Unit 4: Cash Flow Statement(Marks 8) Contents Mapping:-
Unit 4: Cash Flow Statement(Marks 8)Contents mapping:Meaning, objectives and preparation (as per AS 3 (Revised) (Indirect Method only)Scope:(i)Adjustments relating to depreciation and amortization, profit or loss on sale of assetsincluding investments, dividend (both final and interim) and tax.(ii) Bank overdraft and cash credit to be treated as short term borrowings.(iii)Current Investments to be taken as Marketable securities unless otherwise specified.ACCOUNTING STANDARD(AS) – 03 (CASH FLOW STATEMENT)CASH FLOW STATEMENT: It is a statement that shows inflow and outflow of cash & cash equivalentduring a specified period of an enterprise.Classification of activities under cash flow statement : 1.Cash flow from operating activities2.Cash flow from investing activities3.Cash flow from financing activitiesOBJECTIVES OF CASH FLOW STATEMENT:(i) To ascertain the sources of cash and cash equivalent under operating ,investing and financing activitiesby the enterprise.(ii) To ascertain the applications ( uses) of cash and cash equivalent under operating ,investing andfinancing activities by the enterpriseSome special items and its treatment in CFSS.N.Items1Dividend paid2Interest paid3Dividend Received4Interest receivedTreatment of provision for tax in CFSFinancial companyFinancing activityoperating activityoperating activityoperating activityNon Financial(trading) companyFinancing activityFinancing activityInvesting activityInvesting activityCase:1 Tax paid is deducted from cash generated from operating activities to determine the cash flowfrom operating activities.Case:2 Opening and closing balance of provision for taxation are given , provision for tax of currentyear is added to determine net profit before tax and dividend, and provision for tax of previous year isdeducted taking it as paid in current year.Case: 3 If Tax provided during the year is given, a provision for taxation A/C Should be prepared todetermine the tax paid during the year.Case:4 If Tax paid during the year is given, a provision for taxation A/C Should be prepared todetermine the tax provided during the year.Provision for Tax AccountParticulars(Rs.)Particulars(Rs.)XXX By Balance b/dXXXTo Bank A/cXXX(Tax paid or Balancing figure)By statement of Profit & LossTo Balance c/dXXX (Provision made during year or Balancing figure)XXXXXXTreatment of provision for dividend in CFSCase:1 Dividend paid during the year is shown as outflow of cash (use) under financing activity.Case:2 Opening and closing balance of provision for Dividend are given , provision for Dividend of110
current year is added to determine net profit before tax and dividend, and provision for Dividend ofprevious year is shown as outflow of cash (use) under financing activity.Case: 3 If Dividend proposed during the year is given as additional information, a provision forDividend A/C Should be prepared to determine the Dividend paid during the year.Case:4 If Dividend paid during the year is given as additional information, a provision for DividendA/C Should be prepared to determine the Dividend proposed during the year.Provision for Dividend AccountParticulars(Rs.)Particulars(Rs.)XXX By Balance b/dXXXTo Bank A/c(Dividendpaid or Bal.figure)XXXBy statement of Profit & LossTo Balance c/dXXX (Provision made during year or Balancing figure)XXXXXXSample Format for Cash Flow from Operating ActivityStatement of Cash Flow from Operating Activities (Indirect Method)Note No.Net Profits before Tax and Dividend1----------*Adjustment for Non-Cash & Non-Operating Items:Add: Depreciation---------Add: Interest on borrowing & debentures---------Add: Goodwill Written Off---------Add: Loss on sale of Fixed Asset--------Add: Prov. For doubtful debts--------Less: Gain on sale of Fixed Asset(-------)Less: interest & dividend Received(-------)* Operating Profit before change in working capital----------Add: Increase in Current Liabilities---------Add: Decrease in Current Assets---------Less: Increase in Current Assets(--------)Less: Decrease in Current Liabilities(--------)* Cash generated from operations--------------------------Less: Income Tax Paid(----------)Net Cash From (used in) Operating Activities--------------Note : 1111
Net profit before tax & dividendAdd: Transfer to ReserveDividend paidTax paid/Provision for taxationNet profit after tax and RT ANSWER QUESTIONS(01)What is meant by a Cash Flow Statement? (CBSE 2011,2014)Ans.: Cash flow statement is a statement that shows inflows (receipts) and outflows (payments) ofcash and cash equivalents of an enterprise during the period under report.(02)State any two objectives of preparing a cash flow statement. (CBSE 2012,2014)Ans.:(a) it provides information about cash flow from operating, investing and financing activities during aspecific period.(b) It enables the users to assess the ability of the enterprise to generate cash and cash equivalents.(03)X Ltd. is a Mutual Fund Company. The company invested Rs. 50 lakhs in the shares of Y Ltd.State with reason whether the dividend received on the shares of Y Ltd. will be cash flow fromoperating activities or from investing activities. (2007)Ans.: A Mutual fund company is a financial enterprise and investing of funds into profitable securities isan operation activity, therefore X Ltd investment of Rs 50 lakhs in the shares of Y Ltd is an Operatingactivity for preparing the cash flow statement.(04)Fine Garments Ltd. is engaged in the export of readymade garments. The company purchased amachinery of Rs. 10,00,000 for the use in packaging of such garments. State giving reason whether thecash flow due to the purchase of machinery will be cash flow from operating activities, investingactivities or financial activities? (2007)Ans.:Fine Garments Ltd is a manufacturing company therefore to produce the garments; purchase ofmachinery is an investment activity for preparing the cash flow statement.(05)State whether depreciation charged by a company will result into inflow, outflow or no flow ofcash. (2008)Ans.: Depreciation charged by a company is non-cash charge therefore, no flow of cash.(06)Interest paid by an investment company will come under which activity while preparing cashflow statement? (2008)Ans.: Interest paid by an investment company will come under Operating activity while preparing cashflow statement.(07)Dividend received by a financial company will come under which activity while preparing cashflow statement.Ans: Dividend received by a financial company will come under Operating activity while preparing cashflow statement.(08)Dividend paid by a financial company will come under which activity while preparing cash flowstatement. (2014)Ans.:Dividend paid by a financial company will come under financing activity while preparing cash flowstatement.(09)Dividend paid by a non- financial company (trading company) will come under which activitywhile preparing cash flow statement.Ans.: Dividend paid by a non- financial company (trading company) will come under financing activitywhile preparing cash flow statement(10)Redemption of debentures would results in inflow, outflow or no flow of cash? Give youranswer with reason. (2010)Ans. Redemption of debentures would results in Outflow of cash due to repayment of debentures in cash to112
its holders.(11)State with reason whether the issue of debentures to vender for the purchase of machinery of Rs.50,000 will result inflow, outflow or no flow of cash while preparing cash flow statement. (2014)Ans; No flow of cash because consideration for issue of debentures is received in the form of machinery ,not in cash.(12)State the reason whether deposit of cash into bank will result in inflow, outflow or no flow ofcash. (2011)Ans.: Deposit of cash into bank is “ no flow of cash” because it’s part of ‘cash & cash equivalents’.[[(13)Give any two items of cash & cash equivalents’ as per Accounting Standard – 3. (2008,11,14)Ans.: As per Accounting Standard – 3, Cash & Cash Equivalents are :(a) Balance with banks (b) Cheques, drafts on hand (c) Cash in hand (d) marketable securities (e)treasurybill , commercial paper(14)Distinct between Operating and Investing / Financing Activities. ( 2010)Operating Activity is the principal revenue producing activity of the enterprise, Financing Activity is thatactivity which changes the size & composition of owner’s capital & borrowing of the enterprise whereasInvesting Activity include the acquisition and disposal of long-term assets.(15)Conversion of debentures into preference shares comes under which activity of cash flowstatement?Ans.: ‘It does not come under any activity of cash flow statement because there is no flow of cash.(16)State whether cash withdrawn from bank for office use will use result in inflow, outflow or noflow of cash. ( 2011)Ans.: Cash withdrawn from bank for office use result in no flow of cash.(17)Under which type of activity will you classify “proceed from sale of machinery” while preparingcash flow statement?.Ans: “proceed from sale of machinery” will be classified as “ Inflow of cash under investing activities”while preparing cash flow statement?.(18)Give an example of Extraordinary item in operating activity.Ans.: Refund of tax received.(19)Under which activity is purchase of goodwill shown in cash flow statement?Ans: Outflow of cash under Investing activity.(20) Give one limitation of cash flow statement .Ans: Cash flow statement ignores the basic concept of accounting i.e.accrual conceptPreparation of Cash Flow Statement:(21)Following are the Balance Sheets of Krishtec Ltd., as on 31st March 2012 and 2011: (2013)ParticularsNote 31st March 2012 ((Rs) 31st March 2011 (Rs)EQUITY AND LIABILITIES(1)Shareholders Funds(a) Share capital12,00,0008,00,000(b) Reserves & Surplus3,50,0004,00,000(2) Non Current LiabilitiesLong Term borrowings4,40,0003,50,000(3) Current LiabilitiesTrade paybles60,00050,000113
TotalASSETS(1)Non Current Assets(a) Fixed assetsTangible assets(2) Current Assets(a) Inventories(b) Trade Receivables(c) Cash & Cash equivalentsTotalAdditional ,00016,00,000Prepare a Cash Flow Statement after taking into account the following adjustments:(a) The company paid interest Rs 36,000 on its long term borrowings.(b) Depreciation provided on tangible fixed assets during the year Rs 1,20,000.Solution:Cash Flow Statement for the year ended March 31st, 2012Particulars(A) Cash flow from operating activitiesClosing bal. of Reserve & surplusLess: Opening bal. of Reserve & surplusNet profit before tax and extra ordinary itemAdd: Non cash and non operating exps.DepreciationInterest on long term borrowingsOperating profit before change in working capitalAdd: Decrease in current assets and increase in C.LIncrease in trade payableLess: Increase in current assets and decrease in C.LIncrease in inventoriesIncrease in trade receivableRs.3,50,000(4,00,000)( 00)(80,000)(64,000)Net Cash used in operating activities(B) Cash flow from investing activitiesPurchase of tangible assets(4,20,000)(4,20,000)Net Cash used in investing activities(C)Cash flow from financing activitiesCash proceed from issue of sharesCash proceed from long term borrowingsPayment of interest on long term 0,0003,40,000Net Cash flow from financing activitiesNet decrease in cash and cash equivalent(A B C)Add: Cash &cash equivalents in the beginningCash &cash equivalents at the endTANGIBLE ASSETS ACCOUNTParticularRs.Rs.Particular114Rs.
To Bal. b/dTo Bank A/C(bal. fig.)9,00,0004,20,00013,20,000By Depreciation A/CBy Bal. c/d1,20,00012,00,00013,20,000(22)From the following summarized balance sheets of a company, calculate cash flow fromoperating activities:ParticularsNoteNo.I. Equity and LiabilitiesShare holder’s funds:Equity Share CapitalReserves & SurplusNon Current Liabilities:6% DebenturesCurrent Liabilities:CreditorsBills PayableOther Current LiabilitiesTOTALII. AssetsNon Current Assets:Fixed assetsNon Current InvestmentsCurrent AssetsStockDebtorsCashTOTAL31st March2014 (Rs)31st March2015 ,00010,0002,90,0003,30,000Additional Information(1) A piece of machinery costing Rs 5,000, on which depreciation of Rs 2,000 had been charged was soldfor Rs 1,000. Depreciation charged during the year was rs 17,000.(2) New debentures have been issued on 1st August, 2014.Cash Flow Statement for the year ended March 31st, 2015ParticularsDetails(Rs.)Cash flow from operating activitiesClosing bal. of Reserve & surplusLess: Opening bal. of Reserve & surplusNet profit before tax and extra ordinary itemAdd: Non cash and non operating exps.DepreciationInterest on DebenturesLoss on sale of machinery11560,000(30,000)30,00017,0004,400Rs.
Operating profit before change in working capitalAdd: Decrease in current assets and increase in C.LIncrease in creditorsIncrease in other current liabilities.Less: Increase in current assets and decrease in C.LIncrease in inventories/stockIncrease in trade receivable(debtors)Decrease in B/PNet Cash flowfrom operating 0)(20,000)23,400Working note:Interest on Debenture 1. 60,000 X 4/12 X 6/ 100 12002. 80,000 X 8/12 X 6/ 100 32004400(23) From the following information, calculate the cash flow from Investing Activities.’ParticularsOpening Balance (Rs)Closing Balance (Rs)Furniture (At cost)20,000Accumulated Depreciation on Furniture28,0006,0009,000During the year, furniture costing Rs. 4,000 was sold at aprofit of Rs. 3,000. Depreciation on furniture chargedduring the year amounted to Rs. 5,000.ORDuring the year, furniture costing Rs. 4,000 (accumulateddepreciation thereon Rs. 2,000) was sold at Rs. 5,000.HINTS:*There is need to prepare ‘Furniture a/c’ & ‘Prov. for Dep. a/c’.*‘Furniture A/c is requiredto ascertain the amount of furniturePurchased during the year.*‘Provision for DepreciationA/c is required to ascertain the depreciation provided during the year.Solution:Furniture AccountParticularsTo Balance b/dTo Profit & Loss A/c (Gain on Sale)To Bank A/c(Balan. fig. being furniture purchased)(Rs.)Particulars20,000 By Bank A/c (Sale of Furniture)3,000 By Accumulated Dep. A/c12,000 By Balance c/d35,000Provision for Depreciation Account116(Rs.)5,0002,00028,00035,000
ParticularsTo Furniture A/c(Balancing figure being accumulateddepreciation on sold furniture)To Balance c/d(Rs.)Particulars2,000 By Balance b/dBy Depreciation A/c(Rs.)6,0005,0009,00011,00011,000Computation for Gain or Loss on Sale of FurnitureCost of sold furniture4,000Less: Accumulated Depreciation2,000Value of the sold furniture on the date of sale2,000Less: Sale price5,000Gain on sale of furniture3,0001: Gain on sale Rs. 3,000 subtract from net profit under Operating Activity.2: Purchase of furniture Rs. 12,000 is involves an outflow of cash under Investing Activity.3: Sale of Rs. 5,000 is involves an inflowof cash under Investing Activity.4: Depreciation charged on furniture during the year Rs. 5,000 added back to net profit under operatingactivity.(24) X Ltd, made a profit of Rs. 1,00,000 after considering the following items.(a) Depreciation on fixed assets Rs. 20,000 (b) Writing off preliminary expenses Rs. 10,000.(c)Loss on sale of furniture Rs. 1,000. (d) Provision for taxation Rs. 1,60,000.(e) Transfer to GeneralReserve Rs. 14,000. (f) Profit on sale of machinery Rs. 6,000.ItemsDebtorsCreditorsBills ReceivableBills PayablePrepaid ExpensesSolution:31/03/2013(Rs.) 31/03/2014 000400600Calculation of Cash Flow from Operating ActivitiesParticulars(Rs.)Net Profit before Tax2,74,000Net Profit1,00,000Provision for Taxation1,60,000Transfer to General Reserve40,000Adjustment for:Add: Depreciation on Fixed Assets20,000117
Witting off Preliminary Expenses10,000Loss on Sale of Furniture1,000Less: Profit on Sale of Machinery(6,000)Operating Profit before Working Capital ChangesAdd: Increase in Creditors2,99,00010,000Decrease in Bills Receivable3,000Less: Increase in Debtors(6,000)Decrease in Bills Payable(4,000)Increase in Prepaid Expenses(200)Net Cash Flow from Operating Activities3,01,800Net Flow of Cash Inflow of Cash – Outflow of Cash118
Unit 4: Cash Flow Statement(Marks 8) . Sample Format for Cash Flow from Operating Activity Statement of Cash Flow from Operating Activities (Indirect Method) . (13) Give any two items of cash & cash equivalents’ as per Accounting Standard – 3. (2008,11,14) Ans.:
Actual Cash Flow Statement Analysis An Actual Cash Flow Statement shows where cash actually came from and how it was used in the operation. It can be compared with a Projected Cash Flow Statement for the same year to assess the overall operation on a cash flow basis. This can be done on a quarterly basis as the year progresses if quarters in
Statement of Cash Flow (Indirect Method) Cash flow from operating activities Sources: Cash Sales and collections of A/R Uses: Cost of goods sold Cash operating expenses . however, the methodology and format are quite different. The objective of the statement of cash flow is to show the three types of activities on a pure cash basis. However .
Meaning : It is a statement that shows flow (Inflow or outflow) of cash and cash equivalents during a given period of time. As per Accounting Standard-3 (Revised) the changes resulting in the flow of cash & cash equivalent arises on account of three types of activities i.e., Cash flow from Operating Activities. Cash flow from Investing Activities.
C. Mulford: Cash Flow Analysis, p. 1 Analyzing Cash Flows Selected income statement data and a cash flow statement in the UCA format are provided below for 5 cases. Each case is a variation on the income and cash flow statement for the same company. In fact
Cash flow statements AS 3 cash flow statements IAS 7 statement of cash flows Ind AS 7 statement of cash flows Bank overdraft Financing activities Cash &cash equivalents Same as IFRS Cash flows from extra ordinary items to be classified as operating, financing and investing activities. Cash flow statements do not reflect any
A cash flow statement — also known as a statement of cash flows — tracks money in and money out of your company. It . free cash flow statement template from QuickBooks. Download your professional cash flow statement template for free. . Nearly every business that graduates from Excel
Projected Cash Flow Statement Projected Cash Flow Statement is identical in format and structure to the Actual Cash Flow Statement. It records the sources, uses, amounts and timing of cash that the manager projects to flow into and out of the business in the coming year.
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