AS Book 1

FINANCIAL STATEMENTS OF COMPANIES 11.
109 a
Cash flows from financing activities

Redemption of debentures (22-15) (7)
Interest paid (1.5)
Dividend paid (11.7)
Net cash used in financing activities (20.2)
Net increase in cash 12.2
Cash at beginning of the period 6.0
Cash at end of the period 18.2
Significant non-cash items:
(a) Debenture-holders received equity shares of ₹ 15 crores on redemption of

the debentures.
(b) Plant having book value of ₹ 12 crores was given in exchange of an asset
costing ₹ 21 crores. The said plant was transferred at a value of ₹ 10 crores
only, and ₹ 11 crores was paid for the balance dues towards the plant.
Illustration 12
From the following information of Mr. Zen, prepare a Cash flow statement as per
AS-3 for the year ended 31.3.20X1:
Ledger balances of Mr. Zen as of 20X0 and 20X1
As on 1.4.20X0 As on 1.4.20X1
` `
Zen’s Capital A/c 10,00,000 12,24,000
Trade payables 3,20,000 3,52,000
Mrs. Zen’s loan 2,00,000 --
Loan from Bank 3,20,000 4,00,000
Land 6,00,000 8,80,000
Plant and Machinery (net block) 6,40,000 4,40,000
Inventories 2,80,000 2,00,000
Trade receivables 2,40,000 4,00,000
Cash 80,000 56,000
© The Institute of Chartered Accountants of India

a 11.110 ADVANCED ACCOUNTING
Additional information:
A machine costing ` 80,000 (accumulated depreciation there on `24,000) was sold
for ` 40,000. The provision for depreciation on 1.4.20X0 was ` 2,00,000 and
31.3.20X1 was ` 3,20,000. The net profit for the year ended on 31.3.20X1 was
` 3,60,000.
Solution
Cash Flow Statement of Mr. Zen as per AS 3
for the year ended 31.3.20X1
(i) Cash flow from operating activities
Net Profit (given) 3,60,000
Adjustments for
Depreciation on Plant & Machinery (W.N.2) 1,44,000
Loss on Sale of Machinery (W.N.1) 16,000 1,60,000
Operating Profit before working capital 5,20,000

changes
Decrease in inventories 80,000
Increase in trade receivables (1,60,000)
Increase in trade payables 32,000 (48,000)
Net cash generated from operating activities 4,72,000
(ii) Cash flow from investing activities
Sale of Machinery (W.N.1) 40,000
Purchase of Land (8,80,000 – 6,00,000) (2,80,000)
Net cash used in investing activities (2,40,000)

FINANCIAL STATEMENTS OF COMPANIES 11.111 a
(iii) Cash flow from financing activities

Repayment of Mrs. Zen’s Loan (2,00,000)
Drawings (W.N.3) (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 1.4.20X0 80,000
Cash balance as on 31.3.20X1 56,000
Working Notes:
1. Plant & Machinery A/c
` `
To Balance b/d 8,40,000 By Cash – Sales 40,000
(6,40,000 + 2,00,000) By Provision for 24,000
Depreciation A/c
By Profit & Loss A/c – 16,000
Loss on 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
` `
To Plant and 24,000 By Balance b/d 2,00,000
Machinery A/c
To Balance c/d 3,20,000 By Profit & Loss A/c 1,44,000
(Bal. fig.)
3,44,000 3,44,000

a 11.112 ADVANCED ACCOUNTING
3. To find out Mr. Zen’s drawings:
`
Opening Capital 10,00,000
Add: Net Profit 3,60,000
13,60,000
Less: Closing Capital (12,24,000)
Drawings 1,36,000
Note: Students may note that in case there is an increase in the amount of
debentures/ loans during the year and the interest is required to be
computed, then in such a case, students may choose either to compute
interest on the closing balance of the debentures or may compute interest
on opening balance for full year (in case of no repayment) and
proportionate interest on additions. Suitable note for assumption may be
given in the solution for this.
SUMMARY
• Cash flow statement dealt under AS 3.
• Benefits include providing information relating to changes in cash and cash
equivalents of an enterprise.
• Cash include:
(a) Cash in hand and (b) Demand deposits with banks
• Cash equivalents are short term, highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
• Cash flow activities may be classified as inflow and outflow but as per AS-3
they are classified as Operating Activities, Investing activities, Financing
activities.
• Operating activities are principal revenue generating activities.

• Investing Activities relate to acquisition and disposal of long-term assets
and other investments.

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FINANCIAL STATEMENTS OF COMPANIES 11.

Cash flows from financing activities

Significant non-cash items:

(a) Debenture-holders received equity shares of ₹ 15 crores on redemption of

© The Institute of Chartered Accountants of India

(i) Cash flow from operating activities

Net Profit (given) 3,60,000

Depreciation on Plant & Machinery (W.N.2) 1,44,000

Loss on Sale of Machinery (W.N.1) 16,000 1,60,000

Operating Profit before working capital 5,20,000

Decrease in inventories 80,000

Increase in trade receivables (1,60,000)

Increase in trade payables 32,000 (48,000)

Net cash generated from operating activities 4,72,000

(ii) Cash flow from investing activities

Sale of Machinery (W.N.1) 40,000

Purchase of Land (8,80,000 – 6,00,000) (2,80,000)

Net cash used in investing activities (2,40,000)

© The Institute of Chartered Accountants of India

(iii) Cash flow from financing activities

Net decrease in cash (24,000)

Cash balance as on 31.3.20X1 56,000

2. Provision for depreciation on Plant and Machinery A/c

© The Institute of Chartered Accountants of India

3. To find out Mr. Zen’s drawings:

• Operating activities are principal revenue generating activities.

© The Institute of Chartered Accountants of India

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