COMPREHENSIVE PROJECT-2

1. Name of the Project : A study of the business of "Favourite Toys"

2. Objective of the Project

(i) To know whether 'Favourite Toys' is a success or a failure

(ii) To know whether the banks will agree to give Loan to the business.

3. Period of Study : Year ending 31st March 2015.

4. Analytical tools used : Accounting Ratios

5. Source Material : The Project Statement of 'Favourite Toys'

26
 PROJECT NO. 2
PROJECT STATEMENT
M/s 'Favourite Toys'
Ram did his Economics (Hons.) from Delhi University and MBA from Indian School of Business
(Hyderabad). He got job with a good salary. After 5 years of work experience, he started his
business of assembling toy cars and named his business 'Favourite Toys'. On 1st April, 2014 he
introduced a capital of ` 2 lakhs in cash and ` 33 lakhs by cheque. He also took a loan of ` 10
lakhs from the State Bank of India, borrowed ` 5 lakhs from his friend, Amit by cheque.

He took premises on rent at ` 10,000/- per month in Okhla Industrial Area, New Delhi for
setting up of his new factory. On 1st April, 2014 he purchased machinery of ` 10 lakhs and
furniture for his office worth ` 1,00,000 through a cheque. On the same date he withdrew
` 8,00,000 from bank account for meeting day to day business expenses. He hired an executive
to help him in setting up the business at a salary ` 10,000 per month. He also took an insurance
cover at a premium of ` 50,000 per annum on 1st April. Within one month, he was ready to
assemble toy cars. On 1st May, he made purchases for ` 70 lakhs out of which ` 60 lakhs were
still payable and hired 5 workers on monthly wages of ` 8,000. On the same date he purchased
a telephone and installed it, which cost him ` 2,000. The payment of the telephone was made
through a cheque. He also paid ` 20,000 by cheque to print catalogues for his products.
Payment of all routine expenses was made at the end of the year.

By the end of the year, all wages were paid every month in cash. Machinery and Furniture were
depreciated @ 10% per annum. Total sales amounted to ` 90 lakhs. He paid annual electricity
charges of ` 1,00,000 and telephone expenses ` 15,000 by cash. He withdrew ` 1 lakhs from
bank for personal use. On 31st March 2015 he purchased investments worth ` 10 lakhs through
bank. He repaid ` 5,00,000 with ` 25,000 as an interest to Amit on account of the loan taken
earlier. There was a fire in the factory that destroyed goods worth ` 2,00,000 out of which the
insurance company admitted a claim of ` 1,00,000. He paid ` 50,000 as carriage by cash. Interest
on bank loan was ` 50,000 due but not paid.

At the end of year closing stock was valued at ` 10 lakhs.

You are required to prepare the following:
(a) Journalize the above transactions, post them into ledger accounts and prepare trial balance
for the year ended 31st March, 2015.
(b) Trading and Profit and Loss Account for the year ending 31st March, 2015 and Balance sheet
as at 31st March, 2015.
If the business approaches a bank for a loan, will the bank oblige?

27
 Journal Register
1 April, 2014 to 31 March, 2015

Date Particulars Folio Debit Credit

` `

2014
1-April Cash A/c Dr. 2,00,000 Dr.
Bank A/c Dr. 33,00,000
To Capital A/c 35,00,000
(Being Capital invested in the Business)

1-April Cash A/c Dr. 8,00,000

To Bank A/c 8,00,000
(Being cash withdrawn from bank for business
expenses.)

1-April Bank A/c Dr. 10,00,000

To Loan-SBI A/c 10,00,000
(Being Loan taken from State Bank of India)

1-April Bank A/c Dr. 5,00,000

To Loan A/c 5,00,000
(Being loan received)

1-April Machinery A/c Dr. 10,00,000

Furniture A/c Dr. 1,00,000
To Bank 11,00,000
(Being Machinery and Furniture purchased)

1-April Insurance Premium A/c Dr. 50,000

To Bank A/c 50,000
(Being Insurance Premium paid)

1-May Purchases A/c Dr. 70,00,000

To Bank A/c 10,00,000
To Creditors A/c 60,00,000
(Being purchases made in cash and on credit)

28
1-May Telephone A/c Dr. 2,000

To Bank A/c 2,000

(Being Telephone purchased and installed)

1-May Printing Expenses A/c Dr. 20,000

To Bank A/c 20,000

(Being printing for catalogue expenses paid)

31-May Bank A/c Dr. 90,00,000

To Sales A/c 90,00,000

(Being sales proceeds from selling of toy cars.)

31-Mar. Loan A/c Dr. 5,00,000

Interest on Loan A/c Dr. 25,000

To Bank A/c 5,25,000

(Being Loan and Interest paid)

31-Mar. Insurance Claim Receivable A/c Dr. 1,00,000

Loss by Fire A/c Dr. 1,00,000
To Purchase A/c 2,00,000

(Being insurance claim receivable on account of

fire occurred in the factory and loss provided in
the books)

31-Mar. Carriage Inward A/c Dr. 50,000

To Cash A/c 50,000

(Being carriage paid in cash)

31-Mar. Rent factory A/c Dr. 1,20,000

To Cash A/c 1,20,000

(Being Rent paid in cash)

31-Mar. Salary A/c Dr. 1,20,000

To Cash A/c 1,20,000

(Being Salary paid to executive in cash)

29
31-Mar. Wages A/c Dr. 4,40,000
To Cash A/c 4,40,000
(Being Wages paid in cash for 11 months)
31-Mar. Depreciation A/c Dr. 1,10,000
To Machinery A/c 1,00,000
To Furniture A/c 10,000
(Being Depreciation provided on Machinery
and furniture @ 10% per annum)
31-Mar. Electricity Expenses A/c Dr. 1,00,000
To Cash A/c 1,00,000
(Being Electricity expenses paid in cash.)
31-Mar. Telephone Expenses A/c Dr. 15,000
To Cash A/c 15,000
(Being Telephone charges paid in cash.)
31-Mar. Drawings A/c Dr. 1,00,000
To Bank A/c 1,00,000
(Being cash withdrawn from business for
personal use)
31-Mar. Investment A/c Dr. 10,00,000
To Bank A/c 10,00,000
(Being Investment purchased during the year)
31-Mar. Interest on Loan-SBI A/c Dr. 50,000
To Loan-SBI A/c 50,000
(Being Interest on SBI loan for the year ended
provided)
31-Mar Trading A/c Dr. 74,10,000
To Purchases A/c 68,00,000
To Wages A/c 4,40,000
To Carriage Inward A/c 50,000
To Factory Rent A/c 1,20,000
(Closing entry for purchases, wages, carriage
inward and factory rent)

30
31-Mar Sales A/c Dr. 90,00,000

Closing Stock A/c Dr. 10,00,000

To Trading A/c 1,00,00,000

(Closing entry for Sales and Closing Stock)

31-Mar Trading A/c Dr. 27,10,000

To Profit and Loss A/c 27,10,000

(Gross profit earned during the year)

31-Mar Profit and Loss A/c Dr. 5,90,000

To Depreciation A/c 1,10,000

To Electricity Expenses A/c 1,00,000

To Salary A/c 1,20,000

To Insurance Premium A/c 50,000

To Interest Loan-SBI A/c 50,000

To Interest on Loan A/c 25,000

To Loss by Fire A/c 1,00,000

To Printing Expenses A/c 20,000

To Telephone Expenses A/c 15,000

(Closing entry for indirect expenses)

31-Mar Profit and Loss A/c Dr. 20,00,000

To Ram's capital A/c 20,00,000

(Net profit transferred to Ram's capital A/c)

Total 4,85,12,000 4,85,12,000

31
Dr. Bank A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2014 2014
Apr. 01 To Capital A/c 33,00,000 April, 01 By Cash A/c 8,00,000
Apr. 01 To Loan-SBI 10,00,000 April, 01 By Machinery A/c 10,00,000
Apr. 01 A/c 5,00,000 April, 01 By Furniture A/c 1,00,000
2015 Loan A/c April, 01 By Insurance Prem. A/c 50,000
Mar. 31 10,00,000
To Sales A/c 90,00,000 May, 01 By Purchases A/c
May, 01 By Telephone A/c 2,000

May, 01 By Printing Exp. A/c 20,000

2015
Mar, 31 By Drawings A/c 1,00,000

Mar, 31 By Investment A/c 10,00,000

Mar, 31 By Loan A/c 5,00,000

Mar, 31 By Interest on Loan A/c 25,000

Mar, 31 By Balance c/d 92,03,000

1,38,00,000 1,38,00,000
2015
To Balance b/d 92,03,000
Apr,01

Dr. Cash A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2014 2015
April, 01 To Capital A/c 2,00,000 Mar, 31 By Carriage Inward A/c 50,000
April, 01 To Bank A/c 8,00,000 Mar, 31 By Rent factory A/c 1,20,000
Mar, 31 By Salary A/c 1,20,000
Mar, 31 By Wages A/c 4,40,000
Mar, 31 By Electricity Expenses A/c 1,00,000
Mar, 31 By Telephone Expenses A/c 15,000
Mar, 31 By Balance c/d 1,55,000
2015 10,00,000 10,00,000
April, 01 To Balance b/d 1,55,000

32
Dr. Capital A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Drawings A/c 1,00,000 2014 By Cash A/c 2,00,000

Mar, 31 To Balance c/d Apr, 01 By Bank A/c 33,00,000
54,00,000 By P & L A/c 20,00,000
55,00,000 2015 55,00,000
April, 01 By Balance b/d 54,00,000

Dr. Creditors A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Balance c/d 60,00,000 2015

Mar, 31 May, 01 By Purchase A/c 60,00,000
60,00,000 60,00,000
2015
April, 01 By Balance b/d 60,00,000

Dr. Carriage Inward A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 2015
Mar, 31 To Cash A/c 50,000 May, 01 By Trading 50,000
A/c

50,000 50,000

Dr. Drawings A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 2015
Mar, 31 To Bank A/c 1,00,000 May, 01 By Capital A/c 1,00,000

1,00,000 1,00,000

33
Dr. Depreciation A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Machinery A/c 1,00,000 2015 By Profit & 1,10,000

Mar, 31 To Furniture A/c 10,000 Mar, 31 Loss A/c

1,10,000 1,10,000

Dr. Electricity Expenses A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Cash A/c 1,00,000 2015 By Profit & Loss 1,00,000

Mar, 31 Mar, 31 A/c

1,00,000 1,00,000

Dr. Salary A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Cash A/c 1,20,000 2015 By Profit & 1,20,000

Mar, 31 Mar, 31 Loss A/c

1,20,000 1,20,000

Dr. Furniture A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2014 To Bank A/c 1,00,000 2015 By Depreciation 10,000

April, 01 Mar, 31 A/c 90,000
1,00,000 Mar, 31 By Balance c/d 1,00,000
2015 To Balance 90,000
April, 01 b/d

34
Dr. Loan A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Bank A/c 5,00,000 2014 By Bank A/c 5,00,000

Mar, 31 April, 01

5,00,000 5,00,000

Dr. Investment A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Bank A/c 10,00,000 2015 By Balance c/d 10,00,000

Mar, 31 Mar, 31
10,00,000 10,00,000
2015 To Balance 10,00,000
April, 01 b/d

Dr. Interest on Loan-SBI A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Loan-SBI 50,000 2015 By Profit & Loss 50,000

Mar, 31 A/c Mar, 31 A/c

50,000 50,000

Dr. Interest on Loan A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Bank A/c 25,000 2015 By Profit & Loss 25,000

Mar, 31 March, 31 A/c

25,000 25,000

35
Dr. Insurance Claim Receivable A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Purchase 1,00,000 2015 By Balance c/d 1,00,000

Mar, 31 A/c Mar, 31
1,00,000 1,00,000
1,00,000
2015 To Balance
April, 01 b/d

Dr. Insurance Premium A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Bank A/c 50,000 2014 By Profit & Loss 50,000

Mar, 31 Mar, 31 A/c

50,000 50,000

Dr. Loss By Fire A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Purchases 1,00,000 2015 By Profit & Loss 1,00,000

Mar, 31 A/c Mar, 31 A/c

1,00,000 1,00,000

Dr. Loan-SBI A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Balance 10,50,000 2014 By Bank A/c 10,00,000

Mar, 31 c/d April, 01
2015 By Interest on 50,000
10,50,000 Mar, 31 Loan A/c 10,50,000
2015 10,50,000
April 01 To Balance b/d

36
Dr. Printing Expenses A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2014 To Bank A/c 10,00,000 2015 By Depreciation 1,00,000

April, 01 Mar, 31 A/c

Mar, 31 By Balance c/d 9,00,000

2015 10,00,000
10,00,000
April, 01 To Balance b/d 9,00,000

Dr. Purchases A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Bank 2015

May, 01 A/c 10,00,000 Mar,31 By Insurance Claim
Receivable A/c 1,00,000

By Loss by Fire A/c 1,00,000

By Trading A/c 68,00,000

70,00,000 70,00,000

Dr. Rent Factory A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Cash A/c 1,20,000 2015 1,20,000

Mar, 31 Mar, 31 By Profit & Loss A/c

1,20,000 1,20,000

Dr. Sales A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 2015
Mar, 31 To Trading A/c 90,00,000 Mar, 31 By Cash A/c 90,00,000

90,00,000 90,00,000

37
Dr. Telephone Expense A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Cash A/c 15,000 2015 By Profit & Loss 15,000

Mar, 31 Mar, 31 A/c

15,000 15,000

Dr. Telephone A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2014 To Bank A/c 2,000 2015 By Balance c/d 2,000

1-May 2,000 Mar, 31 2,000

April, 01 To Balance 2,000

b/d

Dr. Wages A/c Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

` `

2015 To Cash A/c 4,40,000 2015 By Trading 4,40,000

Mar, 31 Mar, 31 A/c

4,40,000 4,40,000

38
 TRIAL BALANCE OF RAM
01 April, 2014 to 31 March, 2015

S. No. Particulars Ledger Debit Credit

Folio ` `

1. Bank A/c 92,03,000

2. Cash A/c 1,55,000
3. Capital A/c 34,00,000
4. Creditors A/c 60,00,000
5. Carriage Inward A/c 50,000
6. Depreciation A/c 1,10,000
7. Electricity Expenses A/c 1,00,000
8. Salary A/c 1,20,000
9. Furniture's A/c 90,000
10. Investment A/c 10,00,000
11. Interest on Loan-SBI A/c 50,000
12. Interest on Loan A/c 25,000
13. Insurance Claim Receivable A/c 1,00,000
14. Insurance Premium A/c 50,000
15. Loss By Fire A/c 1,00,000
16. Loan-SBI A/c 10,50,000

17. Printing Expenses A/c 20,000

18. Machinery A/c 9,00,000
19. Purchases A/c 68,00,000
20. Rent Factory A/c 1,20,000
21. Sales A/c 90,00,000

22. Telephone Expense A/c 15,000

23. Telephone A/c 2,000
24. Wages A/c 4,40,000

Total 1,94,50,000 1,94,50,000

Closing Stock of ` 10,00,000

39
 TRADING AND PROFIT & LOSS ACCOUNT OF RAM
For the year ended 31 March, 2015

Particulars Amount Particulars Amount

` `

To Purchases A/c 68,00,000 By Sales A/c 90,00,000

To Wages A/c 4,40,000 By Closing Stock A/c 10,00,000

To Carriage Inward A/c 50,000

To Factory Rent A/c 1,20,000

To Gross Profit c/d 25,90,000

1,00,00,000 1,00,00,000
To Depreciation A/c 1,10,000 By Gross Profit b/d 25,90,000
To Electricity Expenses A/c 1,00,000

To Salary A/c 1,20,000

To Insurance Premium A/c 50,000
To Interest on Loan-SBI A/c 50,000

To Interest on Loan A/c 25,000

To Loss by Fire A/c 1,00,000

To Printing Expenses A/c 20,000

To Telephone Expense A/c 15,000

To Net Profit t/f to Capital A/c 20,00,000

25,90,000 25,90,000

40
 RAM'S BALANCE SHEET
As at 31 March, 2015

Liabilities Amount Assets Amount

` `

CAPITAL ACCOUNT FIXED ASSETS

Capital introduced 35,00,000 Machinery 10,00,000

Add : Net Profit 20,00,000 Less : Depreciation 1,00,000 9,00,000

55,00,000

Less : Drawings 1,00,000 54,00,000 Furniture 1,00,000

LONG TERM LIABILITIES Less : Depreciation 10,000 90,000

Loan-SBI 10,50,000 Telephone 2,000

CURRENT LIABILITIES NON-CURRENT ASSETS

Creditors 60,00,000 Investment 10,00,000

Insurance Claim Receivable 1,00,000

CURRENT ASSETS

Cash in hand 1,55,000

Cash at Bank 92,03,000

Stock 10,00,000

1,24,50,000 1,24,50,000

Calculation of Relevant Ratios

Profitability Ratio
1. Gross Profit Ratios
(Gross Profit/Sales) × 100 30.11%

2. Net Profit Ratios

(Net Profit/Total Revenue) × 100 22.22%

Turnover Ratio
3. Working Capital Turnover Ratio 2 times
(Sales/Working Capital)

41
4. Fixed Assets Turnover Ratio 9 times
(Sales/Net Fixed Assets)

Liquidity Ratio 1.73:1

5. Current Ratios
(Current Assets/Current Liabilities)

6. Quick Ratio
(Current Assets-Stock)/Current Liabilities 1.56 : 1

Working Notes (`)

Gross Profit 27,10,000
Net Profit 20,00,000
Total Revenue 90,00,000
Fixed Assets 9,92,000
Current Assets 1,03,58,000
Current Liabilities 60,00,000
Working Capital (CA-CL) 43,58,000
Quick Assets 93,58,000

Stock 10,00,000
Total Debt 10,50,000
Owner's Fund 54,00,000

Conclusion
The business of 'Favourite Toys' is a success. It is indicated by good profitability ratios specially
when it is the first year of the firm. Turnover ratios also indicate the effective and efficient
utilization of the fixed assets and working capital. Liquidity ratios are also more than one.

Any bank will agree to give them loan on the basis of above ratios.

Project Statement for Practice

Read the project statements carefully and prepare comprehensive projects on likes of the sample
projects.

42
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SPECIFIC PROJECT

an
6 tOPic : Analysis of the Cash Flows of Ajanta Arts Limited

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ObjectiveS Of the PrOject

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The main objectives of my project are that I will be able:
} To observe how the Operating and Financing cash inflows have been used.
} To know uses of funds, i.e., how the fixed assets have been financed.
sP
} If the Fixed Assets have been sold, how the proceeds have been used.

period of Study
Years 2010, 2011, 2012 and 2013.
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Source material
Operating, Investing and Financing Cash Flows along with opening and closing balances of cash and cash equivalents
have been picked up from the site of the company.
th

caSh flowS of ajanta artS ltd from 2010 to 2014 (in ` Crores)
Sr. 2010 2011 2012 2013
particulars
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no. (`) (`) (`) (`)

1. Opening Balance of Cash & Cash Equivalents 25,615 51,000 81,740 40,018
2. Cash Flow from Operating Activities 15,600 20,300 18,712 25,400
3. Cash Flow from Investing Activities (10,383) (14,760) (32,334) (56,500)
lB

4. Cash Flow from Financing Activities 20,168 25,200 (28,100) 22,733

5. Closing Balance of Cash and Cash Equivalents 51,000 81,740 40,018 31,651
Source : website of the company.
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proceSSing the data

(i) cash and cash equivalents
It seems that a lot of money has been locked in Cash & Cash Equivalents. This can be used for expansion
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after keeping some money for working capital requirements.

(ii) operating activities
(a) In 2011 the inflow of cash from operating activities increased by ` 4,700 crores. This indicates 30%
increase over 2010, which is good.
(b) In 2012 the cash inflow from operating activities decreased by ` 1,588 crores. This means that the cash
inflow decreased by 7.82%. This may be due to decrease in sales or a higher volume of credit sales.

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(c) In 2013, the cash flow from operating activities again picked up tremendously. It increased by ` 6,688
crores which amounts to 35.74% increase which is very good. This may be due to recovery from
debtors and more & more cash sales.
(d) Over the years from 2010 to 2013, the cash inflow has increased by ` 9,800 crores which amounts to
62.82% increase.
Operating Cash Inflows

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year Operating Inflows
2010 ` 15,600 crore
2011 ` 20,300 crore

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2012 ` 18,712 crore
2013 ` 25,400 crore

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2010

25,400
30 2011
20,300
Operating Inflows

25
18,712
2012
(in ` crores)

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15,600

20
2013
15

10
sP
5

0 X
Year
er

Cash Flow from Operating Activities

(iii) investing activities

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Investing activities indicate the growth orientation of the firm. The investment in Fixed Assets is increasing
year after year.
Change in outflow of Investing Activities
year increase percentage change
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2011 `4,377 42%

2012 `17,574 119%
2013 `24,166 74.74%
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Y
119%

2011
120
2012
Outflows (in ` crores)

74.74%

100
Change in investing
ya

2013
80

60
42%
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40

20

0 X
Year

Change in Investing Outflows

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The firm is investment minded, increase of 42% occurred in 2011 followed by 2012 when the investment
increased by 119%. In 2013 it increased by 74.74%. This policy of the firm will definitely pay in the long
run. The production will increase and the sales revenue will also increase.
(iv) financing activities

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(a) In 2011 the cash inflow from financing activities increased by ` 5,032 crores which is an increase of
24.95% increase. This was used partly for investment in fixed assets and partly for working capital
requirements.
(b) In 2012 there is an outflow of cash ` 28,100. This is because of the repayment of loans. It may also

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be because of payment of dividend because there is enough cash inflow from operating activities.
(c) In 2013, there is a cash inflow of ` 22,733. It appears that the firm has taken more long-term loans
to finance, its growth activities.

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poSition of caSh flowS
(See Source material)

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Y

80
70 sP
60
inflows

50
40
er

30
20
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10 Investing
Activities
0 X
Opening Operating Closing Cash
10 Cash & Cash Activities & Cash
Equivalent
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Equivalents
20
Outflows

30 Financing
Activities
40 Year
lB

50
60 2010 2011 2012 2013

Y
ya

Net Cash Inflow

year amount (`) flow

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2010 25,385 Net Inflow

2011 30,740 Net Inflow

2012 (41,722) Net Outflow

2013 (8,367) Net Outflow

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concluSion
It has been noticed that:
 In the year 2010 and 2011 an exceptionally high amount of balance of Cash and Cash Equivalents
were held by the firm.

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 The company took care of this fact and reduced it in next two years (see Table-3). In the year 2012,
though it is less than the earlier years, it is still on the higher side. Cash and cash equivalents should
be sufficient only for working capital needs.

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 The firm should invest more in fixed assets in the coming year.
 It should also think of paying back the borrowed money so as to reduce the interest burden.

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 Moreover, it is also desirable that the business should think of expanding in view of higher cash inflows
from operating activities which is also the best source of working capital as well as for expansion

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ViVa-Voce QueStionS
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1. What is the objective of the Project?
Ans. The objective is to know how the operating and financing cash inflows have been used . Also if any
fixed asset has been sold, how these inflows are used.
er

2. What is meant by cash equivalents?

Ans. Cash equivalents include cash and any other asset which can be converted into cash without any loss
of value.
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3. Give any two items included in Operating Activities.

Ans. (i) Sales and (ii) Purchases
4. Name any two items included in Financing Activities.
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Ans. (i) Issue of Shares and (ii) Payment of Dividend

5. Name any two items included in Investing Activities.
Ans. (i) Purchase of fixed assets (ii) Sale of fixed asset.
lB

6. What is the percentage increase in Cash Flows from Investing Activities in 2013?
Ans. Cash outflows from investing activities have increased by 74.74% is 2013.
7. What is the Net Cash Flow of the year 2013?
Ans. Net outflow of Cash in 2013 is `8,367.
ya

8. Under which activities all cash flows are negative?

Ans. Under Investing Activities all cash inflows are negative. It means more investments have been made.
9. What should the company do with exceptionally high balances of Cash and Cash equivalents?
Go

Ans. The excess cash and cash equivalents should be used for expansion activities.
10. Why do you think that there is a cash inflow of `22,733 in 2013?
Ans. May be that the company has taken more loans during this period.

58 Goyal Brothers Prakashan