1.

From the following information calculate the cash flow from operation for the year 1998
when fund from operation is Rs. 84,000. Current asset and liabilities as on 1.1.1998 and
31.12.1998 were as follows:

PARTICULARS 1.1.1998 31.12.1998

Trade creditors 1,82,000 1,94,000
Trade debtors 2,75,000 3,15,000
Bills receivable 40,000 35,000
Inventories 1,85,000 1,70,000
Trade investment 40,000 70,000
Outstanding expenses 20,000 25,000
Prepaid expenses 5,000 8,000

If a simple problem in the form of Profit and loss account is given and asked to calculate cash from
operation then the following steps can be followed:

Particulars Amount Amount

Net profit as per P&L account XXX
Add: (+) Noncash items – Items which do
not result in outflow of cash: (examples
are given below) XXX
Total XXXXX
Less: Noncash items (items which do not XXX
result in inflow of cash)
Grand total is the cash from operation XXXXXX

Examples of noncash items to be added (+) are:

 Depreciation
 Loss on sale of fixed assets (plant, m/c. furniture, land, building etc.)
 Goodwill written off
 Preliminary expenses written off
 Bad debts reserves, transfer to various reserves, general reserves, dividends

Examples of noncash items to be subtracted (-) are:

 Profit on sale of fixed assets (plant, m/c, furniture, land, building etc.)
 Profit on sale of investments
2. Trading and profit & loss a/c for 31st march 2008. Calculate cash from operation.

PARTICULARS Amount PARTICULARS Amount

To purchases 20,000 By sales 30,000
To wages 5,000
To gross profit c/d 5,000
30,000 30,000
To salaries 1,000 By gross profit b/d 5,000
To rent 1,000 By profit on sale of building
book value 10,000
sales value 15,000 5,000
To depreciation on plant 1,000
To loss on sale of 500
furniture
To goodwill return off 1,000
To net profit 5,500
10,000 10,000

3. The following is the summary of cash transaction of M/s. Anju ltd for the year ended 31, 2005.
(Amt in ‘000)
RECEIPTS Rs. PAYMENTS Rs.
Bal. as on 1.4.04 150 Payment to creditors 6,000
Issue of equity shares 900 Purchase of Fixed Assets 600
Receipt from customers 8,400 Expenses 600
Sale of Fixed Assets 300 Wages & salaries 300
Tax 750
Dividends 150
Repayment of bank loan 900
Bal. as on 31.3.05 450
9,750 9,750
You are required to prepare a Cash Flow statement for the year ended march 31st 2005 under
direct method in accordance with Accounting standard 3 (revised).
4. The summarized balance sheet of M/s. ANKIT limited as @ March 31, 2012 and 2013 are
given below.

PARTICULAR 2012 2013 PARTICULAR 2012 2013

S Rs. Rs. S Rs. Rs.
Share capital 9,00,000 9,00,000 Fixed asset 8,00,000 6,40,000
General reserve 6,00,000 6,20,000 Investment 1,00,000 1,20,000
P& L a/c 1,12,000 1,36,000 Stock 4,80,000 4,20,000
Creditors 3,36,000 2,68,000 Debtors 4,20,000 9,10,000
Provision for tax 1,50,000 20,000 Bank balance 2,98,000 3,94,000
Mortgage loan ----- 5,40,000
20,98,000 24,84,000 20,98,000 24,84,000
ADDITIONAL INFORMATION:

1. Investment costing Rs. 16,000 was sold during the year for Rs. 17,000.
2. Provision for tax during the year Rs. 18,000.
3. During the year, a part of fixed costing Rs. 20,000 was sold for Rs. 24,000 and the profit
was included in P & L a/c.
4. Dividends paid amounted to Rs. 80,000.

Prepare Cash Flow Statement in accordance with as accounting standard 3 (AS3)

5. The summarized balance sheet of XYZ ltd., as on 31st March 2013 and 2014 are given below:

Liabilities 2013 2014 Assets 2013 2014

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 60,000 Stock 2,40,000 2,10,000
Creditors 1,68,000 1,34,000 Debtors 2,10,000 4,55,000
Provision for taxation 75,000 10,000 Bank 1,49,000 1,97,000
Mortgage 2,70,000
Total 10,49,000 12,42,000 10,49,000 12,42,000

Additional information:

1. Investment costing Rs.8,000/- was sold during the year 2013-14 for Rs.8,500/-
2. Provision for tax made during the period was 9,000/-
3. During the year part of the fixed assets costing Rs.10,000/- was sold for Rs.12,000 and the profit was
included in the Profit and loss a/c.
4. Dividend paid during the year amounts to Rs.40,000/-
Prepare a cash flow statement.
Solutions for cash from operation: problem 1.

Particulars Amount Amount

Funds from operation 84,000 +
Add: Increase in current liabilities and
decrease in current assets:
Increase in CL: Trade creditors 12,000
Outstanding expenses 5,000
Decrease in CA: Bills receivables 5,000
Inventories 15,000
Total 37,000 37000 +
1,21,000
Less: Increase in current assets and
decrease in current liabilities:
Increase in CA: Debtors 40,000
Trade investments 30,000
Prepaid expenses 3,000 73,000 (-)
Grand total – Cash from operations 48,000

2. Cash from operation for the year ended 31st March 2008

Particulars Amount Amount

Net profit as per P&L account 5,500 +
Add: Depreciation on plant 1,000
Loss on sale of furniture 500
Goodwill written off 1,000
Total 2,500 2,500 +
8,000
Less: Profit on sale of building 5,000 (-)
Grand total - Cash from operation 3,000

3. 1. Cash flow from operating activities:

Particulars Amount Amount

Receipt from customers 8,400
Less: Payment to creditors 6,000
Payment of expenses 600
Payment of wages & salaries 300
Total 6,900 6,900 (-)
1,500
Less: Payment of tax 750
Grand total –Net cash from operating 750
activities

2. Cash flow from investing activities:

 Particulars Amount Amount
Sales of Fixed assets 300
Less: Purchase of fixed assets 600
Net cash flow from investing activities 300

3. Cash flow from financing activities:

Particulars Amount Amount

Issue of equity shares 900
Add: Payment of dividend 150 1050
Less: Repayment of bank loan 900
Grand total-Net cash from financing activity 150

Cash flow statement

Net cash flow from operating activities: = 750

Less: Net cash from financing and investing activities: (150+300) = 450
------
300
Add: Opening balance of cash (as given in the problem) 150
------
Net Cash flow - Closing balance of cash (as per sum) 450
====
4. Solution for 4th sum:

Step 1: We have to open ledger accounts for investment account, fixed assets and provision for tax as
there are few adjustments to be done.

Step 2: Prepare cash from operation statement

Step 3: Prepare cash flow from operating, financing and investing activities and finally end up with
closing balance of cash.
Investment A/c

Particulars Amount Particulars Amount

To opening balance b/d 1,00,000 By sale of investments 17.000
To profit and loss a/c 1,000 By balance c/d (Closing bal) 1,20,000
To bank (bal fig.) 36,000
(purchase of investment)
Total 1,37,000 Total 1,37,000
Fixed Assets A/c

Particulars Amount Particulars Amount

To opening balance b/d 8,00,000 By sale of fixed assets 24,000
To profit and loss a/c 4,000 By balance c/d (closing bal) 6,40,000
 By depreciation (bal. fig) 1,40,000
Total 8,04,000 Total 8,04,000

Provision for Tax A/c

Particulars Amount Particulars Amount

To balance c/d (Closing bal) 20,000 By opening balance b/d 1,50,000
To bank (bal. fig) 1,48,000 By profit and loss a/c 18,000
Total 1,68,000 Total 1,68,000

Calculation of cash from operation

Particulars Amount Amount

Closing balance of profit & loss a/c 1,36,000
Add: Depreciation 1,40,000
Provision for tax during the year 18,000
General reserve 20,000
Dividend paid during the year 80,000
Total 2,58,000 2,58,000 (+)
3,94,000
Less: Profit on sale of investments 1,000
Profit on sale of fixed assets 4,000
Total 5,000 5,000 (-)
3,89,000
Less: Opening balance of profit & loss a/c 1,12,000 (-)
Grand total – Cash from operation 2,77,000

1. Cash flow from operating activities

Particulars Amount Amount

Cash from operation 2,77,000
Add: Increase in current liabilities and Decrease in
current assets:
Stock (decrease in stock) 60,000 (+)
Total 3,37,000
Less: Decrease in current liabilities and increase
in current assets:
Debtors 4,90,000
Credits – Decrease in creditors 68,000
Total 5,58,000 5,58,000 (-)
2,21,000
Add: Tax paid during the year 1,48,000 (+)
Grand total – Cash flow from operating activity 3,69,000

2. Cash flow from investing activities

 Particulars Amount Amount
Sale of investments 17,000 (+)
Sale of fixed assets 24,000 (+)
Total 41,000 41,000
Less: Purchase of investments 36,000 (-)
Grand total – Cash flow from investing activity 5,000

3. Cash flow from financing activities

Particulars Amount Amount

Mortgage loan 5,40,000
Less: Dividend paid during the year 80,000 (-)
Total 4,60,000
Cash flow from financing activity 4,60,000

Cash flow statement

Net cash flow from operating activities: = 3,69,000

Less: Net cash from financing and investing activities: = 4,65,000
--------------
96,000
Add: Opening balance of cash (as given in the problem) 2,98,000
------------
Net Cash flow -Closing balance of cash (as per sum) 3,94,000
========

Solution for 5th sum:

Investment A/c
Particulars Amount Particulars Amount
To opening balance b/d 50,000 By sale of investments 8,500
To profit and loss a/c 500 By balance c/d (Closing bal) 60,000
To bank (bal fig.) 18,000
(purchase of investment)
Total 68,500 Total 68,500

Fixed Assets A/c

Particulars Amount Particulars Amount
To opening balance b/d 4,00,000 By sale of fixed assets 12,000
To profit and loss a/c 2,000 By balance c/d (closing bal) 3,20,000
By depreciation (bal. fig) 70,000
Total 4,02,000 Total 4,02,000
Provision for Tax A/c

Particulars Amount Particulars Amount

To balance c/d (Closing bal) 10,000 By opening balance b/d 75,000
To bank (bal. fig) 74,000 By profit and loss a/c 9,000
Total 84,000 Total 84,000

Calculation of cash from operation

Particulars Amount Amount

Closing balance of profit & loss a/c 68,000
Add: Depreciation 70,000
Provision for tax during the year 9,000
General reserve 10,000
Dividend paid during the year 40,000
Total 1,29,000 1,29,000 (+)
1,97,000
Less: Profit on sale of investments 500
Profit on sale of fixed assets 2,000
Total 2,500 2,500 (-)
1,94,500
Less: Opening balance of profit & loss a/c 56,000 (-)
Grand total – Cash from operation 1,38,500

1. Cash flow from operating activities

Particulars Amount Amount

Cash from operation 1,38,500
Add: Increase in current liabilities and Decrease in
current assets:
Stock (decrease in stock) 30,000 (+)
Total 1,68,500
Less: Decrease in current liabilities and increase
in current assets:
Debtors 2,45,000
Credits – Decrease in creditors 34,000
Total 2,79,000 2,79,000 (-)
1,10,500
Add: Tax paid during the year 74,000 (+)
Grand total – Cash flow from operating activity 1,84,500

2. Cash flow from investing activities

Particulars Amount Amount

Sale of investments 8,500 (+)
 Sale of fixed assets 12,000 (+)
Total 20,500 20,500
Less: Purchase of investments 18,000 (-)
Grand total – Cash flow from investing activity 2,500

3. Cash flow from financing activities

Particulars Amount Amount

Mortgage loan 2,70,000
Less: Dividend paid during the year 40,000 (-)
Total 2,30,000
Cash flow from financing activity 2,30,000

Cash flow statement

Net cash flow from operating activities: = 1,84,500

Less: Net cash from financing and investing activities: = 2,32,500
--------------
48,000
Add: Opening balance of cash (as given in the problem) 1,49,000
------------
Net Cash flow -Closing balance of cash (as per sum) 1,97,000
========

Solution for Fund flow sums:

1. Schedule of changes in working capital

Particulars 2012 2013 Increase Decrease

Current Assets - A
Stock 1,21,000 1,26,000 15,000
Debtors 1,81,000 1,70,000 11,000
Cash 1,43,000 2,70,000 1,27,000
Total A 4,45,000 5,76,000
Current Liabilities - B
Creditors 1,06,000 70,000 36,000
Total B 1,06,000 70,000
Working capital (A-B) 3,39,000 5,06,000
Net increase in W. Capital 1,67,000
Total 1,78,000 1,78,000

Fund flow statement for the year ended 31st Dec 2013

Sources Amount Application Amount

Funds from operation 17,000 Purchase of plant 25,000
 (P&L = 31000-14000)
Issue of share capital 1,75,000 Net increase in W. Capital 1,67,000
Total 1,92,000 Total 1,92,000

2. Calculation of fund from operation:

Particulars Amount Amount

Net profit 48,000 (+)
Add: Depreciation on plant 10,000
Preliminary expenses Written off 4,000
Good will written off 6,000
Provision for tax 8,000
Proposed dividend 12,000
Total 40,000 40,000 (+)
88,000
Less : Profit on sale of equipment 10,000 (-)
Grand Total –Fund from operations 78,000

3. Schedule of changes in working capital

Particulars 2010 2011 Increase Decrease

Current Assets – A
Stock 1,00,000 75,000 25,000
Debtors 1,50,000 1,60,000 10,000
Cash 20,000 20,000 --- ---
Total A 2,70,000 2,55,000
Current Liabilities – B
Creditors 1,53,000 1,90,000 37,000
Bills payable 40,000 50,000 10,000
Outstanding expenses 7,000 5,000 2,000
Total B 2,00,000 2,45,000
Working capital (A-B) 70,000 10,000
Net decrease in W. Capital 60,000 60,000
Total 72,000 72,000

Calculation of fund from operation:

Particulars Amount Amount

Net profit 60,000 (+)
 Add: General Reserve 20,000
Depreciation 50,000
Total 70,000 70,000 (+)
1,30,000
Less : Profit on sale of equipment 3,000 (-)
Grand Total –Fund from operations 1,27,000

Calculation of profit on sale of Machinery:

Cost of the m/c = Rs.12,000/-

Less: depreciation charged on the m/c Rs. 7,000/-
---------------
Rs.5,000/-
Less: M/c was sold for Rs.8,000/-
------ -------------
Profit on sale of machinery Rs.3,000/-
========
Fund flow statement

Sources Amount Application Amount

Funds from operation 1,27,000 Purchase of Land & building 40,000
Issue of shares 2,00,000 Purchase of plant & M/c 3,55,000
Profit on sale of m/c 8,000
Net decrease in working caps 60,000
Total 3,95,000 Total 3,95,000