Cash Flow Analysis
Cash Flow Analysis
Cash Flow Analysis
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
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.
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
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
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.
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
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
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.
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
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