Question No.

1
The following information has been extracted from the draft financial statements of Alpha Limited for the year
ended 31 December 2015.

ASSETS 2015 2014 Equity & Liabilities 2015 2014

Rs. in million Rs. in million
Property, plant & equipment 223 193 Share capital (Rs. 10 each) 180 150
Intangible assets 68 23 Share premium 15 -
Trade receivables 45 33 Retained earnings 114 53
Advances and prepayments 84 70 Long term loan 40 -
Inventories 60 46 Deferred liabilities 15 10
Short-term investments 12 9 Trade payables 42 56
Cash at bank 8 7 Accrued expenses 60 70
Tax payable 34 42
500 381 500 381
Following relevant information is available:
(i) Depreciation has been provided on straight line basis. Estimated useful lives are as under:
Building 20 years
All other fixed assets 10 years
(ii) On 1 September 2015, the company purchased new machinery costing Rs. 65 million.
(iii) A portion of building costing Rs. 20 million which was purchased on 1 July 2013 was sold for Rs. 20 million
on 30 June 2015.
(iv) Trade receivables written off during the year amounted to Rs. 5 million. It is the policy of the company to
maintain the provision for doubtful debts at 5% of trade receivables.
(v) Advances and prepayments include advance tax of Rs. 8 million (2014: Rs. 6 million).
(vi) Long term loan was obtained on 1 August 2015. Interest on loan @ 13% is payable on 31 st July each year.
Interest payable for 5 months has been accrued.
(vii) Deferred liabilities comprise of unfunded gratuity of Rs. 6 million (2014: Rs. 3 million) and deferred tax of
Rs. 9 million (2014: Rs. 7 million). During the year, the company paid gratuity of Rs. 6.5 million to outgoing
employees.
(viii) Tax expense for the year was Rs. 17 million. (2014: Rs. 8 million).
(ix) Right shares were issued on 1 December 2015 at Rs. 15 per share in the ratio of 1 right share for every 5
shares held.
Required:
Prepare statement of cash flows for the year ended 31 December 2015 in accordance with the requirements of
International Financial Reporting Standards using the indirect method. (15)
(Q5, Spring 2016)
Question No. 2
Following are the extracts from the financial statements of Universal Limited (UL) for the year ended 30 June 2017:
Statement of financial position as on 30 June 2017
2017 2 2016 2017 2016
Assets Equity & liabilities
Rs. in ‘000 Rs. in ‘000
Property, plant and equipment 158,500 120,000 Share capital (Rs. 10 each) 175,000 150,000
Retained earnings 54,434 21,500
Deferred tax asset 8,500 - Revaluation surplus 10,000 -
Stock in trade 58,000 45,000 Debentures (Rs. 100 each) 18,000 20,000
Trade receivables 68,000 56,000 Deferred tax liability - 6,000
Cash 39,434 48,000 Interest payable 1,000 2,500
Trade payables 42,000 39,000
Accrued liabilities 20,000 18,000
Unearned maintenance 2,000 4,000
Provision for taxation 10,000 8,000
332,434 269,000 332,434 269,000

Statement of profit or loss for the year ended 30 June 2017

Rs. in '000’
Sales 273,000
Cost of sales (187,500)
Gross profit 85,500
Operating expenses (46,766)
Other income 11,200
Profit before interest and tax 49,934
Interest expense (2,000)
Profit before tax 47,934
Tax expense (15,000)
Profit after tax 32,934

Additional information:
(i) 60% of sales were made on credit.
(ii) UL maintains a provision for doubtful receivables at 6%. During the year, trade receivables of Rs. 7 million
were written off.
(iii) Depreciation expense for the year was Rs. 22.5 million. 70% of the depreciation was charged to cost of
sales.
(iv) Other income comprises of:
 gain of Rs. 3 million on disposal of vehicles for Rs. 12 million;
 maintenance income of Rs. 8 million; and
 discount of Rs. 10 per debenture which were redeemed during the year.
Required:
Prepare UL’s statement of cash flows for the year ended 30 June 2017 using direct method. (15)
(Q1, Autumn 2017)
Solution No. 1
Alpha Limited
Statement of cash flows
For the year ended December 31, 2015
Rs in million
Cash flows from operating activities
Profit before tax (114 – 53 + 17) 78.00
Adjustments for:
Interest expense (40 × 0.13 × 5 ÷ 12) 2.17
Depreciation (W-1) 17.00
Gain on sale of building (20 – 18) (2.00)
Bad debts expense (W-2) 5.63
Provision for gratuity (6 + 6.5 – 3) 9.50
32.30
Operating profit before working capital changes 110.30

(Increase)/decrease in current assets

Increase in trade debts (W-2) (17.63)
Increase in inventories (60 - 46) (14.00)
Increase in advance, and prepayments [(84 – 8) – (70 – 6)] (12.00)
Increase/(decrease) in current liabilities

Decrease in trade payables (42 - 56) (14.00)

Decrease in accrued expense [(60 – 2.17) – 70] (12.17)
(69.80)
Cash flows from operations 40.50
Tax paid (W-3) (25.00)
Gratuity paid (6.50)
(31.50)
Net cash flows from operating activities 9.00

Cash flows from investing activities

Purchase of machinery (65.00)
Sale proceeds from disposal of plant 20.00
Acquisition of intangibles (68 – 23) (45.00)
Net cash used in investing activities (90.00)

Cash flows from financing activities

Proceeds from issuance of right shares (150 × 0.2 × 1.5) 45.00
Proceeds from long term loan 40.00
Net cash flow from financing activities 85.00
Net increase in cash and cash equivalents 4.00
Cash and cash equivalents at the beginning of the year (9+7) 16.00
Cash and cash equivalents at the end of the year (12+8) 20.00
Workings:
W-1: Computation of depreciation
Rs. in million
Property, plant & equipment – Opening WDV 193
Purchases during the year 65
NBV of assets disposed off during the year (18)
Property, plant & equipment – Closing WDV (223)
Depreciation expense for the year 17

W-2: Computation of bad debts expense

Trade Provision for bad
receivable debts
-------- Rs. in million --------
Closing balance [45 / 0.95] [47.37 – 45] 47.37 2.37
Opening balance [33 / 0.95] [34.74 – 33] (34.74) (1.74)
Written off 5.00 5.00
17.63 5.63

W-3: Computation of tax paid

Rs. in million
Opening liability 42
Opening deferred tax liability 7
Closing Advance tax 8
Tax expense for the year 17

Less: Closing liability (34)

Closing deferred tax liability (9)
Opening advance tax (6)
25
Solution No. 2
Universal Limited
Cash flow statement
for the year ended June 30, 2017

Cash flow from operating activities Rs.'000 Rs.'000

Receipt from customers [W-1] 253,234
Payment to suppliers [W-2] (181,750)
Payment for operating expenses [W-3] (30,250)
Cash generated from operations 41,234
Finance cost paid [2.5 + 2 - 1] (3,500)
Tax paid [W-4] (27,500)
Maint. Income received [2 + 8 - 4]* 6,000
Cash inflow from operating activities 16,234
Cash flow from investing activities
Purchase of PPE [W-5] (60,000)
Sale of PPE 12,000
Cash outflow from investing activities (48,000)
Cash flow from financing activities
Issue of shares [175 - 150] 25,000
Redemption of debentures [W-6] (1,800)
Cash inflow from financing activities 23,200
Net cash outflow during the year (8,566)
Cash & cash equivalent at start of year 48,000
Cash & cash equivalent at end of year 39,434
-
* Alternatively it can be shown before cash generated from operations

W-1 Customers
Rs.'000 Rs.'000
b/d 59,574 Receipts (bal.) 253,234
Sales 273,000 Write off 7,000
c/d 72,340
332,574 332,574

W-2 Suppliers
Rs.'000 Rs.'000
Payments (bal.) 181,750 b/d 39,000
c/d 42,000 Purchases 184,750
223,750 223,750

Inventory
Rs.'000 Rs.'000
b/d 45,000 COS [187.5 - 22.5 x 70%] 171,750
Purchases (bal.) 184,750 c/d 58,000
229,750 229,750
W-3 Operating expenses
Rs.'000 Rs.'000
Payments (bal.) 30,250 b/d 18,000
c/d 20,000 Exp. [W-3.1] 32,250
50,250 50,250

W-3.1
Cash expenses = Operating exp - Dep - Bad debts [W-3.2]
= 32,250

W-3.2 Prov. for bad debts

Rs.'000 Rs.'000
Write off 7,000 b/d 3,574
c/d 4,340 Exp. (bal.) 7,766
11,340 11,340

W-4 Tax
Rs.'000 Rs.'000
Payments (bal.) 27,500 b/d [6 + 8] 14,000
c/d 10,000 Expense 15,000
c/d 8,500
37,500 37,500

W-5 PPE
Rs.'000 Rs.'000
b/d 120,000 Disposal [12 - 3] 9,000
Revaluation 10,000 Depreciation 22,500
Addition (bal.) 60,000 c/d 158,500
190,000 190,000

W-6 Rs.'000
Other income 11,200
Gain on vehicle (3,000)
Maintenance income (8,000)
Discount on redemption [A] 200
Total redemption payment [A x 90/10] 1,800

W-7 RE
Rs.'000 Rs.'000
Dividends (bal.) - b/d 21,500
c/d 54,434 PAT 32,934
54,434 54,434