Preparation of Financial Statements of Companies
(B) Cash flow from investing activities
Purchase of fixed assets (1,200)
Sale of fixed assets 40
Purchase of investments (200)
Net cash used in investing activities (1,360)
(C) Cash flow from financing activities
Proceeds from issue of shares including premium (400 + 40) 440
Proceeds from issue of 14% debentures (900 – 800) 100
Proceeds from long term borrowings 60
Interest on debentures (126)
, Payment of dividend (300)
Net cash from financing activities 174
Net increase in cash and cash equivalents (A+B+C) 160
Cash and cash equivalents at the beginning of the year 100
Cash and cash equivalents at the end of the year 260
Working Notes:
1. Calculation of Income tax paid during the year Rs.(‘000)
Income tax expense for the year 160
Add: Income tax liability at the beginning of the year 20
180
Less: Income tax liability at the end of the year (40)
Income tax paid during the year 140
2. Calculation of Fixed assets purchased during the year
Closing balance of gross block of fixed assets 4,000
Add: Cost of assets discarded during the year 400
4,400
Less: Opening balance of gross block of fixed assets (3,200)
Fixed assets purchased during the year 1,200
3. Calculation of Depreciation charged during the year
Closing balance of accumulated depreciation 1,440
Add: Depreciation charged on assets discarded during the year 80
1,520
Less: Opening balance of accumulated depreciation (640)
Depreciation charged during the year 880
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2.51
Accounting
Question 16
From the following Balance Sheets of Mr. Zen, prepare a Cash flow statement as per AS-3 for
the year ended 31.3,2010:
Balance Sheets of Mr. Zen
Liabilities As on 1.4.2009 As on 1.4.2010
Rs. Rs.
Zen’s Capital A/c 10,00,000 12,24,000
Sundry creditors 3,20,000 3,52,000
Mrs. Zen’s loan 2,00,000 --
Loan from Bank 3,20,000 4,00,000
18,40,000 19,76,000
Liabilities As on 1.4.2009 As on 1.4.2010
Rs. Rs.
Land 6,00,000 8,80,000
Plant and Machinery 6,40,000 4,40,000
Stock 2,80,000 2,00,000
Debtors 2,40,000 4,00,000
Cash 80,000 56,000
18,40,000 19,76,000
Additional information:
A machine costing Rs.80,000 (accumulated depreciation there on Rs.24,000) was old for
Rs.40,000. The provision for depreciation on 1.4.2009 was Rs.2,00,000 and 31.3.2010 was
Rs.3,20,000. The net profit for the year ended on 31.3.2010 was Rs.3,60,000. (May, 2010)
Answer
Cash Flow Statement of Mr. Zen as per AS 3
for the year ended 31.3.2010
Rs.
(i) Cash flow from operating activities
Net Profit (given) 3,60,000
Adjustments for
Depreciation on Plant & Machinery 1,44,000
Loss on Sale of Machinery 16,000 1,60,000
© The Institute of Chartered Accountants of India
2.52
Preparation of Financial Statements of Companies
Operating Profit before working capital changes 5,20,000
Decrease in Stock 80,000
Increase in Debtors (1,60,000)
Increase in Creditors 32,000 (48,000)
Net cash from operating activities 4,72,000
(ii) Cash flow from investing activities
Sale of Machinery 40,000
Purchase of Land (2,80,000)
Net cash used in investing activities (2,40,000)
(iii) Cash flow from used in financing activities
Repayment of Mrs. Zen’s Loan (2,00,000)
Drawings (1,36,000)
Loan from Bank 80,000
Net cash used in financing activities (2,56,000)
Net decrease in cash (24,000)
Opening balance as on 1.4.2009 80,000
Cash balance as on 31.3.2010 56,000
Working Notes:
1. Plant & Machinery A/c
Rs. Rs.
To Balance b/d 8,40,000 By Cash – Sales 40,000
(6,40,000 + 2,00,000) By Provision for Depreciation A/c 24,000
By Profit & Loss A/c – Loss on 16,000
Sale (80,000 – 64,000)
By Balance c/d
(4,40,000+3,20,000) 7,60,000
8,40,000 8,40,000
2. Provision for depreciation on Plant and Machinery A/c
Rs. Rs.
To Plant and Machinery A/c 24,000 By Balance b/d 2,00,000
To Balance c/d 3,20,000 By Profit & Loss A/c (Bal. fig.) 1,44,000
3,44,000 3,44,000
© The Institute of Chartered Accountants of India
2.53
Accounting
3. To find out Mr. Zen’s drawings:
Rs.
Opening Capital 10,00,000
Add: Net Profit 3,60,000
13,60,000
Less: Closing Capital 12,24,000
Drawings 1,36,000
EXERCISES
1. Given below are the condensed Balance Sheets of Lambakadi Ltd. for two years and the statement of Profit and
Loss for one year :
(Figures Rs. in lakhs)
As at 31st March 1998 1997
Share Capital
In equity shares of Rs. 100 each 150 110
10% redeemable preference shares of Rs. 100 each 10 40
Capital redemption reserve 10 —
General reserve 15 10
Profit and loss account balance 30 20
8% debentures with convertible option 20 40
Other term loans 15 30
250 250
Fixed assets less depreciation 130 100
Long term investments 40 50
Working capital 80 100
250 250
Statement of Profit and Loss for the year ended 31st March, 2011
(Figures Rs. in lakhs)
Sales 600
Less : Cost of sales 400
200
Establishment charges 30
Selling and distribution expenses 60
Interest expenses 5
Loss on sale of equipment (Book value Rs. 40 lakhs) 15 110
90
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2.54
Preparation of Financial Statements of Companies
Interest income 4
Dividend income 2
Foreign exchange gain 10
Damages received for loss of reputation 14 30
120
Depreciation 50
70
Taxes 30
40
Dividends 15
Net profit carried to Balance Sheet 25
Your are informed by the accountant that ledgers relating to debtors, creditors and stock for both the years were
seized by the income-tax authorities and it would take atleast two months to obtain copies of the same. However,
he is able to furnish the following data :
(Figures Rs. in lakhs)
2011 2010
Dividend receivable 2 4
Interest receivable 3 2
Cash on hand and with bank 7 10
Investments maturing within two months 3 2
15 18
Interest payable 4 5
Taxes payable 6 3
10 8
Current ratio 1.5 1.4
Acid test ratio 1.1 0.8
It is also gathered that debenture holders owning 50% of the debentures outstanding as on 31.3.2010 exercised
the option for conversion into equity shares during the financial year and the same was put through.
You are required to prepare a direct method cash flow statement for the financial year, 2011 in accordance with
para 18(a) of Accounting Standard (AS) 3 revised.
(Hints: Net cash from operating activities 112; Net cash used in investing activities (78); and Net cash
used in financing activities (46))
2. The following are the changes in the account balances taken from the Balance Sheets of PQ Ltd. as at the
beginning and end of the year. :
Changes in Rupees in debt or [credit]
Equity share capital 30,000 shares of Rs. 10 each issued and fully paid 0
Capital reserve [49,200]
© The Institute of Chartered Accountants of India
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Accounting
8% debentures [50,000]
Debenture discount 1,000
Freehold property at cost/revaluation 43,000
Plant and machinery at cost 60,000
Depreciation on plant and machinery [14,400]
Debtors 50,000
Stock and work-in-progress 38,500
Creditors [11,800]
Net profit for the year [76,500]
Dividend paid in respect of earlier year 30,000
Provision for doubtful debts [3,300]
Trade investments at cost 47,000
Bank [64,300]
0
You are informed that.
(a) Capital reserve as at the end of the year represented realised profits on sale of one freehold property together
with surplus arising on the revaluation of balance of freehold properties.
(b) During the year plant costing Rs. 18,000 against which depreciation provision of Rs. 13,500 was lying, was
sold for Rs. 7,000.
(c) During the middle of the year Rs. 50,000 debentures were issued for cash at a discount of Rs. 1,000.
(d) The net profit for the year was after crediting the profit on sale of plant and charging debenture interest.
You are required to prepare a statement which will explain why bank borrowing has increased by Rs. 64,300
during the year end. Ignore taxation.
(Hints: Net cash flow from operating activities Rs.30,500; Net cash used in investing activities
Rs.(1,11,800); and Net cash from financing activities Rs. 17,000)
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2.56
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