provision for taxation account in 2006.(ICAI) 17
Solution-2 Cash Flow Statement For The Year Ending 31 December 2006 Rs. Rs. (A) Cash Flows from Operating Activities Net profit before tax 28,900 Adjusted for : Depreciation on : Building 2,000 Plant 4,000 6,000 Operating profit before working capital changes 34,900 Decrease in stock 600 Decrease in debtors 1,000 Decrease in creditors (900) Decrease in outstanding salaries (600) Increase in prepaid expenses (80) Cash generated from opertations 34,920 Income tax paid (13,500) Net cash generated from operations 21,420
(
18
Contd: (B) Cash Flows from Investing Activities Purchase of Building Purchase of Plant and Machinery Purchase of Land Sale of plant Net cash used in Investing Activities (C) Cash Flows from Financing Activities Issue of Shares Capital Security Premium Dividends paid Net cash from financing activities Net increase in cash (A + B + C) Cash in the beginning Cash at the end
(1,000) (20,000) (2,000) 1,200 (21,800) 10,000 2,000 (8,000) 4,000 3,620 6,180 9,800
Significant Non-cash Transaction : Purchase of building by issuing 7% of Mortgage Loan. Note : It is presumed that 7% Mortgage Loan consists of issue of debentures or bonds.
19
Working Notes Retained Earnings Account Dividend paid Balance c/d
Rs. Rs. 8,000 Balance b/d 23,820 30,820 Profit during the year (Balancing Figure)15,000 38,820 38,820 Plant and Machinery Account
Rs. Rs. Balance b/d 62,000 Sale of plant 1,200 Bank-Purchase (Balancing Figure)20,000Depreciation on plant sold14,800 Balance c/d 66,000 82,000 82,000 Accumulated Depreciation on Plant & Machinery Account Plant (Depreciation) Balance c/d
Rs. Rs. 14,800 Balance b/d 37,000 26,200 Profit and Loss Account(Depreciation) 4,000 41,000 41,000
20
Contd: Building Account Rs. Balance b/d 95,000 Cash (Purchase) 1,000 Mortgage Loan (Purchase) 20,000 1,16,000
Balance c/d
Rs. 1,16,000
1,16,000
Accumulated Depreciation on Building Account Balance c/d
Rs. 45,000
Rs. Balance b/d 43,000 Profit and Loss Account(Depreciation) 2,000
45,000 45,000 Provision for Taxation Account Rs. Income tax paid (Balancing Figure)13,500 Balance b/d Balance c/d 1,400 Profit and Loss Account
14,900
Rs. 1,000 13,900
(provision during the year) 14,900
21
Illustration 3 22
Problem Statement The balance sheets of a Sandeep limited company as at 31 March 2008 and 31 March 2009 Note No 1: 07-08 08-09 Reserves 48,000 50,000
Land & Buildings 1,48,000 1,44,250 Profit & Loss Account 39,690 41,220 Plant & Machinery 1,12,950 1,16,200
23
Contd:
24
Contd: The following additional information is available from the books: 1. During the year ended 31-3-2009 an interim dividend of Rs. 26,000 and final dividend of Rs. 54,000 were paid. 2. The assets of another company were purchased for Rs.60,000 payable in fully paid shares of the company. These assets consisted of stock Rs. 22,000 and machinery Rs. 29,000. In addition sundry purchases of plant were made totalling Rs. 6,000. 3. Income-tax paid during 2009 was Rs. 25,000.
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Soluion-3 Cash Flow Statement for Victors Computers Ltd. For the year Ending 31 March 2009 Cash Flow from Operating Activities
Difference in profit between 31 March 2008 and 31 March 2009
Rs.
Rs.
1,530
Adjustments for: Depreciation
35,500
Provision for tax
34,000
Reserves
2,000
Dividends (26,000 + 54,000)
80,000
Operating profit before tax and working capital changes
1,53,030
Decrease in Sundry Debtors
12,550
Decrease in Stock (1,09,040 + 22,000 – 97,370)
33,670
Increase in Sundry Creditors
2,125
Decrease in Bills Payable
(22,255)
Cash generated from operations
1,79,120
Income tax paid
(25,000)
Net cash from operating activities
1,54,120
26
Contd: Cash from Investing Activities Purchase of Plant
(6,000)
Purchase of Goodwill
(10,000)
Decrease in advances [Para 15 (e) AS‐3 (Revised)]
1,580
Net Cash used in investing activities
Repayment of Bank Overdraft
(60,000)
Dividends Paid
(80,000)
(14,420)
Cash Flows from Financing Activities
Net cash used in financing activities
(1,40,000)
Net decrease in cash and cash equivalents (A + B + C)
(300)
Cash and cash equivalents at the beginning
3,000
Cash and cash equivalents at the end
2,700
27
Illustration 4 28
Problem Statement
The following figures have been extracted from the Books of Nikhil Limited for the year ended on 31.3.2004. You are required to prepare a cash flow statement
Net profit before taking into account income tax and income from law suits but after taking into account the following items was Rs. 20 lakhs:
(a) Depreciation on Fixed Assets Rs. 5 lakhs. (b) Discount on issue of Debentures written off Rs. 30,000. (c) Interest on Debentures paid Rs. 3,50,000. (d) Book value of investments Rs. 3 lakhs (Sale of Investments for Rs. 3,20,000). (e) Interest received on investments Rs. 60,000. ( f) Compensation received Rs. 90,000 by the company in a suit filed. (ii) Income tax paid during the year Rs. 10,50,000. (iii)15,000, 10% preference shares of Rs. 100 each were redeemed on 31.3.2004 at a premium of 5%. Further the company issued 50,000 equity shares of Rs. 10 each at a premium of 20% on 2.4.2003. Dividend on preference shares were paid at the time of redemption 29
Contd: Dividends paid for the year 2002-2003 Rs. 5 lakhs and interim dividend paid Rs. 3 lakhs for the year 2003-2004. (v) Land was purchased on 2.4.2003 for Rs. 2,40,000 for which the company issued 20,000 equity shares of Rs. 10 each at a premium of 20% to the land owner as consideration (vi) Current assets and current liabilities in the beginning and at the end of the years were as detailed below:
30
Contd:
Stock Sundry Debtors Cash in hand Bills receivable Bills payable Sundry Creditors Outstanding expenses
As on 31.3.2003 Rs. 12,00,000 2,08,000 1,96,300 50,000 45,000 1,66,000 75,000
As on 31.3.2004 Rs. 13,18,000 2,13,100 35,300 40,000 40,000 1,71,300 81,800
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Solution Cash Flow Statement for the year ended 31st March, 2004 Rs. Rs. Cash flow from Operating Activities Net profit before income tax and extraordinary items: 20,00,000 Adjustments for: Depreciation on fixed assets 5,00,000 Discount on issue of debentures 30,000 Interest on debentures paid 3,50,000 Interest on investments received (60,000) Profit on sale of investments (20,000) 8,00,000 Operating profit before working capital changes 28,00,000
32
Contd: Adjustments for: Increase in stock Increase in sundry debtors Decrease in bills receivable Decrease in bills payable Increase in sundry creditors Increase in outstanding expenses
(1,18,000) (5,100) 10,000 (5,000) 5,300 6,800 (1,06,000)
Cash generated from operations 26,94,000 Income tax paid Cash flow from extraordinary items: Compensation received in a suit filed Net cash flow from operating activities
(10,50,000) 16,44,000
90,000 17,34,000
33
Contd: Cash flow from Investing Activities Sale proceeds of investments Interest received on investments Net cash flow from investing activities Cash flow from Financing Activities Proceeds by issue of equity shares at 20% premium Redemption of preference shares at 5% premium Preference dividend paid Interest on debentures paid Dividend paid (5,00,000 + 3,00,000) Net cash used in financing activities Net decrease in cash and cash equivalents during the year Add: Cash and cash equivalents as on 31.3.2003 Cash and cash equivalents as on 31.3.2004
3,20,000 60,000 3,80,000 6,00,000 (15,75,000) (1,50,000) (3,50,000) (8,00,000) (22,75,00 0) (1,61,000) 1,96,300 35,300
N
34
Illustration 5 35
Problem Statement 1. Presented below is the comparative balance sheets for Ashna Ltd. at 31 March : 2006
2005
Rs.
Rs.
Cash
40,000
57,000
Accounts Receivable
77,000
64,000
Inventory Prepaid expenses
1,32,000 1,40,000 12,140
16,540
Land
1,25,000 1,50,000
Equipment
2,00,000 1,75,000
Accumulated Depreciation-Equipment
(60,000)
Building
2,50,000 2,50,000
Accumulated Depreciation-Building
(75,000)
(42,000)
(50,000)
7,01,140 7,60,540 Accounts Payable
33,000
45,000
Bonds Payable
2,35,000 2,65,000
Equity Share Capital (Rs. 10 shares)
2,80,000 2,50,000
Retained Earnings
1,53,140 2,00,540
36
Contd: Additional information : 1.
Operating expenses include depreciation expense of Rs. 70,000 and amortization of prepaid expenses of Rs. 4,400.
2.
Land was sold for cash at book value.
3.
Cash dividends of Rs. 74,290 were paid.
4.
Net income for 2006 was Rs. 26,890.
5.
Equipment was purchased for Rs. 65,000 cash. In addition equipment costing Rs. 40,000 with a book value of Rs. 13,000 was sold for Rs. 15,000 cash.
6.
Bonds were redeemed at face value by issuing 3,000 equity shares of Rs. 10 at par.
Prepare a statement of cash flows for 2006 using the indirect method [AS-3 (Revised)]
37
Solution AshnaLtd.
Cash Flows Statement For the Year Ended 31 December 2006 [AS-3 (Revised)] (Indirect Method) (A)Cash Flows from Operating Activities Net Income 26,890 Adjustments for : Depreciation 70,000 Amortization of prepaid expenses 4,400 Gain on sale of equipment (2,000) Operating profit before working capital changes 99,290 Increase in Accounts Receivable (13,000) Decrease in Inventories 8,000 Decrease in Accounts Payable (12,000) Net cash from operating activities 82,290 38
Contd: (B) Cash
Flows from Investing Activities Sale of Land Sale of Equipment Purchase of Equipment Net cash used in investing activities
25,000 15,000 (65,000) (25,000)
39
Contd:
(C) Cash
Flows from Financing Activities
Dividends Paid
(74,290)
Net cash used in financing activities
(74,290)
Net decrease in cash and cash equivalents (A + B + C)
(17,000)
Cash and cash equivalents at the beginning of the period
57,000
Cash and cash equivalents at the end of the period 40,000 Note: Significant Non-cash Transaction-Redemption of Bonds in exchange for Equity Share Capital Rs. 30,000
40
Working Notes Equity Share Capital Account Rs. Rs. Balance c/d2,80,000 Balance b/d 2,50,000 Bonds Payable Account 30,000 2,80,000 2,80,000
Bonds Payable Accounts Rs. Rs. Balance c/d2,65,000 Balance b/d Equity Share Capital Account 2,65,000
2,35,000 30,000 2,65,000
41
Illustration 6 42
Problem Statement(PCC-Nov 2007) J Ltd. presents you the following information for the year ended 31st March, 2007: (Rs. in lacs) (i)
Net profit before tax provision
36,000
(ii)
Dividend paid
10,202
(iii)
Income-tax paid
(iv)
Book value of assets sold Loss on sale of asset
(v)
Depreciation debited in P & L account
(vi)
Capital grant received - amortized in P & L A/c
(vii)
Book value of investment sold Profit on sale of investment
5,100 222 48 24,000 10 33,318 120
43
Contd: (viii)
Interest income from investment credited in P & L A/c
3,000
(ix)
Interest expenditure debited in P & L A/c
12,000
(x)
Interest actually paid (Financing activity)
13,042
(xi)
Increase in working capital
67,290
[Excluding cash and bank balance] (xii)
Purchase of fixed assets
22,092
(xiii)
Expenditure on construction work
41,688
(xiv)
Grant received for capital projects
(xv)
Long term borrowings from banks
(xvi)
Provision for Income-tax debited in P & L A/c Cash and bank balance on 1.4.2006 Cash and bank balance on 31.3.2007
You are required to prepare a cash flow statement as per AS‐3 (Revised).
18 55,866
6,000 6,000 8,000 44
Solution Cash Flow Statement For the Year Ending 31 March 2006 (A) Cash Flows from Operating Activities Net profit before tax Adjustments for: Depreciation Loss on sale of asset Amortization of Government Grant Profit on sale of investment Interest received Interest paid Operating profit before working capital changes Increase in working capital Cash from operations Tax Paid Net cash used in operating activities
Rs. (in Lakhs) 36,000
Rs.(in Lakhs)
24,000 48 (10) (120) (3,000) 12,000 68,918 (67,290) 1,628 (5,100) (3,472)
45
Contd: (B) Cash Flows from Investing Activities Purchase of fixed assets Interest income Sale of investment (33,318 + 120) Sale of asset (222 – 48) Expenditure on Capital Project Net cash used in investing activity (C) Cash Flows form Financing Activity Dividend Paid Grant Received Interest Paid Long term Borrowing Net Cash provided from financing activity Net increase in cash and cash equivalents (A + B + C) Cash and cash equivalents at the beginning Cash and cash equivalents at the end
(22,092) 3,000 33,438 174 (41,688) (27,168) (10,202) 18 (13,042) 55,866 32,640 2,000 6,000 8,000
46
Illustration 7 47
Problem Statement (PCC-June 2009) From the following summarised Cash account of S Ltd., prepare cash flow statement for the year ended 31st March, 2009 in accordance with AS 3 (revised) using direct method. Summarised Cash Account Opening balance Issue of share capital Received from customers Sale of fixed assets
(Rs.000) 50 300 2,800 100
3,250
Payment to suppliers Purchase of fixed assets Overhead expenses Wages and salaries Tax paid Dividend paid Bank loan Closing balance
(Rs.000) 2,000 200 200 100 250 50 300 150 3,250
48
Solution 7
Cash Flow Statement for the year ended 31.3.2009 Cash flow from Operating Activities Rs. in ‘000
Cash received from customers Less:Cash paid to suppliers Cash paid for overhead expenses Cash paid for wages and salaries Less:Income tax paid Net cash generated from Operating Activities
2,800 2,000 200 100 2,300 500 250 250
49
Contd: Cash flow from Investing Activities Sale of fixed assets
100
Less:Purchase of fixed assets
(200)
Net cash used in Investing Activities
(100)
Cash flow from Financing Activities Received from issue of share capital
300
Less: Payment of bank loan
(300)
Payment of dividend
50
350
Net cash used in Financing Activities
(50)
Net increase in cash and equivalents
100
Add:Cash and equivalents at the beginning of the year
50
Cash and equivalents at the end of the year
150
50
THANK YOU