No.1 for CAICWA & MECICEC MASTER MINDS 6. CASH FLOW STATEMENT [AS - 3) NO. OF PROBLEMS IN 40e OF CA INTER: CLASSROOM - 11, ASSIGNMENT - 15 NO. OF PROBLEMS IN 41e OF CA INTER: CLASSROOM - 12, ASSIGNMENT - 16 NO. OF PROBLEMS IN 42e OF CA INTER: CLASSROOM - 13, ASSIGNMENT - 15 PERS aa gee ay slelels/s/elelelele/e)/e}/Z/S/Z/S/2 wooetno.| 2) 3/)2/3/2/3/2/2/2/2/2/F]Flelele/e 2/2|2/2/8 Model - 1 - | 08 | - - | 06 | - | 08] - 8 a - a - 8 - - - Model - 2 - - | 08 | - - | 5 | - - - - | 12] - - - ~ | 05 | 08 Model-3 | -|-|-|]om]-|[-|-/om]-[-]|-[s];s5s[-]-|]-]|- Model - 1 irect Method Model - 2 : Indirect Method Model-3 — : Theory STP aa ir PROBLEM No. | PROBLEM No. | PROBLEM No, | PROB! 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Wherein the receipts and payments are grouped on the bases of activity (nature) for effective understanding Introduction: ‘+ _Itis one of the tools for analyzing financial statements. * Cash flow statement seeks to explain reasons for change in cash and its equivalents in an ‘accounting period ‘+ This statement is to be prepared in accordance with Accounting standard - 3. This is a mandatory statement to be included as a part of financial statements in case of level - 1 enterprises and Non - SMCs (Small and medium companies) Objective a) Cash fiow statement is additional information to users of financial statements. b) This statement exhibits the flow of incoming and outgoing cash ¢) This statement assesses the ability of the enterprise to generate cash and to utilize the cash This helps the users of account: ‘+ To identify the historical changes in the flow of cash & cagh equivalents As an indicator of amount, timing and Sértainty of future cash flows. To check the accuracy of past assessments of future cash flows ‘* _In.examining the relationship between profitability and net cash flow and the impact of changing prices. Applicability: This standard applies to all companies except One Person Company and Small Companies, Startup Private itd Companies and Dormant Companies. ‘Terms used in cash flow statement: 1. Cash and cash equivalent: Cash and cash equivalents (Cash includes Investments which are: J+ Cash in hand + Short term, highly quid J+ Cash at bank + Readily convertible + Known amounts of cash J+ Subject to insignificant risk of changes in value. CA Inter_42e_Accounting_Cash Flow Statement. 6.2No.1 for CAICWA & MECICEC MASTER MINDS 2. Classification of Cash Flow Activities: (MTP-M18(0)) Classification of Cash Flow Activities Operating activities: ‘+ Operating activities are the principal revenue producing activities of the enterprises other than investing and financing activities. Examples: a) Cash receipts from the sale of goods and the rendering of service b) Cash receipt from fees, commission and other revenue; ¢) Cash payments to suppliers for goods; cash payments to employees and so on, Investing activi ‘+ Investing activities are the acquisition and disposal of long term assets and other investments not included in cash equivalents. Examples: a) These activities are related to the acquisition an sal of long-term assets, non-operating current assets and investments which results in ‘of cash, b) Disposal of the aforesaid assets results in infl ssh. ) Thus, inflows and outflows related to acqa6ihe to operating activities, are shown unde ft anci VE + Financing activities are activities thasYesult in changes in the size and composition of the owner's capital (including preference share capital in the case of a company) and borrowing (whether short term or long term) of the enterprise. Examples: a) Sale of share b) Buy back of shares ¢) Redemption of preference shares d) Issue / redemption of debentures e) Long-term loan / payment thereof f) Dividend / interest paid ‘and disposal of assets, other than those related gory Example: ‘Summary of cashbook Net effect (of Receipts: ‘Amount Payments ‘Amount each block) Rs. Rs. a To Balance b/d 5 (Operating) [To Cash sales 40 By creditors for purchases To Cr. Sales - Collections 160_By Expenses 30 - DO (investing) [72 sale of assets ‘35 By Purchase of asset 120 To Income from investment 15 +30 CA Inter_42e_Accounting_Cash Flow Statement. 6.3Ph: 9885125025/26 www.mastermindsindia.com (Financing) [To share application money ‘40 By Term loans By Interest on borrowing To debenture 20_By dividend Ty Balance old Ascertainment of cash flow statements 1. Cash flow from operating activities: It can be derived either from direct method or indirect method, + Direct method: In this method, gross receipts and gross payment of cash are disclosed ‘+ Indirect method: In this method, profit and loss account is adjusted for the effects of transaction of non-cash nature CALCULATION OF CASH FLOW FROM OPERATING ACTIVITIES (UNDER DIRECT METHOD) Particulars ‘A._ Operating receipts in cash (e.g.) Cash sales 00 Cash receipts from Debtors 200 Trading Commission received XXX 70x B._Operating Payments in cash (€.g.) ‘Cash Purchases 2x Cash paid to suppliers XXX Wages & Salaries Paid 200 Office and Administration Expenses paid 2X Manufacturing overheads paid 2X Selling and Distribution Expenses paid XXX C. Cash generated from Operations before taxes wr 2x, D._Income tax paid (net of refund of Tax) _. (65,000) Net cash from operating activities (ANS 1,82,500 Cash flows from investing activities Sale of Investments 7,20,000 Purchase of plant and machinery (2,50,000) Net cash used in investing activities (B) 4,70,000 Cash flows from financing activities Bank loan repayment(including interest) (2,15,000) Dividend paid(including DDT) (30,000) Net cash used in financing activities(C) (2,45,000) Net increase in cash and cash equivalents(A+B+C) 4,07,500 Cash and cash equivalents at beginning of period 2,00,000 Cash and cash equivalents at end of period 6,07,500 Note: In the above answer, Cash Flow Statements has been prepared by Direct Method CA Inter_42e_Accounting_Cash Flow Statement. 6.27885125025/26 www.mastermindsindia.com PROBLEM NO: 5 ‘Computation of cash flow from operations (Using direct method) Particulars Rs. inlakhs | Rs. in lakhs Cash Receipts Cash Sales and collection from trade receivables Sales + Opening trade receivables — Closing trade receivables (A) | 4,150+250-400 4,000 Cash payments: Cash purchases & payment to trade payables Purchases + Opening trade payables — Closing trade payables | _2,400+230-250 (2,380) Wages and salaries paid 800+40-50 (720) Cash expenses '200+10-20 (190) ‘Taxes paid — advance tax (195) Net cash from operating activities (A) 445 Computation of cash flow from operations (Using indirect method) Particulars Rs. in lakhs | Rs. in lakhs Profit before tax 710 ‘Add: Non = cash items : Depreciation 100 ‘Add: Interest: Financing cash outflow 60 Less: Interest and dividend : Investment cash inflow (100) Less: Tax paid (195) ‘Working capital adjustments ey Trade receivables S 250-400= (150) Inventories 180-200 = (20) Trade payables 250-230 = 20 Outstanding wages 50-40 = 10 Outstanding expenses 20-10= 10 (130) Net cash from operating activities 445 A ee Snostem NO:8 Cash Flow Statement of ABC Ltd. for year ended 31.03.2015 (Indirect Method) Particulars Rs. Rs. ‘Cash flow from operating activities: Net Profit before taxation and extraordinary items (WN-1) 22,40,000 ‘Adjustments: ‘Add: Depreciation (7,90,000-6,10,000) 7,80,000 ‘Cash Flow before working capital changes '24,20,000 ‘Add: Decrease in inventories (Rs.20, 10,000 — Rs.19.20,000) 90,000 Increase in provision for doubtful debts (Rs.4,20,000-Rs. 1,50,000) 2,70,000 27,80,000 Less: increase in current assets Trade receivables (Rs.30,60,000 — Rs.23,90,000) 6,70,000 prepaid expenses (Rs. 1,20,000 — Rs.90,000) 30,000 Decrease in current liabilities: Trade payables (Rs.8,80,000 — Rs.8,20,000) 60,000 Expenses outstanding (Rs.3,30,000 — Rs.2,70,000) 60,000 Cash generated from operations before income tax 19,60,000 Less: Income tax paid during the year - Cash flow before extraordinary items 19,60,000 ‘Add / Less: extraordinary items 5 CA Inter_42e_Accounting_Cash Flow Statement. 6.28No.1 for CAICWA & MECICEC MASTER MINDS Net cash flow from operating activities 19,60,000 Cash flow from investing activities: [Additions to Pant & Machinery (40,70,000 — 27,30,000) 13,40,000 Net cash flow from investing activities (13,40,000) Cash flow from financing activities: Proceeds from issue of debentures 9,00,000 Increase in bank loan 1,50,000 Dividend paid(WN2) (10,50,000) Net Cash flow from financing activities - Net Increase in cash and equivalents 6,20,000 Cash & Cash equivalents at the beginning (15,20,000+11,80,000) 27,00,000) Cash & Cash equivalents at the end_(18,20,000+15,00,000) '33,20,000| Note: Bad debts amounting Rs.2,30,000 were written off against provision for doubtful debts account during the year. In the above solution, bad debts have been added back in the balances of provision for doubtful debts and trade receivables as on 31.03.2015. Alternatively, the adjustment of writing off bad debts may be ignored and the solution can be given on the basis of figures of trade receivables and provision for doubtful debts as appearing in the balance sheet on 31.03.2015. Working Note: 1 — Calculation of Net profit before tax and extraordinary items: Current year net profit after appropriation (38, 90,000 - 26,50,000) 10,40,000 Add: dividend declared during the year (WN - 2) 12,00,000 22,40,000 Working Note: 2 Dr. Dividen cr. Particulars Rs [as Particulars Rs, To Cash, 10,50, 000$&9sBalance bid 1,50,000 To Balance c/d 3,00 'V P & L Appropriation (dividend 72,00,000 SS] declared) 1S RHO 13,50,000 PROBLEM NO: 10 Cash Flow Statement of Ryan Ltd. for the year ending 31st March, 2015 Particulars ‘Amount_| Amount Cash flows from operating activities Net profit before taxation 23,000 ‘Adjustments for: Depreciation 37,000, Gain on sale of investments (42,000) Loss on sale of plant assets 3,000 Interest expense 23,000 Interest income (6,000) Operating profit before working capital changes 68,000 Decrease in accounts receivable 8,000 Increase in inventory (84,000) Decrease in prepaid expenses 4,000 Increase in accounts payable 7,000 Increase in accrued liabilities 3,000 Cash generated from operations 56,000 Income taxes paid (WN) (8,000) Net cash generated from operating activities 47,000 Cash flows from investing activities Purchase of plant assets (4,20,000) CA Inter_42e_Accounting_Cash Flow Statement. 6.29885125025 /26 www.mastermindsindia.com Sale of plant assets 5,000 Purchase of investments (78,000) Sale of investments 1,02,000 Interest received 6,000 Net cash used in investing activities (85,000) Cash flows from financing activities Proceeds from issuance of share capital 7,50,000 Repayment of bonds (50,000) Interest paid (23,000) Dividends paid (8,000) Net cash from financing activities 69,000, Net increase in cash and cash equivalents 31,000 Cash and cash equivalents at the beginning of the period 15,000 Cash and cash equivalents at the end of the period 46,000 Working Note: Particulars ‘Amount Income taxes paid: Income tax expense for the year 7,000 ‘Add: Income tax liability at the beginning of the year 5,000 72,000 Less: Income tax lability at the end of the year (3,000) 9,000 gs Copyrights Reserved & To MASTER MINDS, Guntur CA Inter_42e_Accounting_Cash Flow Statement. 6.30