Cash Flow Analysis

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Unit 4 - CASH FLOW ANALYSIS


Information about the cash flows of an entity is useful in providing users of financial statements with
a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the
entity to utilise those cash flows. The economic decisions that are taken by users require an
evaluation of the ability of an entity to generate cash and cash equivalents and the timing and
certainty of their generation.
Indian Accounting Standard (Ind AS) 7 - An entity shall prepare a statement of cash flows in
accordance with the requirements of this Standard and shall present it as an integral part of its
financial statements for each period for which financial statements are presented.
The objective of this Standard is to require the provision of information about the historical changes
in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash
flows during the period from operating, investing and financing activities.
Ind AS 7 provides guidance on the format and presentation of cash flow statements. Entities are
required to present cash flows from operating, investing, and financing activities using either the
direct method or the indirect method. The direct method reports major classes of gross cash
receipts and payments, while the indirect method adjusts net profit or loss for non-cash items to
derive cash flows.
Additionally, the standard encourages entities to provide supplementary information that enhances
the understanding of the cash flow statement. This can include additional disclosures about
significant non-cash investing and financing activities or changes in financial liabilities.
Meaning and definitions:
Cash flow analysis refers to the evaluation of inflows and outflows of cash in an organisation
obtained from financing, operating and investing activities. In other words, we can say that it
determines the ways in which cash is earned by the company.
Cash flow statement is a statement which shows sources of inflows (receipts) and outflows
(payments) of cash (and its equivalents) in a firm during a particular period of time. In other words,
it shows the sources from which cash was received and the various applications or uses of cash
during an accounting period.
Cash flow statement is defined by the Institute of Chartered Accountants of India as "a
statement which discloses the changes in cash position between the two periods. Along with the
changes in the cash position the cash flow statement also outlines the reasons for such inflows or
outflows of cash which in turn helps to analyze the functioning of a business."
According to the Institute of Cost Accountants of India, Cash flow statement is defined as "a
statement setting out the flow of cash under distinct heads of sources of funds and their utilization to
determine the requirements of cash during the given period and to prepare for its adequate
provision."
Cash & Cash Equivalents:
Cash includes cash in hand and demand deposit with banks. Demand deposits with banks are those
deposits which can be withdrawn without prior notice and penalty charges. Generally, long term
deposits are placed for a specific period in banks and those cannot be withdrawn without penalty,
hence it cannot be classified as cash.
Cash equivalents are short term, (say, of three months or less from the date of acquisition). Highly
liquid investments that is readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
They are held for the purpose of meeting short-term cash commitments rather than for investment or
other purposes. Examples of cash equivalents are, treasury bills, short-term government bonds,
Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty
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commercial papers & money market funds etc.


Cash flows: Cash flows means movement of cash and cash equivalents in and out of the
organization, which are called cash inflows and cash outflows. The difference between cash inflow
and cash outflow is called as net cash flow.
Classification of cash flows:
According to ‘Accounting Standard -3 (Revised), the cash flow statement should report cash flows
during the period classified by operating, investing and financing activities.
(i) Operating activities: Operating activities are the principal revenue producing activities of the
enterprise and other activities that are not investing or financing activities). The amount of cash
flows arising from operating activities is a key indicator of the extent to which the operations of the
enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise
to pay dividends, repay loans and make investments without recourse to external sources of
financing. Examples of cash flows from operating activities are as follows:
a) Cash receipts from the sale of goods and the rendering of services.
b) Cash receipts from royalties, fees, commissions and other revenue.
c) Cash payments to suppliers for goods and services (such as payment of rent, electricity bill,
fire insurance premium etc).
d) Cash payments to employees (salaries, wages etc.) and cash payments on behalf of employees
(such as, life insurance premium and tax deducted at source etc).
e) Cash receipts and refunds of income taxes unless they can be specifically identified with
financing and investing activities.
f) Cash receipts and payments arising from the purchase and sale of dealing or trading
securities.
(ii) Investing activities: Investing activities are the acquisition (purchase) and disposal (sale) of
long-term assets and other investments not included in cash equivalents). These long-term assets and
investments are the resources intended to generate future income and cash flows. Examples of cash
flows arising from investing activities are as follows:
a) Cash payments to acquire fixed assets (including intangible assets, for example, goodwill,
copy rights etc.,) and to construct fixed assets.
b) Cash payments relating to capitalized research and development costs,
c) Cash receipts from disposal of fixed assets (including intangibles).
d) Cash payments to acquire shares, warrants or debt instruments of other enterprises and
interests in joint ventures (other than payments for those instruments considered to be cash
equivalents and those held for dealing or trading purposes).
e) Cash receipts from disposal of shares, warrants, of debt instruments of other enterprises and
interests in joint ventures (other than receipts from those instruments considered to be cash
equivalents and those held for dealing or trading purposes).
f) Cash advances and loans made to third parties (other than advances and loans made by a
financial enterprise).
g) Interest, Dividend and Rent received.
(iii) Financing activities: Financing activities are activities that result in changes in the size and
composition of the owner’s capital (including preference share capital in the case of a company) and
borrowings of the enterprise. Examples of cash flows arising from financing activities are as follows:
a) Cash proceeds from issuing shares or other similar instruments.
b) Cash proceeds from issuing debentures, loans, notes, bonds, and other short or long-term

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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borrowings
c) Cash repayments of amounts borrowed
d) Cash payments to redeem preference shares
e) Payment of dividend and interest.
Other items: In addition to the cash flows, AS-3 (Revised) also deals with certain other items as
outlined below:
a) Taxes on Income: Cash flows arising from taxes should be separately disclosed and should be
classified as cash flows from operating activities unless they can be specifically identified with
financing and investing or financing activities in cash flow statement.
b) Extraordinary items: The cash flows associated with extraordinary items (e.g. winning of a
law suit or a lottery and receipt from insurance company etc) should be classified and disclosed
separately as arising from operating, investing or financing activities in cash flow statement.
c) Acquisitions and disposals of subsidiaries and other business units: The aggregate cash
flows arising from acquisitions and from disposals of subsidiaries or other business units should
be presented separately and classified as investing activities.
d) Foreign currency cash flows: cash flows arising from transaction in a foreign currency should
be recorded in an enterprise’s reporting currency by applying the exchange rate between the
reporting currency and the foreign currency at the date of the cash flow. Unrealized gains and
losses arising from changes in foreign exchange rates are not cash flows. This amount is
presented separately.
Non-cash transactions: Many investing and financing transactions do not involve inflow or outflow
of cash or cash equivalents. They do not have a direct impact on current cash flows although they do
affect the capital and assets structure of an enterprise. Transactions which do not involve inflow or
outflow of cash or cash equivalents are called non-cash transactions. In other words, transactions in
which both debit and credit accounts involved belong to cash category or non-cash category are
called noncash transaction. Non-cash transactions are excluded from the cash flow statement.
Examples of noncash transactions are:
(i) The acquisitions of assets/an enterprise by means of issue of shares
(ii) The acquisitions of a fixed asset, say machinery, on credit and
(iii) The conversion of convertible debentures into equity shares.
Advantages of cash flow statement:
The following are the main advantages of cash flow statement.
1. Cash management: One of the most important functions of the management is to manage
cash resources in such a way that adequate cash is available to meet the liabilities. A cash
flow statement enables the management to plan and coordinate financial operations
efficiently.
2. Cash planning: The projected cash flow statement helps the management to determine the
likely inflow or outflow of cash from operation and the amount of cash required to be raised
from other sources to meet the future needs of the business.
3. Movement of cash: Cash flow statement discloses the increase of decrease in cash and
reasons therefore.
4. Repayment of loan: The cash flow analysis helps the management in estimating the
possibility of repayment of long-term debts which depends upon the availability of cash.
5. Factual report of operations: Cash flow statement gives the exact figures of cash flow from
operations. The cash flow from operation is not subject to manipulation. It gives more

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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reliable picture of the results and operations than the profit and loss account. The amount of
profit can be easily changed by changing the amount of depreciation. Hence, the profit
shown in the profit and loss account may be unreliable.
6. Inter-firm comparison: Cash flow statement enhances the comparability of the reported
performance by different enterprises because it eliminates the effects of using different
accounting treatments for the same transactions and events.
7. Cash budgeting: Cash flow statement is used as an indicator of the amount, timing and
certainty of future cash flows. It is helpful in preparing cash budgets.
8. Performance analysis: Comparison of budgeted cash flow statement (or projected cash flow
statement) and actual cash flow statement will show the extent to which cash budget has been
followed. It will disclose the success or failure of the management in managing cash
resources.
9. Financial commitment: Cash flow statement gives an idea of the ability of the enterprise to
meet its short-term commitments in time.
10. Financial structure: Cash flow statement provides information of all the investing and
financing cash transactions. It explains most of the changes in financial statements. It
explains most of the changes in financial statements. It enables the users to evaluate changes
in net assets of an enterprise and its financial structure.
Limitations of cash flow statement:
The important limitations are:
1. Misleading comparison: Cash flow statement does not measure the economic efficiency of
companies. Generally, a company with heavy capital investment will have more cash flow.
Hence, inter-firm comparison of cash flow statement may be misleading.
2. Misleading conclusion: Comparison of cash flow over a period of time can be misleading.
Increased cash flow need not always mean that the company is better off.
3. Liquidity position: The cash balance as disclosed by the cash flow statement may not
represent the real liquid position of the business. The cash can be easily influenced by
purchase and sales policies, advance payments, or postponing payments.
4. Non-cash charges: Cash flow statement ignores non-cash charges. Non-cash charges will
have to be taken into account for judging the profitability of an enterprise.
5. Not equal to income statement: Cash flow statement cannot be equated with the income
statement. Income statement takes into account both cash as well as noncash items. Hence,
net cash flow does not necessarily mean net income of the business.
6. Supplementary: Cash flow statement is only a supplement to funds flow statement. It
cannot replace income statement or funds flow statement as each one has its own function or
purpose of preparation.

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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Format of Cash Flow Statement:


Cash Flow Statement for the year ended …………………..
Cash flows from operating activities:
Closing balance of P & L a/c xxx
Less: Opening balance of P & L a/c xx xxx
Add: Non-cash and non-operating expenses which have been already
debited to P & L A/c:
Depreciation x
Amount written off on fictitious & intangible asset, such as, goodwill,
patents, trademarks, preliminary expenses, discount on issue of shares,
deferred revenue expenditure, etc. x
Appropriation of retained earnings, such as transfer to general reserve,
dividend equalisation fund, sinking fund, contingency reserve, etc. x
Loss on sale of non-current (fixed) assets, such as, loss on sale of land, plant,
furniture etc. x
Loss on sale of long-term investments x
Dividend such as interim, proposed (already debited to P&L account) x
Provision for taxation for the current year x
Any other non-operating items debited to P&L A/c, such as
gifts given, damages paid, etc. x
Less: Non-cash and non-operating incomes which have already been
credited to P & L A/c: xxx
Profit/gain from sale of non-current assets, such as land and building, plant
and machinery etc. x
Profit/gain from sale of long-term investments x
Appreciation in the value of fixed assets, if it has been credited to P&L a/c x
Non-operating incomes, such as dividend received, interest on investment,
rent received etc. x
Excess provision retransferred to P&L A/c x
Any other non-operating item like compensation received from govt, share
premium etc. x xx
Operating profit before changes in working capital xxx
Add: Decrease in current assets (except cash/equivalent) x
Increase in current liabilities x
Less: Increase in current assets x
Decrease in current assets x xx
Cash flows from operating activities before tax xx
Less: Income tax paid x
Net Cash flow from operating activities xxx
Cash flows from investing activities:
Purchase or sale of fixed assets & investments x
Dividends/interest/rent received etc. x
Net cash from investing activities xxx
Cash flows from financing activities:
Issue/Redemption of share capital /debenture x
Proceeds from or repayment of long-term borrowings etc. x
Interest/Dividend paid x
Net cash from financing activities xxx
Net increase/decrease in cash and cash equivalents x
Opening balance of Cash and cash equivalents xx
Closing balance of Cash and cash equivalents at end of period xx
Note: Net cash flows from operating activities + Investing activities + financing activities shall be
equivalent to the net change in balance of cash/cash equivalents.

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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SECTION-B (5 Marks)
1. From the following data of AB Company find out cash from operating activities. The firm started
its operations on 1 April, 2016. Its trading and profit and loss account for the year ending 31
March 2017 is as follows:
(₹) (₹)
To cash purchase 30,000 By credit sales 53,000
To wages outstanding 11,000 By dividend received 2,000
To operating expenses 10,000 By closing stock 5,000
To depreciation 2,000
To goodwill 2,000
To net profit 5,000
60,000 60,000

2. Following information is available from the books of Ganesh Marble Ltd.


Particulars 2018 (₹) 2019 (₹)
Profit made during the year ---- 5,00,000
Income received in advance 1,200 1,000
Prepaid expenses 2,800 3,200
Debtors 1,90,000 1,60,000
Bills receivable 40,000 50,000
Creditors 80,000 90,000
B/P 30,000 26,000
Outstanding expenses 4,000 5,000
Accrued Income 2,400 3,000
Cash at Bank 4,000 5,000
Furniture 10,000 15,000
Calculate cash flow from operations.
3. Suresh Ltd., made a profit of ₹ 1, 85,000 after considering the following:
Depreciation on fixed assets ₹ 5,000
Profit on sale of building 10,000
Loss on sale of Machinery 4,000
Taxation provision ₹ 30,000
Transfer to reserve ₹ 10,000
Amortisation of fictitious asset ₹ 2,000
The other details of the year as under:
Details As on 31-3-2016 As on 31-3-2017(₹)
(₹)
Debtors 18,000 17,000
Creditors 12,000 9,000
Bills Receivables 7,000 4,000
Bills Payables 3,000 4,000
Bank A/c 1,000 1,500
You are required to calculate the operating cash profit and Cash flow from operation.
4. From the following information calculate cash from operations:
Balance as on: 31 March, 2018 (₹) 31March, 2019 (₹)
Stock 49,500 38,500
Debtors 93,500 82,500
Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty
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Bills payable 27,500 33,000


Creditors 60,500 41,250
Rent outstanding 16,500 5,500
Insurance prepaid 5,500 8,250
Additional information:
Provision for bad debts ₹ 8,250.
Transfer to reserve ₹ 60,500
Depreciation on: building ₹16,500
plant ₹ 5,500
Provision for taxation ₹ 1,54,000
Profit on sale of plant ₹ 16,500
Loss on sale of building ₹ 33,000
Preliminary expenses written off ₹ 16,500
Net profit for the year ₹ 9,79,000.
5. Compute cash from operations from the following:
Particulars 31-12-2018 31-12-2019
(₹) ( ₹)
Sundry Creditors 9,000 13,500
Bills Payable 7,200 3,600
Outstanding expenses 5,400 9,000
Stock 18,000 21,600
Sundry Debtors 27,000 36,000
Bill Receivable 9,000 14,400
Prepaid Expenses 1,800 900
Profit and Loss Account Balance 12,500 28,000
Other information:
a) Depreciation on fixed assets ₹2,000
b) Loss on sale of machinery ₹ 1,000
c) Dividend received on investment ₹ 450
d) Preliminary expenses written off ₹1,250
e) Goodwill written off ₹1,000
f) Transfer to General Reserve ₹5,000
g) Proposed dividend ₹ 10,000
h) Profit on sale of building ₹ 4,000.
6. The following information is supplied to you from the books of M/s Shuba Electronics. You are
required to calculate cash flow from operations.
a. Depreciation on fixed assets ₹5,000
b. Loss on sale of machinery ₹4,000
c. Profit on sale of building ₹10,000
d. Proposed Dividend ₹3,000
e. Dividend received on Investment ₹ 5,000
f. Amortization of fictitious asset ₹2,000
g. Salary paid ₹10,000
The other details of the year as under:
Details As on 31-3-2018(₹) As on 31-3-2019(₹)
Debtors 18,000 15,000
Creditors 12,000 8,000
Bills Receivables 8,000 10,000
Bills Payables 6,000 8,000
Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty
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Outstanding expenses 3,000 2,000


Profit for the year -- 1,56,000
Cash at Bank 2,000 3,000

7. Ratan Ltd., had a profit of ₹ 17, 50,000 for the year ended 31st March, 2020 after considering the
following:
Depreciation on Building ₹ 1, 30,000
Depreciation on Plant and Machinery ₹ 40,000
Goodwill written off ₹ 25,000
Loss on sale of Machinery ₹ 9,000
Following was the position of current assets and current liabilities of the company as on
31 March, 2019 and 2020.
Particulars 31st March, 2019(₹) 31st March, 2020(₹)
Stock 70,000 87,000
Bill Receivable 67,000 58,000
Cash 60,000 75,000
Creditors 68,000 77,000
Outstanding salary 7,000 4,000
Bills Payable 43,000 29,000
Calculate cash flow from operating activities.
8. From the following details, compute operating cash profit:

Profit & loss appropriation account as on 1-4-2022 6,00,000
Profit & loss appropriation account as on 31-3-2023 8,00,000
Provision for tax as on 1-4-2022 3,00,000
Provision for tax as on 31-3-2023 4,50,000
Proposed dividend debited to P & L appropriation a/c 1,85,000
Transfer to general reserve for the year 1,40,000
Interim dividend for the year 80,000
Tax paid during the year 2,60,000
Compensation received from government in a law suit 1,15,000
9. From the following trading and profit and loss account of Rituparna Ltd. compute net cash from
operating activities.
Trading & profit & loss account
₹ ₹
To cost of goods sold 4,40,000 By sales 7,00,000
To Gross profit c/d 2,60,000
7,00,000 7,00,000
To salaries 15,500 By Gross profit b/d 2,60,000
To depreciation 25,000
To loss on sale of investments 7,000
To rent 5,500
To discount on issue of shares 9,000
To provision for tax 35,000
To proposed dividend 42,000
To Net profit c/d 1,21,000
2,60,000 2,60,000

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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10. From the following income statement of Suman Ltd. compute cash flow from operating
activities.
Income statement for the year 2022
Particulars ₹
Sales 10,00,000
Less: Operating expenses excluding depreciation 8,00,000
2,00,000
Less: Depreciation on machinery 75,000
Net profit before tax 1,25,000
Add: Extraordinary income – Gain on speculation 35,000
1,60,000
Less: Provision for tax @ 30% 48,000
Profit after tax 1,12,000
Additional information:
a. Sales include cash sales of ₹ 4,00,000.
b. Operating expenses includes loss on sale of machinery ₹ 15,000.
c. Tax paid during the year was ₹ 42,000.
d. The following current assets & current liabilities are furnished by the company.
Particulars 1-4-2021 (₹) 1-4-2022 (₹)
Stock 30,000 25,000
Debtors 28,000 35,000
Creditors 40,000 48,000

11. From the following Balance sheet of Anjali Ltd, prepare Cash Flow Statement.
Liabilities 2019(₹) 2020(₹) Assets 2019(₹) 2020(₹)
Equity Capital 1,50,000 2,00,000 Goodwill 57,500 45,000
8% Redeemable Preference Shares 75,000 50,000 Buildings 1,00,000 85,000
General Reserve 20,000 35,000 Plant 40,000 1,00,000
Profit and Loss A/c 15,000 24,000 Debtors 80,000 1,00,000
Proposed Dividend 21,000 25,000 B/R 10,000 15,000
Creditors 27,500 41,500 Cash in hand 7,500 5,000
Bills Payable 10,000 8,000 Cash at Bank 5,000 4,000
Provision forTax (C.L.) 20,000 25,000 Prel. expenses 8,500 4,500
Stock 30,000 50,000
3,38,500 4,08,500 3,38,500 4,08,500
12. From the following particulars of M/s Ram and Shyam prepare Cash Flow Statement:
Liabilities 2014 (₹) 2015 (₹) Assets 2014 (₹) 2015 (₹)
Creditors 80,000 88,000 Bank 20,000 14,000
Mrs. Ram's Loan 50,000 - Debtors 60,000 1,00,000
Bank Loan 80,000 1,00,000 Stock 70,000 50,000
Capital 2,50,000 3,06,000 Machinery 2,10,000 1,90,000
Depreciation provision 50,000 Land 80,000 1,00,000
80,000 Buildings 70,000 1,20,000
5,10,000 5,74,000 5,10,000 5,74,000
During the year a Machine costing ₹ 20,000 (Accumulated depreciation there on being ₹ 6,000) was
sold for ₹10,000. Net profit for the year amounted to ₹90,000.

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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SECTION-C (15 Marks)


13. Following are the summarised Balance Sheets of A Ltd, as on 31t Dec2018 and 2019.
Liabilities 2018(₹) 2019(₹) Assets 2018(₹) 2019(₹)
Share Capital 4,50,000 4,50,000 Fixed assets 4,00,000 3,20,000
General reserve 3,00,000 3,10,000 Investments 50,000 60,000
Profit and Loss A/c 56,000 68,000 Stock 2,40,000 2,10,000
Creditors 1,68,000 1,34,000 Debtors 2,10,000 4,55,000
Provision for Bank 1,49,000 1,97,000
taxation (NCL) 75,000 10,000
Bills Payable ---- 2,70,000
10,49,000 12,42,000 10,49,000 12,42,000
Additional information:
a. Investment costing ₹ 8,000 were sold during the year 2019 for ₹ 8,500.
b. Provision for taxation made during the year 2019 was ₹9,000.
c. During the year 2019, part of fixed assets having book value of ₹10,000 was sold for
₹12,000.
d. Dividend paid during the year 2019 amounted to ₹ 40,000.
You are required to prepare a statement of sources and uses of cash.
14. The following are the summarised Balance sheets of a company as on 31st December, 2019 &
2020:
Liabilities 2019 (₹) 2020 (₹) Assets 2019 (₹) 2020 (₹)
Share Capital 2,00,000 2,50,000 Land and Building 2,00,000 1,90,000
General reserve 50,000 60,000 Machinery 1,50,000 1,69,000
Profit and Loss 30,500 30,600 Stock 1,00,000 74,000
Alc Sundry Debtors 80,000 64,200
Mortgage loan 70,000 ---- Cash 500 600
(Long term) 1,50,000 1,35,200 Bank --- 8,000
Sundry Creditors Goodwill --- 5,000
Provision for 30,000 35,000
taxation 5,30,500 5,10,800 5,30,500 5,10,800
Additional information:
During the year ended 31st December, 2020:
a. Dividend of ₹ 23,000 was paid.
b. Assets of another company were purchased for a consideration of ₹ 50,000 payable in shares.
c. The following assets were purchased: Stock ₹ 20,000, Machinery ₹ 25,000
d. Machinery was further purchased for ₹ 8,000.
e. Depreciation written off machinery ₹12,000
f. Income tax provided during the year ₹ 33,000
g. Loss on sale of machinery ₹ 200 was written off to general reserve.
You are required to prepare cash flow statement.

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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15. The following are the summarised Balance sheets of a company as on 31st December, 2019 &
2020:
Liabilities 2019 (₹) 2020 (₹) Assets 2019 (₹) 2020 (₹)
Share Capital 3,00,000 4,00,000 Land and Building 3,00,000 3,30,000
General reserve 50,000 60,000 Machinery 1,50,000 1,69,000
Profit and Loss A/c 30,500 30,600 Stock 1,00,000 74,000
Long term loan -- Accounts Receivables 80,000 64,200
Accounts payable 70,000 - Cash in hand 500 5,600
Provision for taxation 1,50,000 1,35,200 Cash at Bank --- 8,000
30,000 35,000 Goodwill --- 10,000

6,30,500 6,60,800 6,30,500 6,60,800


Additional information:
During the year ended 31st December, 2020:
a. Dividend paid during the year ₹30,000.
b. Assets of another company were purchased for a consideration of ₹ 1,00,000 payable in
shares.
c. The following assets were purchased: Stock ₹ 50,000, Machinery ₹ 40,000
d. Machinery was further purchased for ₹ 28,000.
e. Depreciation written off machinery ₹ 12,000
f. Income tax provided during the year ₹ 37,000
g. Loss on sale of machinery ₹ 2,000 was written off to general reserve.
You are required to prepare cash flow statement.
16. Prepare Cash Flow Statement from the following Balance Sheets of Ultra Engineering Ltd.
Liabilities 2018(₹) 2019(₹) Assets 2018(₹) 2019(₹)
Share Capital 17,00,000 18,35,000 Buildings 8,00,000 10,00,000
Reserves 40,000 83,700 Plant and Machinery 2,50,000 3,70,000
Profit and Loss A/c 1,00,000 1,30,000 Fixtures and fittings 5,000 6,000
Provision for dividend 70,000 50,000 Cash 2,000 2,200
Creditors 1,00,000 95,000 Debtors 1,00,000 45,000
Bank Overdraft 8,000 18,000 Bills Receivable 8,000 9,000
Bills payable 14,000 13,000 Stock 4,00,000 3,43,700
Loan on mortgage 10,000 70,000 Prepaid expenses 3,000 3,100
Investments 1,64,000 1,70,000
Goodwill 3,00,000 3,43,700
Preliminary expenses 10,000 2,000
20,42,000 22,94,700 20,42,000 22,94,700
Additional information:
a. Depreciation is charged on building at 3% of cost of ₹ 9, 00,000, on plant and machinery at
8% of cost of ₹ 4, 00,000, fixtures and fittings at 5% of cost of ₹ 8,000.
b. Investments were purchased and interest received ₹ 3,000 was used in writing down the book
value of investments.
c. The declared dividend for 2018 was paid and interim dividend ₹ 20,000 paid out of profit and
loss account.

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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17. The summarised balance sheets of Navayuga Industries for the years ending 31st march 2019 and
2020 are re-produced below.
Liabilities 2019 (₹) 2020 (₹) Assets 2019 (₹) 2020 (₹)
Equity capital 60,00,000 60,00,000 Plant and machinery
Reserves 30,90,000 34,10,000 (less: Depreciation) 31,00,000 37,50,000
Profit and Loss A/c 1,50,000 1,80,000 Land and building
16% Debentures ---- 15,00,000 (less: Depreciation) 14,20,000 17,50,000
Creditors 3,10,000 3,70,000 Furniture
(less: Depreciation) 8,40,000 9,80,000
Investments 50,000 60,000
Stock 3,40,000 4,20,000
Debtors 30,00,000 36,00,000
Cash at Bank 8,00,000 9,00,000
95,50,000 1,14,6000 95,50,000 1,14,6000
Additional information for the year ending 31st March, 2020:
a. Dividend of ₹ 1, 80,000 for the year ended 31st March, 2019 was paid during 2020.
b. Investment costing ₹ 10,000 was sold for ₹ 12,000.
c. Depreciation on assets for the year ending 31st March 2020 charged to profit and Loss
Account was as follows:
d. Land and building ₹ 42,000, Plant and Machinery ₹ 4, 74,000 Furniture ₹ 1, 84,000
e. Sale of Fixed assets: Machinery: Sales value ₹ 1, 00,000 (book value ₹ 2, 20,000),
Furniture: Sales Value ₹ 30,000 (book value ₹ 20,000).
You are required to prepare the cash flow statement as per AS-3 (Revised) for the year
ending 31 March 2020 together with relevant ledger accounts.
18. Below are given balance sheets as on 31-12-2019 and 31-12-2020 and a statement of income and
retained earnings for 2020 of XYZ Co. Ltd.
Liabilities 2019(₹) 2020(₹) Assets 2019(₹) 2020(₹)
Share Capital 1,00,000 1,20,000 Fixed Assets 2,50,000 2,80,000
General Reserves 22,500 25,000 Less: Accumulated
Retained earnings 11,000 12,500 depreciation (50,000) (60,000)
10% debentures 50,000 40,000 Stock 40,000 45,000
Bank loan 20,000 25,000 Debtors 30,000 25,000
Creditors 66,000 55,200 Bank Balance 11,000 14,000
Expenses outstanding 1,000 3,000 Prepaid Expenses 500 700
Provision for taxation 14,000 26,000 Preliminary 3,000 2,000
Expenses
2,84,500 3,06,700 2,84,500 3,06,700
Statement of income and reconciliation of retained earnings for the year ended 31-12-2020:
Particulars Amount Amount
₹ ₹
Net Sales 3,95,000
Less: Cost of goods sold 3,15,000
Gross profit 19,000 80,000
Less: Sundry Expenses 10,000
Depreciation 1,000
Preliminary expenses written off 30,000
Net profit before tax 50,000
Less: Provision for tax 26,000

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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Net profit after tax 24,000


Less: Transfer to general reserves 2,500
Payment of dividend 20,000 22,500
1,500
Add: Retained earnings on 31-12-2019 11,000

Retained earnings on 31-12-2020 12,500


You are required to prepare a cash flow statement.

19. From the following Balance Sheets of Sun Ltd. Prepare Cash Flow Statement for the year ending
31-3-2020 together with relevant ledger accounts.
Liabilities 2019 (₹) 2020 (₹) Assets 2019 (₹) 2020 (₹)
Equity Share 4,50,000 5,00,000 Land and Buildings 2,00,000 1,70,000
Capital 70,000 1,18,000 Machinery 80,000 2,00,000
Profit and Loss A/c 97,000 1,33,000 Stock 77,000 1,09,000
Creditors 20,000 16,000 Debtors 1,60,000 2,00,000
Bills Payable 40,000 50,000 Bills Receivables 20,000 30,000
Taxation Provision Bank 25,000 18,000
Goodwill 1,15,000 90,000
6,77,000 8,17,000 6,77,000 8,17,000
Additional information:
a) Depreciation of ₹10,000 and ₹20,000 has been charged on machinery and land and
buildings respectively.
b) An interim dividend of ₹20,000 has been paid during current accounting year.
c) ₹ 35,000 income tax was paid during current accounting year.
20. The following are the summarised Balance sheets of a company as on 31st December, 2019 &
2020:
Liabilities 2019 (₹) 2020 (₹) Assets 2019 (₹) 2020 (₹)
Share Capital 2,00,000 2,60,000 Land and Building 2,00,000 1,90,000
General reserve 50,000 60,000 Machinery 1,50,000 1,69,000
Profit and Loss 30,500 30,600 Stock 1,00,000 74,000
A/c Sundry Debtors 80,000 64,200
Mortgage loan 70,000 ---- Cash 500 5,600
(Long term) 1,50,000 1,35,200 Bank --- 8,000
Sundry Creditors Goodwill --- 10,000
Provision for 30,000 35,000
taxation
5,30,500 5,20,800 5,30,500 5,20,800
Additional information:
During the year ended 31st December, 2020:
a. Dividend of ₹ 30,000 was paid.
b. Assets of another company were purchased for a consideration of ₹60,000 payable in shares.
c. The following assets were purchased: Stock ₹ 25,000, Machinery ₹ 25,000
d. Machinery was further purchased for ₹ 28,000.
e. Depreciation written off machinery ₹12,000
f. Income tax provided during the year ₹ 37,000
g. Loss on sale of machinery ₹ 2,000 was written off to Profit and Loss A/c.
You are required to prepare cash flow statement.

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


P a g e | 14

21. From the following balance sheets and additional information of M/s Atal traders, prepare cash
flow statement.
Balance sheets as on 31st December
Liabilities 2021 (₹) 2022 (₹) Assets 2021 (₹) 2022 (₹)
Share capital 3,00,000 1,80,000 Machinery 2,20,000 1,88,000
Bank loan --- 2,00,000 Less: Accumulated
Bank overdraft 1,90,000 2,40,000 Depreciation 25,000 38,000
Creditors 1,30,000 1,50,000 1,95,000 1,50,000
Outstanding expenses 45,000 60,000 Buildings 2,25,000 3,20,000
Stock 1,50,000 1,95,000
Debtors 70,000 1,00,000
Cash at bank 25,000 65,000
6,65,000 8,30,000 6,65,000 8,30,000
During the year 2022, the company has sold the machine worth ₹ 30,000 (Accumulated depreciation
₹ 10,000) for ₹ 10,000. The accumulated depreciation on machinery as on 31-12-2021 was ₹ 25,000
and as on 31-12-2022, it was 38,000. There was a net loss of ₹ 67,000 for the year 2022.
22. Balance sheets of M/s. Sunshine as on 1st January 2022 and 31st December 2022 were as
follows:
Balance sheets as on 31st December
Liabilities 2021 (₹) 2022 (₹) Assets 2021 (₹) 2022 (₹)
Share capital 1,25,000 1,53,000 Land 40,000 50,000
Loan from bank 40,000 50,000 Buildings 35,000 60,000
Mr. White’s loan 25,000 --- Machinery (Net) 80,000 55,000
Creditors 40,000 44,000 Stock 35,000 25,000
Debtors 30,000 50,000
Cash at bank 10,000 7,000
2,30,000 2,47,000 2,30,000 2,47,000
Net profit for the year 2022 was ₹45,000. During the year, a machine costing ₹10,000 (Accumulated
depreciation 3,000) was sold for ₹5,000. The provision for depreciation on machinery as on 1st
January 2022 was ₹25,000 and as on 31st December 2022 was ₹40,000.
Prepare cash flow statement.
23. From the following balance sheets of Narendra Pvt. Ltd, prepare cash flow statement.
Balance sheets as on 31st December
Liabilities 2021 (₹) 2022 (₹) Assets 2021 (₹) 2022 (₹)
Share capital 2,00,000 2,00,000 Machinery 56,000 68,000
Contingency reserve 1,10,000 1,10,000 Buildings 1,45,000 1,45,000
Profit and loss account 20,000 29,000 Investments 1,00,000 61,000
10% Debentures 90,000 78,000 Stock 95,000 1,15,000
Depreciation fund 80,000 90,000 Debtors 1,12,000 1,00,000
creditors 70,000 50,000 Cash 83,000 83,000
Outstanding expenses 33,000 30,000 Prepaid expenses 12,000 15,000
6,03,000 5,87,000 6,03,000 5,87,000
Additional information
a. 12% dividend was paid in cash.
b. A machine was purchased for ₹35,000 for an old machine, which costs ₹13,000 was sold for
7,000, on which, the accumulated depreciation was ₹5,000.
c. ₹12,000 of 10% debentures were redeemed by purchase from open market at ₹98 for a
Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty
P a g e | 15

debenture of ₹100.
d. Investments were sold at book value.
24. Rituparna Ltd. requests you to prepare a cash flow statement for the year 2023 from the
following balance sheets.
Balance sheets
Liabilities 2022 (₹) 2023 (₹) Assets 2022 (₹) 2023 (₹)
Share capital 2,00,000 2,00,000 Machinery 60,000 3,00,000
Debentures 1,00,000 20,000 Buildings 2,00,000 2,60,000
Reserves 80,000 1,40,000 Land 1,55,000 2,16,000
Bank loan 80,000 1,40,000 Stock 90,000 1,20,000
Bank overdraft --- 2,60,000 Debtors 60,000 80,000
Creditors 60,000 90,000 Cash 5,000 10,000
Proposed dividend 1,00,000 1,40,000 Bank 30,000 ---
Discount on issue
of debentures 20,000 4,000
6,20,000 9,90,000 6,20,000 9,90,000
During the year 2023,
a. Dividend paid was ₹1,00,000.
b. Premium on redemption of debentures – 20%.
c. Depreciation on buildings was ₹40,000 and machinery was ₹20,000.
25. From the following balance sheets of Usha Ltd, prepare a cash flow statement.
Balance sheets
Liabilities 2022 (₹) 2023 (₹) Assets 2022 (₹) 2023 (₹)
Share capital 2,00,000 5,50,000 Machinery 2,70,000 7,80,000
9% debentures --- 3,50,000 Goodwill --- 1,00,000
Profit and loss account 1,00,000 1,80,000 Stock 60,000 1,20,000
Creditors 80,000 1,40,000 Debtors 50,000 1,50,000
Bills payable 60,000 90,000 Cash 90,000 2,00,000
Provision for taxation 80,000 1,00,000 Bank 50,000 60,000
5,20,000 14,10,000 5,20,000 14,10,000
Additional information
a. During the year 2023, a business of a sole trader was purchased by issuing shares for ₹3,00,000.
The following assets were acquired: Goodwill ₹1,00,000; Machinery ₹1,00,000; Stock ₹50,000;
Debtors ₹50,000.
b. Provision on tax for the year 2023 was ₹85,000.
c. A premium of 7% was issued on debentures, which is included in profit and loss account.
d. Deprecation on machinery was ₹45,000.
26. From the following balance sheets of Aradhya Traders, prepare a cash flow statement.
Balance sheets as on 31st December
Liabilities 2022 (₹) 2023 (₹) Assets 2022 (₹) 2023 (₹)
Share capital 4,00,000 4,80,000 Buildings 5,80,000 7,00,000
6% Debentures 1,20,000 1,70,000 Goodwill 1,00,000 70,000
General reserve 2,00,000 2,30,000 Trade investments 2,10,000 1,30,000
Mortgage loan 4,20,000 1,80,000 Stock 6,00,000 4,00,000
Bank overdraft 1,90,000 2,30,000 Debtors 3,50,000 5,40,000
Creditors 4,30,000 4,60,000 Cash 70,000 1,10,000

Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty


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Provision for depreciation


on buildings 1,50,000 2,00,000
19,10,000 19,50,000 19,10,000 19,50,000
Additional information:
a. Dividend paid to shareholders was ₹1,90,000.
b. A building worth ₹85,000 were sold for ₹25,000 thereby causing a loss of ₹30,000.
c. Shares were issued at 25% premium, which were included in general reserve.

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Management Accounting Notes compiled by: Asst. Prof. Sahana Shetty

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