CHAPTER 5 : CASH FLOW STATEMENT, ASSIGNMENT # 20

LEARNING OUTCOMES:

TO BE ABLE TO UNDERSTAND:

THE COMPLETE FORMAT OF THE CASH FLOW STATEMENT.

TO BE ABLE TO DO THE QUESTION ON CASH FLOW STATEMENT

TO WATCH THE CONCEPT BUILDING VIDEO 

TASK # 1

 LEARN & PRACTICE THE FORMAT OF 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)

TASK # 2

WATCH THE CONCEPT BUILDING VIDEO 

CONCEPT BUILDING FOR CASH FLOW STATEMENT VIDEO LINK




TASK # 3



AFTER WATCHING THE VIDEO SEE THE ILLUSTRATIVE EXAMPLE.

EXAMPLE - 1 

From the following Balance Sheet of Ajanta Limited as on March 31, 2020, prepare a Cash 

Flow Statement:

Particulars	Note No.	31-3-2020 (`)	31-3-2019 (`)
I.       EQUITY AND LIABILITIES (1)  Shareholders’ Funds (a)   Equity Share Capital (b)   Reserves and Surplus (2)  Non-Current Liabilities Long-Term Borrowings (9% Debentures) (3)  Current Liabilities (a)   Trade Payables (b)   Other Current Liabilities		10,00,000	10,00,000
	1	2,40,000	1,20,000
		3,20,000	2,40,000
	2	1,80,000	2,40,000
	3	1,80,000	1,60,000
Total		19,20,000	17,60,000

II.     ASSETS (1)  Non Current Assets (a)         Fixed Assets – Tangible assets (b)        Non-Current Investments (2)   Current Assets (a)         Inventories (b)         Trade Receivables (c)          Cash and Cash Equivalents	4	13,40,000	12,00,000
	5	2,40,000	1,60,000
		1,20,000	1,60,000
		1,60,000	1,60,000
		60,000	80,000
Total		19,20,000	17,60,000

Notes to Accounts:

Note No.	Particulars	31-3-2020 (`)	31-3-2019 (`)
1	Reserves and Surplus Securities Premium Reserve Balance in Statement of Profit & Loss	40,000 2,00,000	– 1,20,000
		2,40,000	1,20,000
2	Trade Payables Creditors Bills Payable	1,40,000 40,000	1,20,000 1,20,000
		1,80,000	2,40,000
3	Other Current Liabilities: Outstanding Rent	1,80,000	1,60,000
4	Tangible Assets Plant & Machinery Less: Accumulated Depreciation	14,40,000 (1,00,000)	13,50,000 (1,50,000)
		13,40,000	12,00,000
5	Non-Current Investments 10% Bonds of Kohinoor Ltd.	2,40,000	1,60,000

Additional Information:

(a)             During the year 2019-20, a machinery costing `50,000 and accumulated depreciation thereon `15,000 was sold for `32,000.

(               b)               New 9% Debentures were issued on April 1, 2019 at 50% premium.

(               c)              New 10% bonds of Kohinoor Ltd. were purchased on 31.3.2020.

Solution: 

Cash Flow Statement of Ajanta Limited for the year ended 31st March, 2020

Particulars	Details (`)	Amount (`)
I.    CASH FLOW FROM OPERATING ACTIVITIES Net profit before taxation and extraordinary items (2,00,000 – 1,20,000) Adjustments for Non-cash and Non-operating items: (–) Excess provision for depreciation written back (Note 1) (+) Loss on sale of machinery (+) Interest paid on debentures (9% of `3,20,000)  (–) Interest received on non-current investments (10% of `1,60,000)	80,000
	(35,000)
	3,000
	28,800
	(16,000)
Operating Profit before changes in working capital	60,800
Add: Decrease in Inventories	40,000
Add: Increase in Outstanding Rent	20,000
Add: Increase in Creditors	20,000
Less: Decrease in Bills Payable	(80,000)
A. Net Cash from Operating Activities		60,800

II. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Machinery Sale of Machinery Purchase of non-current investments (9% Bonds of Kohinoor Ltd.) Interest received on non-current investments	(1,40,000) 32,000 (80,000) 16,000
B. Net Cash used in Investing Activities		(1,72,000)
III. CASH FLOW FROM FINANCING ACTIVITIES Issue of 9 % Debentures Securities premium reserve (premium on issue of 9% debentures) Interest on Debentures	80,000 40,000 (28,800)
C. Net Cash from Financing Activities		91,200
Net decrease in cash and cash equivalents (A + B + C) Add: Opening Balance of Cash and Cash Equivalents		(20,000) 80,000
Closing Balance of Cash and Cash Equivalents		60,000

Working Notes:   

                                       Plant & Machinery Account

Particulars	Amount (`)	Particulars	Amount (`)
To Balance b/d To Bank A/c (purchase) (Bal. Fig.)	13,50,000 1,40,000	By Bank A/c (sales) By Accumulated Depreciation A/c By Statement of Profit & Loss (loss on sale) By  Balance c/d	32,000 15,000 3,000 14,40,000
	14,90,000		14,90,000

Accumulated Depreciation Account

Particulars	Amount (`)	Particulars	Amount (`)
To Plant & Machinery Account To Statement of Profit & Loss (excess provision for depreciation written back) (Bal. Fig.) To Balance c/d	15,000 35,000 1,00,000	By Balance b/d	1,50,000
	1,50,000		1,50,000

Top Tips

1  . In EXAMPLE  -1 , instead of additional provision for depreciation, there was excess 

provision for depreciation made in the past `35,000, which has been written back by the 

company resulting in increase in net profit by `35,000. 

However, there was no cash inflow since depreciation is a non-cash expense. Therefore,

excess provision for depreciation written back `35,000 will be subtracted from net profit 

for calculating cash flow from operating activities.

2.  9% debentures balance increases from `2,40,000 to `3,20,000. Thus, `80,000 new 9% 

debentures were issued at 50% premium.

Therefore, securities premium reserve = 50% of `80,000 = `40,000. In notes to accounts,

balance of securities premium reserve is also increasing by `40,000, which is nothing but

 the premium on issue of new 9% debentures.

 Hence, proceeds from issue of new 9% debentures (including securities premium reserve)

 will be `1,20,000. 

Alternately, issue of debentures `80,000 and securities premium reserve `40,000 will be 

shown separately as cash inflows from financing activities.

Non-current investments i.e. 10% Bonds of Kohinoor Ltd. is increasing from `1,60,000 to 

`2,40,000.

Thus, purchase of non-current investments `80,000.

 Since purchase was made on 31.3.2020 (i.e. last day of the financial year 2019-20), the balance 

of non-current investments throughout the year was `1,60,000.

 Therefore, interest received on non- current investments = 10% of `1,60,000 = `16,000. Interest 

on non-current investments is cash inflow from investing activities. 

However, it resulted in increase in net profit by `16,000.

 Therefore, while calculating cash flows from operating activities, interest received on non-

current investments will be subtracted from net profit.

 Also, it will be shown as cash inflow from investing activities.

  TASK # 4

DO IT YOURSELF : ASSIGNMENT # 20

IN REFERENCE TO THE ABOVE EXAMPLE.

From the following Balance Sheet of Mayur Ltd. and the additional information as at 

31st March, 2020, prepare a Cash Flow Statement :

Mayur Ltd.

Balance Sheet as at 31st March, 2020

Particulars	Note No.	31-3-20 (`)	31-3-19 (`)
I.          EQUITY AND LIABILITIES 1.      Shareholder’s Funds (a)  Share Capital (b)  Reserves and Surplus 2.      Non-Current Liabilities Long-term Borrowings 3.      Current Liabilities (a) Trade Payables (b)  Short-term Provisions		30,00,000	20,00,000
	1	3,00,000	4,00,000
	2	4,00,000	3,00,000
		1,70,000	2,50,000
	3	76,000	64,000
Total		39,46,000	30,14,000
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible	4	29,00,000	23,00,000
(ii) Intangible	5	2,70,000	1,60,000
2. Current Assets
(a) Inventories		2,20,000	2,30,000
(b) Trade Receivables		1,10,000	1,30,000
(c) Cash and Cash Equivalents		4,46,000	1,94,000
Total		39,46,000	30,14,000

Notes to Accounts:

Note No.	Particulars	31-3-2020 (`)	31-3-2019 (`)
1.	Reserves and Surplus Surplus (Balance in Statement of Profit and Loss)	3,00,000	4,00,000
2.	Long-term Borrowings 9% Debentures	4,00,000	3,00,000
3.	Short-term Provisions Provision for Tax	76,000	64,000
4.	Tangible Assets Machinery Less: Accumulated Depreciation	36,00,000 (7,00,000)	28,00,000 (5,00,000)
		29,00,000	23,00,000
5.	Intangible Assets Goodwill	2,70,000	1,60,000

Additional Information:

(i)    During the year, a piece of machinery having book value of `3,27,000 on 

which accumulated depreciation was `73,000 was sold for `3,10,000.

(ii)    9% Debentures of `1,00,000 were issued on 31st March, 2020.

[Ans: Net cash from operating activities = `1,79,000; Net cash used in 

investing 

activities `10,00,000; Net cash from financing activities `10,73,000]