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UnitͲ3
MODULE
5 CashFlowStatement
PracticalProblems
(WithSolutions)
Steps forsolvingexample:1. AccordingtothequestionpreparedAdj.P&LAccountandother
necessaryAccount.2. Applyalladjustmentsontherespecteditemswhichareconnectedto
theaccounts.3. MarkontheparticulartransactionswhicharegoingtorecordinCFS
also.4. FindoutbalanceforAdj.P&LAccountandallotheraccounts.
5. Now,prepareCFSwithAdj.Profitbeforetaxandafterdepreciation
andnonͲcashitems.6. Identifiedoperatingitemslikechangesinworkingcapitalrecordfirst
Flowfromoperatingactivity.
7. Now,identifiedchangesinfixedassetsandinvestmentsandfindout
8. Finally,checkaboutchangesinfinancingactivitiesandfindout
9. Atlast,maketotalofchangesinallactivitiesandaddedopeningBank
andcashbalance.IllustrationͲ1
Sharecapital
Profit
&lossA/cCreditors
OutstandingExpenses
Provisionfortax
Prov.forDep.onbuilding1,80,000
75,900
1,20,000
12,000
6,00060,0002,22,000
81,900
1,17,000
24,000
6,60066,000FixedAssets:
LandBuilding
Current
Assets:
CashDebtors
StockAdvances24,000
1,80,000
30,000
84,000
1,32,000
3,90048,000
2,88,000
36,000
93,000
48,000
4,5004,53,9005,17,5004,53,9005,17,500
36,000.
ProfitAndLossA/C
Foryearended31.3.06
ParticularRSParticularRS
ToCostofsales
ToWages&salaries
ToGrossprofitc/d
ToOperatingExp.
ToDepreciation
ToProvisionfortax
ToNetprofit
ToproposedDividend
TobalanceCarriedto
balancesheet9,90,0001,20,0001,50,000ByNetsales
ByGrossprofit
ByProfitonsaleofBuilding
ByBalanceb/d
ByNetProfit(transf.)12,60,000
12,60,00012,60,000
40,000
30,000
44,000
42,0001,50,000
6,0001,56,0001,56,000
36,000
81,90075,90042,000
1,17,9001,17,900
Solution:
ProvisionfortaxA/c
ParticularsRsParticularsRs
ToBank(taxpaid)
ToBalancec/d
43,400
6,600ByBalanceb/d
ByP&LA/c.(provision)6,000
44,000
50,00050,000
BuildingA/c
ParticularsRsParticularsRs
ToBalanceb/d
ToP&LA/c.(profitonsale)
ToBank(purchase)1,80,000
6,0001,44,000ByDep.Provisiona/c
ByBank(sale)
ByBalancec/d24,000
18,000
2,88,000
3,30,0003,30,000
DepreciationprovisiononbuildingA/c
ParticularsRsParticularsRs
ToBuildinga/c(dep.)
ToBalancec/d24,00066,000ByBalanceb/d
ByP&LA/c.(current
year'sdep.)60,00030,000
90,00090,000
AdjustedProfitandLossAccount
ParticularsRsParticularsRs
ToProvisionfortax
ToProv.fordep.onbuilding
ToDividendpaid
ToBalancec/d
44,00030,00036,00081,900
ByBalanceb/d
ByProfitonsaleof
buildingByAdj.Profit75,900
6,0001,10,000
1,91,9001,91,900
31.3.06(AsperA.S.Ͳ3)
ParticularsAmount
Rs.Amount
Rs. (1)CashFlowfromOperatingActivities:Add/Less:ChangesinWorkingCapital
- Inc.indebtors(9,000) - Dec.instocks84,000 - Inc.inadvances(600) - Dec.increditors(3,000) - Inc.inOutstandingexpenses12,000Cashflowsfromoperatingactivities1,93,400
Less:TaxPaid43,400
(2)CashFlowfromInvestingActivities: - PurchaseofLand(referquestionassetsside)(24,000) - PurchaseofBuilding(referbuildingA/c.)(1,44,000) - Saleofbuilding(referbuildingA/c.)18,000 (3)CashFlowfromFinancingActivities: - IssuedEquityShares42,000 - Dividendpaid(36,000)NETCASHFLOWFROMALLACTIVITES(A+B+C)6,000
Add:OpeningCashandBankBalance30,000
Closing
CashandBankBalance36,000
Illustration:2
Creditors36,00041,000Cash4,0003,600
Loan fromPartnerͲ20,000Debtor35,00038,400 Loan fromBank30,00025,000Stock25,00022,000Capital1,48,0001,49,000Land20,00030,000
Building50,00055,000
Machinery80,00086,000
2,14,0002,35,0002,14,0002,35,000
During
Prepare
acashflowstatement.Solution:
MachineryAccount
ParticularsRsParticularsRs
ToBalanceb/d
ToProv.fordepreciation
ToBank(purchase)?
80,00027,000
15,000ByProv.fordepreciation
ByBalancec/d
36,000
86,000
1,22,0001,22,000
ParticularRs.Rs.
1.Cashflowsfromoperatingactivities:
Netprofitbeforetax
Adjustmentfordep.
Inc.incurrentliabilities
Inc.indebtor
Decreaseinstock
Netcashfromoperatingactivities
2.Cashflowsfrominvestingactivities
Purchaseofland
Purchaseofbuilding.
Purchaseofmachinery
Netcashfrominvestingactivities
3.Cashflowsfromfinancingactivities:
LoanRepaymentofbankloan
PaymentofDividends
Netcashfromfinancingactivities
NetCashFlowfromallactivities(A+B+C)
Add:openingcashbalance
Closingcashbalance
27,000
9,00036,000
5,000 (3,400) 3,000 (10,000) (5,000) (15,000)40,60020,000
(5,000) (26,000)(30,000) (11,000) (400) 4,000 3,600 W. N.Netprofitbeforetax.
Capital(1.1.05)
Capital(31.12.05)
Diff.Add.Dividends
1,48,000
1,49,000
1,00026,000
27,000
Illustration:3
follows:Liabilities20052006Assets20052006
Sharecapital
GeneralReserve
P&la/c
Creditors
Taxprovision
Mortgageloan
4,50,0003,00,000
56,000
1,68,000
75,000
Ͳ4,50,0003,10,000
68,000
1,34,000
10,000
2,70,000Fixedasset
Investment
StockDebtor
Bank4,00,000
50,000
2,40,000
2,10,000
1,49,0003,20,000
60,000
2,10,000
4,55,000
1,97,000
10,49,00012,42,00010,49,00012,42,000
AdditionalDetails:
1. InvestmentcostingRs.8,000weresoldforRs.8,500
2. TaxprovisionmadeduringtheyearwasRs.9,000
3. DuringtheyearpartoffixedassetscostingRs10,000wassoldforRs12,000and
statementfor2006.Solution:
ParticularRs.Rs.
1.Cashflowsfromoperatingactivities:
onInvestment&FixedAssetnotconsidered)Adjustmentfor:
Dep.Profit
onsaleofinvestmentProfit
onsaleofFixedassetsDec.instock
Dec.increditor
Inc.indebtor
Incometaxpaid
Netcashfromoperatingactivities
31,000
70,000
(500) (2,000)30,000
(34,000) (2,45,000) (74,000) (2,24,500)2.Cashflowsfrominvestingactivities:
Investment
purchasedSaleofinvestment
SaleofFixedassets
Netcashfrominvestingactivities
3.Cashflowsfromfinancingactivities:
Mortgageloantaken
NetCashFlowfromallactivities(A+B+C)
Add:openingcashbalance
Closingcashbalance
(18,000) 8,50012,000
2,5002,70,000
48,000
1,49,000
1,97,000
FixedAssetsA/c
ParticularsRsParticularsRs
ToBalanceb/d
ToProfitandLossa/c
4,00,000
2,000ByBanka/c
ByDep.
ByBalancec/d
12,00070,000
3,20,000
4,02,0004,02,000
ProvisionfortaxA/c
ParticularsRsParticularsRs
ToBank(taxpaid)
ToBalancec/d
74,00010,000
ByBalanceb/d
ByP&LA/c(provision)75,000
9,00084,00084,000
Investment
A/cParticularsRsParticularsRs
ToBalanceb/d
ToP&LA/c
ToBank(purchase)50,000
50018,000
68,500ByBank(sale)
ByBalancec/d8,500
60,000
68,500
AdjustedP&LA/c
ParticularsRsParticularsRs
ToProvisionfortax
ToProvisionforG.R.
ToBalancec/d
9,00010,000
68,000
87,000ByBalanceb/d
ByProfitonsaleofInv.
ByProfitonsaleofF.A.
ByAdjustedProfit56,000
5002,000
28,500
87,000
Illustration:4
Prepare
Sharecapital
8%debenture
Retainedearning
Creditors
Bills payableTaxprovision1,00,000
60,000
40,000
20,000
30,0004,00,0002,00,000
90,000
1,00,000
40,000
40,000Goodwill
Machinery
StockDebtor
Bank Cash1,25,000
20,000
30,000
50,000
25,00020,000
4,75,000
80,000
1,00,000
1,50,000
45,000
2,500008,70,0002,50,0008,70,000
AdditionalDetails:
1. During2006thebusinessofasoletraderwaspurchasedbyissuingshareforRs.
2,00,000.Theassetsacquiredfromhimwere:
30,000
2. Provisionfortaxchargedin2006wasRs.35,000
3. Thedebenturewasissuedatapremiumof5%whichisincludedintheretained
earnings.4. DepreciationchargedonmachinerywasRs.30,000.
Solution:
Particular
Rs Rs 1.Cashflowsfromoperatingactivities:
Netprofitbeforetax
Adjustmentfor:
Dep.Onmachinery
Inc..increditor
Inc..inbillspayable
Inc.instock
Inc..indebtor
Incometaxpaid
Netcashfromoperatingactivities
2.Cashflowsfrominvestingactivities:
Machinerypurchased
Netcashfrominvestingactivities
55,000
30,000
60,000
20,000
(10,000) (40,000) (25,000) (2,80,000)90,000 (2,80,000)3.Cashflowsfromfinancingactivities
Issueofshares
Issueofdebenture
Cashflowsfromfinancingactivities
Netinc.incashequivalents
Add:openingcashbalance
Closing
cashbalance1,00,000
2,10,000
3,10,000
1,20,000
75,000
1,95,000
ProvisionfortaxA/c
ParticularsRsParticularsRs
ToBank(taxpaid)
ToBalancec/d
25,000
40000ByBalanceb/d
ByP&LA/c(provision)30,000
35,000
65,00084,000
MachineryA/c
ParticularsRsParticularsRs
ToBalanceb/d
ToBank(purchase)
ToVendor
1,25,0002,80,0001,00,000
ByDepreciation
ByBalancec/d
30,000
4,75,000
5,05,0005,05,000
ShareCapitalA/c
ParticularsRsParticularsRs
ToBalancec/d
4,00,000ByBalanceb/d
ByVendor
ByBank1,00,000
2,00,000
1,00,000
4,00,0004,00,000
Illustration:5
Liabilities20062007Assets20062007
Sharecapital
GeneralReserve
Creditors
Taxprovision
Prov.fordoubtfuldebt1,00,000
38,400
9,75019,000
1,0001,00,000
42,000
6,38021,000
1,200Building
Plant andMachineryGoodwill
Investment
StockDebtor
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