CHAPTER 5: CASH FLOW STATEMENT

LEARNING OUTCOMES:

TO BE ABLE TO UNDERSTAND:

THE COMPLETE FORMAT OF THE CASH FLOW STATEMENT.

THE OPERATING , INVESTING AND FINANCING ACTIVITIES

PUT TOGETHER IN THE CASH FLOW STATEMENT.

EXAMPLES OF THE FULL FLEDGED QUESTIONS ON CASH FLOW STATEMENT 

Name of the Company

CASH FLOW STATEMENT (as per AS-3 Revised) for the year ending 31st March, 2020

Particulars	Details (`)	Amount (`)
I.    CASH FLOWS FROM OPERATING ACTIVITIES Net Profit/Loss before Tax and Extraordinary Items Add: Non-cash and non-operating expenses for which deductions already made in Statement of Profit and Loss •   Depreciation •   Intangible Assets amortised (Goodwill, Patents, etc. written-off) •   Loss on sale of fixed assets or non-current assets •   Finance cost (Interest paid on long-term borrowings) •   Preliminary expenses written off •   Discount/loss on issue of debentures written off •   Provision made for doubtful debts •   Premium on redemption of debentures Less: Non-operating incomes for which additions already made in Statement of Profit and Loss •   Interest income •   Dividend income •   Rental income •   Profit on sale of fixed assets or non-current assets •   Excess provision for depreciation written back •   Excess provision for doubtful debts written back	xxx or (xxx)
	xxx
	xxx
	xxx
	xxx
	xxx
	xxx
	xxx
	xxx
	(xxx)
	(xxx)
	(xxx)
	(xxx)
	(xxx)
	(xxx)
Operating Profit before working capital changes Add: •   Decrease in current assets (other than current investments, cash and cash equivalents and short-term loans and advances) •   Increase in current liabilities (other than short-term borrowings and short- term provisions) Less: •   Increase in current assets (other than current investments, cash and cash equivalents and short-term loans and advances) •   Decrease in current liabilities (other than short-term borrowings and short- term provisions)	xxx or (xxx)
	xxx
	xxx
	(xxx)
	(xxx)
Cash Generated from (or used in) Operating Activities before Tax and Extraordinary Items	xxx or (xxx)
Less: Income Tax paid (Tax on normal profits/operating profits)	(xxx)
Add: Income Tax Refund received	xxx
Cash Generated from (or used in) Operating Activities after Tax but before Extraordinary Items	xxx or (xxx)
+/– Effects of Extraordinary Items (e.g. insurance proceeds from earthquake disaster settlement will be added whereas loss due to theft will be subtracted	xxx or (xxx)
A. Net Cash from (or used in) Operating Activities		xxx or (xxx)

II.    CASH FLOWS FROM INVESTING ACTIVITIES (i)   Proceeds from Sale of Tangible Fixed Assets (ii) Proceeds from Sale of Non-Current Investments (iii)Interest received, Dividend received and Rent received (iv) Purchase of Fixed Tangible Assets and Intangible Assets like goodwill (v)  Purchase of Non-Current Investments (vi) Capital Gain Tax paid	xxx xxx xxx (xxx) (xxx) (xxx)
B. Net Cash from (used in) Investing Activities		xxx or (xxx)
III.    CASH FLOWS FROM FINANCING ACTIVITIES (a) Proceeds from issue of Share Capital (both equity and preference shares) (b) Proceeds from Long-term Borrowings (e.g., debentures, bonds, long-term loan from bank, x% deposits) (c) Securities Premium Reserve (Premium on issue of shares or debentures) (d) Proceeds from Bank Overdraft raised (e) Redemption of Debentures or Preference Shares (including premium on redemption) (f)  ) Repayment of Long-term Loan from Bank/x% Deposits (g) Buy Back of Equity Shares (h) Dividend Paid (both final dividend and interim dividend) (i) Interest on Long-term Borrowings Paid (e.g. interest on debentures, long- term loan from bank, x% deposits) (j) Dividend Tax paid	xxx xxx xxx xxx (xxx) (xxx) (xxx) (xxx) (xxx) (xxx)
C. Net Cash from (used in) Financing Activities		xxx or (xxx)
NET INCREASE (OR DECREASE) IN CASH & CASH EQUIVALENTS (A+B+C) Add: Cash and Cash Equivalents in the beginning Cash in hand Cash at bank Current Investments (marketable securities)	xxx xxx xxx	xxx xxx
Cash and cash Equivalents at the end of the year Cash in hand Cash at bank Current Investments (marketable securities)	xxx xxx xxx	xxx

THE ABOVE FORMAT IS OF THE CASH FLOW STATEMENT AS PER ACCOUNTING 

STANDARD -3 (REVISED)

EXAMPLE 1

From the following Balance Sheets of Xerox Ltd., prepare cash flow statement. Show your 

workings clearly.

Particulars	Note No.	31st March 2020 (`)	31st March 2019 (`)
I.      EQUITY AND LIABILITIES 1.    Shareholders’ Funds (a)      Share capital (b)      Reserve and surplus (Balance in Statement of Profit and Loss) 2.    Non-current Liabilities Long-term borrowings 3.    Current Liabilities (a)      Trade payables (b)      Short-term provisions (Provision for taxation)		15,00,000	10,00,000
		7,50,000	6,00,000
	1	1,00,000	2,00,000
		1,00,000	1,10,000
		95,000	80,000
Total		25,45,000	19,90,000

II. ASSETS
1. Non-current assets
(a)   Fixed assets
(i) Tangible assets	2	10,10,000	12,00,000
(ii) Intangible assets (Goodwill)		1,80,000	2,00,000
(b) Non-current investment		6,00,000	–
2. Current assets
(a)   Current Investments		70,000	50,000
(b) Inventories		1,80,000	1,00,000
(c)   Trade Receivables		2,00,000	1,50,000
(d) Cash and cash equivalents		3,05,000	2,90,000
Total		25,45,000	19,90,000

Notes to Accounts:

Particulars	31st March 2020 (`)	31st March 2019 (`)
1.    Long-term borrowings: (i)     10% Debentures (ii)    Bank loan	– 1,00,000	2,00,000 –
	1,00,000	2,00,000
2.    Tangible Assets (i)     Land and building (ii)    Plant and machinery	6,50,000 3,60,000	8,00,000 4,00,000
	10,10,000	12,00,000

Additional information:

1.    Dividend paid during the year `1,50,000.

2.    Income tax paid during the year includes `15,000 on account of dividend tax.

3.    Land and building book value `1,50,000 was sold at a profit of 10%.

Solution: 

                        Cash Flow Statement of Xerox Ltd. for the year ending 31.3.2020

Particulars	Details (`)	Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before Taxation and Extraordinary Items (Note 1)	3,95,000
Adjustments for non-cash and non-operating items:
+ Depreciation on plant and machinery	40,000
+ Goodwill written-off	20,000
– Profit on sale of land and building	(15,000)
+ Interest on debentures (10% of `2,00,000)	20,000
= Operating profit before working capital changes	4,60,000
– Decrease in Trade Payables	(10,000)
– Increase in Trade Receivables	(50,000)
– Increase in Inventories	(80,000)
= Cash generated from Operations before tax	3,20,000
– Income Tax Paid (Note 2)	(65,000)
A. Net Cash from Operating Activities		2,55,000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Land and Building	1,65,000
Purchase of Non-Current Investments	(6,00,000)
B.   Net Cash used in Investing Activities		(4,35,000)

III. CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of Equity Share  Capital Redemption of Debentures Interest on debentures paid Proceeds from raising Bank Loan Dividend Paid Dividend Tax Paid	5,00,000 (2,00,000) (20,000) 1,00,000 (1,50,000) (15,000)
C. Net Cash from Financing Activities		2,15,000
NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C) Add: Cash and Cash Equivalents in the beginning Current Investments Cash and cash equivalents	50,000 2,90,000	35,000 3,40,000
Cash and Cash Equivalent at the end Current Investments Cash and cash equivalents	70,000 3,05,000	3,75,000

Working Notes:

1. Net profit before tax = Net profit earned during the year after tax and dividend + Provision for tax

+ Dividend paid = `1,50,000 + `95,000 + `1,50,000 = `3,95,000

2.   Total tax paid during the year `80,000 – Dividend tax paid (cash outflow from financing activities) `(15,000)

= Income tax paid (cash outflow from operating activities) `65,000

Top Tips

       1       .It is assumed that decrease in value of plant and machinery is due to depreciation `40,000.

2.           It is assumed that 10% debentures were redeemed on 31.3.2020. So, interest paid = 10% of `2,00,000 = `20,000

EXAMPLE 2

 From the following Balance Sheet of Yogeta Ltd., prepare cash flow statement. Show your workings 

clearly.

Particulars	Note No.	31.3.2020 (`)	31.3.2019 (`)
I.          EQUITY AND LIABILITIES 1.       Shareholders’ Funds (a)   Share capital (b)   Reserve and surplus 2.       Non-current Liabilities Long-term borrowings (10% Bank loan) 3.       Current Liabilities (a)   Short-term borrowings (Bank overdraft) (b)   Trade payables (c)    Short-term provision (Provision for tax)		4,00,000	2,00,000
	1	2,00,000	1,00,000
		1,50,000	2,20,000
		1,00,000	–
		70,000	50,000
		50,000	30,000
Total		9,70,000	6,00,000
II.       ASSETS 1.       Non-current assets (a) Fixed assets Tangible (plant and machinery) 2.       Current assets (a)  Inventories (b)  Trade Receivables (c)  Cash and cash equivalents		7,00,000	4,00,000
		1,70,000	1,00,000
		1,00,000	50,000
		–	50,000
Total		9,70,000	6,00,000

Notes to Accounts:

Particulars	31.3.2020 (`)	31.3.2019 (`)
1.    Reserves and surplus Balance in Statement of Profit and Loss General Reserve	1,50,000 50,000	80,000 20,000
	2,00,000	1,00,000

Additional Information:

1.    Net Profit for the year after charging depreciation on plant and machinery `50,000 was `1,50,000.

2.    Tax Provision created during the year amounted to `60,000.

3.    Bank loan was repaid on 1.4.2019 and Interim dividend '50,000' was  paid.

Solution: 

Cash Flow Statement of Yogeta Ltd. for the year ending 31 March 2020

Particulars	Details (`)	Amount (`)
I.    CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before Taxation and Extraordinary Items (Note 3)	2,10,000
Adjustments for Non-Cash and Non-Operating Items
(+) Depreciation on plant and machinery	50,000
(+) Interest on bank loan (10% of `1,50,000)	15,000
= Operating Profit before working capital changes	2,75,000
(–) Increase in Inventories	(70,000)
(–) Increase in Trade Receivables	(50,000)
(+) Increase in Trade Payables	20,000
= Cash generated from operations before tax	1,75,000
Less: Income tax paid (Note 1)	(40,000)
A.   Net Cash from Operating Activities		1,35,000

II. CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and machinery (Note 4)	(3,50,000)
B.   Net Cash used in Investing Activities		(3,50,000)
III. CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Repayment of bank loan Interest on bank loan Bank overdraft raised Interim dividend paid (Note 2)	2,00,000 (70,000) (15,000) 1,00,000 (50,000)
C. Net Cash from Financing Activities		1,65,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (A+B+C) Add: Opening cash and cash equivalents		(50,000) 50,000
Closing cash and cash equivalents		0

Working Notes:

1.        Dr.                                                           Provision for Tax A/c      

                                                              

Particulars	Amount (`)	Particulars	Amount (`)
To Bank A/c (Tax paid) To Balance c/d	40,000 50,000	By Balance b/d By Statement of Profit & Loss (tax provision made during the current year)	30,000 60,000
	90,000		90,000

2.   Calculation of Interim Dividend paid:                                (`)

Net Profit for the year (after tax)                                            1,50,000

Less: Transfer to General Reserve                                         (30,000)

Less: Interim dividend paid (Bal. fig.)                              (50,000)

Net profit after appropriations (1,50,000  – 80,000)              70,000

3.   Calculation of Net Profit before Tax:

(`)

Net Profit after appropriations (1,50,000  – 80,000)       70,000

Add: Transfer to General Reserve (50,000 – 20,000)   30,000 Add:  Interim dividend paid                                                50,000 2,10,000

Alternately, Net profit before tax = Net profit after tax + Provision for tax

= 1,50,000 + 60,000

= `2,10,000

4.       Dr.                                                        Plant and Machinery A/c      

                                                          

Particulars	Amount (`)	Particulars	Amount (`)
To Balance b/d To Bank A/c (purchase) (Bal. fig.)	4,00,000 3,50,000	By Depreciation By Balance c/d	50,000 7,00,000
	7,50,000		7,50,000