Illustration 1.

From the following Balance Sheet of New Light Ltd. as at 31st March, 2022 and the additional
information, determine Cash Flow from Investing Activities:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 6,00,000 5,00,000
(b) Reserves and Surplus 8,50,000 7,00,000
2. Current Liabilities 4,10,000 3,55,000
Total 18,60,000 15,55,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
—Property Plant and Equipment 1 15,00,000 13,00,000
(b) Non-current Investments 1,00,000 50,000
2. Current Assets
(a) Trade Receivables 2 2,00,000 1,80,000
(b) Cash and Cash Equivalents 60,000 25,000
Total 18,60,000 15,55,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Property, Plant and Equipment
Plant and Machinery (Net) 8,00,000 6,00,000
Land and Building (Net) 7,00,000 7,00,000
15,00,000 13,00,000
2. Trade Receivables
Sundry Debtors 1,20,000 1,10,000
Bills Receivable 80,000 70,000
2,00,000 1,80,000

Additional Information: During the year, the company sold machinery at book value for ` 2,00,000.
Solution: CASH FLOW FROM INVESTING ACTIVITIES
Particulars `
Purchase of Plant and Machinery (WN) (4,00,000)
Proceeds from Sale of Plant and Machinery 2,00,000
Purchase of Non-current Investments (50,000)
Cash Used in Investing Activities (2,50,000)

Working Note:
Dr. PLANT AND MACHINERY ACCOUNT Cr.
Particulars
` Particulars `
To Balance b/d 6,00,000 By Bank A/c (Sale) 2,00,000
To Bank A/c (Balancing Figure) 4,00,000 By Balance c/d 8,00,000
(Purchase)
10,00,000 10,00,000

1
Illustration 2.
Following is the Balance Sheet of Wisben Ltd. as at 31st March, 2012:
Particulars Note No. 31st March, 31st March,
2012 (`) 2011 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 7,00,000 6,00,000
(b) Reserves and Surplus 2,00,000 1,10,000
(Surplus, i.e., Balance in Statement of Profit & Loss)
2. Non-Current Liabilities
Long-term Borrowings 3,00,000 2,00,000
3. Current Liabilities
Trade Payables 30,000 25,000
Total 12,30,000 9,35,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment (Machinery) 11,00,000 8,00,000
2. Current Assets
(a) Inventories 70,000 60,000
(b) Trade Receivables 32,000 40,000
(c) Cash and Cash Equivalents 28,000 35,000
Total 12,30,000 9,35,000

Additional Information: During the year a piece of machinery of the book value of ` 80,000 was sold
for ` 65,000. Depreciation provided on machinery assets during the year amounted to ` 2,00,000.
Prepare the Cash Flow Statement. (Delhi 2013, Modified)
Solution: CASH FLOW STATEMENT for the year ended 31st March, 2012
Particulars `
(A) Cash Flow from Operating Activities
Surplus, i.e., Balance in Statement of Profit & Loss (Closing) 2,00,000
Less: Surplus, i.e., Balance in Statement of Profit & Loss (Opening) 1,10,000
Net Profit before Tax and Extraordinary Items 90,000
Add: Non-Cash and Non-Operating Items:
Depreciation 2,00,000
Loss on Sale of Tangible Assets 15,000 2,15,000
Operating Profit before Working Capital Changes 3,05,000
Add: Decrease in Current Assets and Increase in Current Liabilities:
Trade Payables 5,000
Trade Receivables 8,000 13,000
3,18,000
Less: Increase in Current Assets:
Inventories 10,000
Cash Flow from Operating Activities 3,08,000
(B) Cash Flow from Investing Activities
Purchase of Property, Plant and Equipment (WN) (5,80,000)
Proceeds from Sale of Property, Plant and Equipment 65,000
Cash Used in Investing Activities (5,15,000)
(C) Cash Flow from Financing Activities
Cash Proceeds from Issue of Shares 1,00,000
Cash Proceeds from Long-term Borrowings 1,00,000
Cash Flow from Financing Activities 2,00,000
(D) Net Decrease in Cash and Cash Equivalents (A + B + C) (7,000)
Add: Cash and Cash Equivalents (Opening) 35,000
(E) Cash and Cash Equivalents (Closing) 28,000

2
Working Note:
Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 8,00,000 By Depreciation A/c 2,00,000
To Bank A/c (Balancing Figure) 5,80,000 By Bank A/c (Sale) 65,000
(Purchase) By Loss on Sale of Machinery A/c 15,000
(Statement of Profit & Loss)
By Balance c/d 11,00,000
13,80,000 13,80,000

Illustration 3.
Balance Sheet of Fox Ltd. as at 31st March, 2022 is:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 4,50,000 4,50,000
(b) Reserves and Surplus 1 3,78,000 3,56,000
2. Non-Current Liabilities
Long-term Borrowings: Mortgage Loan 2,70,000 ...
3. Current Liabilities
(a) Trade Payables 1,34,000 1,68,000
(b) Short-term Provisions: Provision for Tax 10,000 75,000
Total 12,42,000 10,49,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
—Property, Plant and Equipment (Machinery) 3,20,000 4,00,000
(b) Non-current Investments 60,000 50,000
2. Current Assets
(a) Current Investments 17,000 19,000
(b) Inventories 2,10,000 2,40,000
(c) Trade Receivables 4,55,000 2,10,000
(d) Cash and Cash Equivalents 1,80,000 1,30,000
Total 12,42,000 10,49,000

Note to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
General Reserve 3,10,000 3,00,000
Surplus, i.e., Balance in Statement of Profit & Loss 68,000 56,000
3,78,000 3,56,000

Additional Information:
1. Investments costing ` 8,000 were sold during the year for ` 8,500.
2. Provision for Tax made during the year was ` 9,000.
3. During the year, part of the machinery costing ` 10,000 was sold for ` 12,000 and the
gain (profit) was included in the Statement of Profit & Loss.
4. Interim Dividend declared and paid during the year amounted to ` 40,000.
Prepare Cash Flow Statement.
3
Solution: CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars   `
(A) Cash Flow from Operating Activities
(Closing) Surplus, i.e., Balance in Statement of Profit & Loss 68,000
Less: (Opening) Surplus, i.e., Balance in Statement of Profit & Loss 56,000
12,000
Add: Interim Dividend 40,000
Provision for Tax 9,000
Transfer to General Reserve 10,000 59,000
Net Profit before Tax and Extraordinary Items 71,000
Add: Non-cash Expenses:
Depreciation (WN 1) 70,000
1,41,000
Less: Non Operating Incomes:
Gain (Profit) on Sale of Investments 500
Gain (Profit) on Sale of Fixed Assets 2,000 2,500
Operating Profit before Working Capital Changes 1,38,500
Add: Decrease in Current Assets:
Inventories 30,000
1,68,500
Less: Increase in Current Assets and Decrease in Current Liabilities:
Trade Receivables 2,45,000
Trade Payables 34,000 2,79,000
Cash Outflow from Operating Activities before Tax (1,10,500)
Less: Income Tax Paid (WN 3) (74,000)
Cash Used in Operating Activities (1,84,500)
(B) Cash Flow from Investing Activities
Purchase of Investments (WN 2) (18,000)
Proceeds from Sale of Machinery 12,000
Proceeds from Sale of Investments 8,500
Cash Flow from Investing Activities 2,500
(C) Cash Flow from Financing Activities
Mortgage Loan Raised 2,70,000
Dividend Paid (40,000)
Cash Flow from Financing Activities 2,30,000
(D) Net Increase in Cash and Cash Equivalents (A + B + C) 48,000
Cash and Cash Equivalents in the beginning of the year (` 19,000 + ` 1,30,000) 1,49,000
(E) Cash and Cash Equivalents at the end of the year (` 17,000 + ` 1,80,000) 1,97,000

Working Notes:
1. Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 4,00,000 By Bank A/c 12,000
To Gain (Profit) on Sale of Machinery A/c 2,000 By Depreciation A/c (Balancing Figure) 70,000
(Statement of Profit & Loss) By Balance c/d 3,20,000
4,02,000 4,02,000

4
2. Dr. INVESTMENTS ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 50,000 By Bank A/c 8,500
To Gain (Profit) on Sale of Investments A/c 500 By Balance c/d 60,000
(Statement of Profit & Loss)
To Bank A/c (Balancing Figure) (Purchase) 18,000
68,500 68,500

3. Dr. PROVISION FOR TAX ACCOUNT Cr.

Particulars ` Particulars `
To Bank A/c (Tax Paid) (Balancing Figure) 74,000 By Balance b/d 75,000
To Balance c/d 10,000 By Statement of Profit & Loss 9,000
(Provision for Tax)
84,000 84,000

Illustration 4.
From the following Balance Sheet of Bull Ltd. as at 31st March, 2022, prepare Cash Flow
Statement:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 3,60,000 3,00,000
(b) Reserves and Surplus 2,00,000 1,60,000
(Surplus, i.e., Balance in Statement of Profit & Loss)
2. Non-Current Liabilities
Long-term Borrowings 1 3,78,000 2,62,000
3. Current Liabilities
(a) Trade Payables 2 28,000 28,000
(b) Other Current Liabilities (Outstanding Expenses) 2,000 6,000
Total 9,68,000 7,56,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i ) Property, Plant and Equipment 3 6,40,000 4,60,000
(ii ) Intangible Assets: Goodwill 10,000 20,000
2. Current Assets
(a) Inventories 34,000 40,000
(b) Trade Receivables 4 1,68,000 1,36,000
(c) Cash and Cash Equivalents:
Cash at Bank 1,16,000 1,00,000
Total 9,68,000 7,56,000

5
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Long-term Borrowings
12% Debentures 1,38,000 1,02,000
12% Public Deposits 2,40,000 1,60,000
3,78,000 2,62,000
2. Trade Payables
Creditors 20,000 16,000
Bills Payable 8,000 12,000
28,000 28,000
3. Property, Plant and Equipment
Building 4,40,000 3,00,000
Plant 2,00,000 1,60,000
6,40,000 4,60,000
4. Trade Receivables
Debtors 1,50,000 1,20,000
Bills Receivable 18,000 16,000
1,68,000 1,36,000

Additional Information:
1. Depreciation charged on Building ` 20,000 and Plant ` 10,000.
2. Debentures of ` 36,000 were issued on 1st October, 2021.
3. Public Deposits of ` 80,000 were taken on 31st March, 2022.

Solution: Bull Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `

(A) Cash Flow from Operating Activities

Net Profit before Tax and Extraordinary Items (` 2,00,000 – ` 1,60,000) 40,000
Add : Non-Cash and Non-Operating Expenses:
Goodwill amortised 10,000
Depreciation on Building 20,000
Depreciation on Plant 10,000
Interest on Debentures Paid (to be shown under Financing Activities) (WN 3) 14,400
Interest on Public Deposits (to be shown under Financing Activities) (WN 4) 19,200
Operating Profit before Working Capital Changes 1,13,600
Add: Decrease in Current Assets and Increase in Current Liabilities:
Inventories (` 40,000 – ` 34,000) 6,000
Creditors (` 20,000 – ` 16,000) 4,000
. 1,23,600
Less: Increase in Current Assets and Decrease in Current Liabilities:
Debtors (` 1,50,000 – ` 1,20,000) 30,000
Bills Receivable (` 18,000 – ` 16,000) 2,000
Bills Payable (` 12,000 – ` 8,000) 4,000
Outstanding Expenses (` 6,000 – ` 2,000) 4,000 40,000
Cash Flow from Operating Activities 83,600

6
(B) Cash Flow from Investing Activities
Payment for Building (WN 1) (1,60,000)
Payment for Plant (WN 2) (50,000)
Cash Used in Investing Activities (2,10,000)
(C) Cash Flow from Financing Activities
Proceeds from Issue of Equity Shares 60,000
Proceeds from Issue of Debentures 36,000
Proceeds from Public Deposits 80,000
Interest on Debentures Paid (14,400)
Interest on Public Deposits Paid (19,200)
Cash Flow from Financing Activities 1,42,400
(D) Net Increase in Cash and Cash Equivalents (A + B + C) 16,000
Add: Cash and Cash Equivalents in the beginning of the year 1,00,000
(E) Cash and Cash Equivalents at the end of the year 1,16,000

Working Notes:
1. Dr. BUILDING ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 3,00,000 By Depreciation A/c 20,000
To Bank A/c (Purchase) (Balancing Figure) 1,60,000 By Balance c/d
4,40,000
4,60,000 4,60,000

2. Dr. PLANT ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 1,60,000 By Depreciation A/c 10,000
To Bank A/c (Purchase) (Balancing Figure) 50,000 By Balance c/d
2,00,000
2,10,000 2,10,000

3. Interest on Debentures: `
12% on ` 1,02,000 for 12 months 12,240
12% on ` 36,000 for 6 months 2,160
14,400
4. Interest on Public Deposits:
12% on ` 1,60,000 for 12 months 19,200
Illustration 5.
From the following Balance Sheet of Grow More Ltd. as at 31st March, 2022, prepare Cash
Flow Statement:
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 1 4,50,000 4,50,000
(b) Reserves and Surplus 2 1,86,000 (12,000)
2. Non-Current Liabilities
Long-term Borrowings (8% Debentures) 1,56,000 90,000
3. Current Liabilities
(a) Short-term Borrowings (8% Bank Loan) 24,000 30,000
(b) Trade Payables 72,000 66,000
(c) Short-term Provisions 3 30,000 24,000
Total 9,18,000 6,48,000

7
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment (Machinery) 5,16,000 3,72,000
(ii) Intangible Assets (Goodwill) 9,000 24,000
(b) Non-current Investments 75,000 48,000
2. Current Assets
(a) Current Investments 3,000 9,000
(b) Inventories 1,17,000 60,000
(c) Trade Receivables 1,20,000 1,20,000
(d) Cash and Cash Equivalents 78,000 15,000
Total 9,18,000 6,48,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Share Capital
Equity Share Capital 3,30,000 2,70,000
10% Preference Share Capital 1,20,000 1,80,000
4,50,000 4,50,000
2. Reserves and Surplus
Securities Premium 6,000 ...
General Reserve 90,000 72,000
Surplus, i.e., Balance in Statement of Profit & Loss 90,000 (84,000)
1,86,000 (12,000)
3. Short-term Provisions
Provision for Tax 30,000 24,000

Additional Information:
(i) During the year a piece of machinery costing ` 36,000 on which depreciation charged
was ` 12,000 was sold for ` 12,000. Depreciation provided on Tangible Assets ` 36,000.
(ii) Income Tax ` 27,000 was provided.
(iii) Additional Debentures were issued at par on 1st October, 2021 and Bank Loan was
repaid on the same date.
(iv) The shareholders approved the redemption of 10% Preference Shares of ` 60,000 at
a premium of 5% at their Annual General Meeting held on 20th September, 2021,
although the terms of issue did not provide for redemption at a premium. Accordingly,
the shares were redeemed.

8
Solution: CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `
A. Cash Flow from Operating Activities
Closing Balance as per Surplus, i.e., Balance in Statement of Profit & Loss 90,000
Less: Opening Balance as per Surplus, i.e., Balance in Statement of profit & Loss (84,000)
1,74,000
Add: Transfer to General Reserve 18,000
Provision for Tax (WN 2) 27,000
Net Profit before Tax and Extraordinary Items 2,19,000
Adjustment for Non-cash and Non-operating Items:
Depreciation on Property, Plant and Equipment 36,000
Loss on Sale of Machinery 12,000
Interest on Debentures [(` 90,000 × 8/100) + (` 66,000 × 8/100 × 6/12)] 9,840
Interest on Bank Loan [(` 30,000 × 8/100 × 6/12) + (` 24,000 × 8/100 × 6/12)] 2,160
Goodwill Amortised 15,000
Premium on Redemption of Preference Shares 3,000 78,000
Operating Profit before Working Capital Changes 2,97,000
Add: Increase in Current Liabilities (Trade Payables) 6,000
3,03,000
Less: Increase in Current Assets (Inventories) (57,000)
Cash Generated from Operating Activities before Tax 2,46,000
Less: Tax Paid 21,000
Cash Flow from Operating Activities 2,25,000
B. Cash Flow from Investing Activities
Sale of Machinery 12,000
Purchase of Machinery (WN 1) (2,04,000)
Purchase of Non-current Investments (27,000)
Cash Used in Investing Activities (2,19,000)
C. Cash Flow from Financing Activities
Proceeds from Issue of Equity Shares 60,000
Premium Received on Issue of Equity Shares 6,000
Proceeds from Issue of Debentures 66,000
Payment of Interest on Debentures (9,840)
Payment of Interest on Bank Loan (2,160)
Redemption of Preference Shares (60,000)
Premium Paid on Redemption of Preference Shares (3,000)
Bank Loan Repaid (6,000)
Cash Flow from Financing Activities 51,000
D. Net Increase in Cash and Cash Equivalents (A + B + C) 57,000
E. Opening Cash and Cash Equivalents* 24,000
F. Closing Cash and Cash Equivalents* (D + E) 81,000

*Cash and Cash Equivalents = Cash and Cash Equivalents + Current Investments.
Working Notes:
1. Dr. MACHINERY ACCOUNT Cr.
Particulars
` Particulars `
To Balance b/d 3,72,000 By Depreciation A/c 36,000
To Bank A/c (Purchase) (Bal. Fig.) 2,04,000 By Bank A/c (Sale) 12,000
By Loss on Sale of Machinery A/c 12,000
By Balance c/d 5,16,000
  5,76,000 5,76,000

9
2. Dr. PROVISION FOR TAX ACCOUNT Cr.

Particulars
` Particulars `

To Bank A/c (Paid) (Balancing Figure) 21,000 By Balance b/d 24,000

To Balance c/d 30,000 By Statement of Profit & Loss (Tax Provided) 27,000
  51,000 51,000

3. 10% Preference Shares of ` 60,000 have been redeemed at a premium of 5% (` 3,000) although they were not originally
redeemable at premium. Hence, premium payable on redemption of 10% Preference Shares of ` 3,000 was not accounted
at the time of issue. Therefore, premium paid on redemption of preference shares is debited to Statement of Profit & Loss
in the year of redemption and added to Net Profit before Tax and Extraordinary Items under Cash Flow from Operating
Activities and shown as Cash Outflow under Financing Activities.

Illustration 6.
From the following Balance Sheet as at 31st March, 2022, Statement of Profit & Loss for
the year ended 31st March, 2022 and additional information of Grow More Ltd., prepare
its Cash Flow Statement:

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital 15,00,000 12,50,000
(b) Reserves and Surplus (Surplus) 4,71,000 1,38,000
2. Non-Current Liabilities
Long-term Borrowings (Debentures) 1,11,000 1,04,000
3. Current Liabilities
(a) Trade Payables 15,000 1,89,000
(b) Other Current Liabilities 1 23,000 10,000
(c) Short-term Provisions 2 40,000 1,00,000
Total 21,60,000 17,91,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:

—Property, Plant and Equipment 3 1,27,000 85,000
(b) Non-current Investments 16,00,000 13,75,000
2. Current Assets
(a) Current Investments 77,000 13,500
(b) Inventories 90,000 1,95,000
(c) Trade Receivables 1,70,000 1,20,000
(d) Cash and Cash Equivalents 96,000 2,500
Total 21,60,000 17,91,000

10
 STATEMENT OF PROFIT & LOSS
for the year ended 31st March, 2022
Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)

I. Revenue from Operations 32,20,000 29,50,000

II. Other Income 4 64,000 34,000
III. Total Revenue (I + II) 32,84,000 29,84,000
IV. Expenses:
Purchases of Stock-in-Trade 24,95,000 23,45,000
Change in Inventories of Stock-in-Trade 1,05,000 55,000
Finance Cost 40,000 30,000
Depreciation 45,000 30,000
Other Expenses 91,000 61,000
Total Expenses 27,76,000 25,21,000
V. Profit before Tax (III – VI) 5,08,000 4,63,000
VI. Less: Tax 50,000 40,000
VII. Profit after Tax (V – VI) 4,58,000 4,23,000

Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)

1. Other Current Liabilities

Interest Payable 23,000 10,000
2. Short-term Provisions
Provision for Tax 40,000 1,00,000
3. Property, Plant and Equipment
Plant (Cost) 2,18,000 1,91,000
Less: Accumulated Depreciation (91,000) (1,06,000)
1,27,000 85,000
4. Other Income
Interest Income 30,000 24,000
Dividend Income 20,000 10,000
Insurance Proceeds from Machinery Breakdown 14,000 ...
64,000 34,000

Additional Information:
(i) Additional Debentures for ` 2,50,000 were issued at par during the year.
(ii) Proposed dividend for the years ended 31st March, 2022 and 2021 were 10% each.
(iii) Plant with original cost of ` 80,000 and accumulated depreciation provided thereon
` 60,000 was sold for ` 20,000.

11
Solution: Grow More Ltd.
CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `
A. Cash Flow from Operating Activities
Net Profit (as per Statement of Profit & Loss) 4,58,000
Add: Provision for Tax 50,000
5,08,000
Less: Extraordinary Items (Insurance Proceeds from Machinery Breakdown) 14,000
4,94,000
Add: Non Cash and Non-Operating Expenses:
Depreciation 45,000
Finance Cost 40,000 85,000
5,79,000
Less: Non-operating Incomes:
Interest Income 30,000
Dividend Income 20,000 50,000
Operating Profit before Working Capital Changes 5,29,000
Add: Decrease in Current Assets: Inventories 1,05,000
6,34,000
Less: Increase in Current Assets, and Decrease in Current Liabilities:
Trade Receivables 50,000
Trade Payables 1,74,000 2,24,000
Cash Generated from Operations 4,10,000
Less: Payment of Tax (WN 1) 1,10,000
Cash Flow from Operating Activities before Items Extraordinary 3,00,000
Add: Extraordinary Items (Insurance Proceeds) 14,000
Cash Flow from Operating Activities 3,14,000
B. Cash Flow from Investing Activities
Proceeds from Sale of Plant (WN 2) 20,000
Payment for Purchase of Plant (WN 2) (1,07,000)
Interest Received 30,000
Dividend Received 20,000
Payment for Purchase of Investments (2,25,000)
Cash Used in Investing Activities (2,62,000)
C. Cash Flow from Financing Activities
Proceeds from Issue of Shares 2,50,000
Proceeds from Issue of Debentures (WN 4) 2,50,000
Redemption of Debentures (WN 4) (2,43,000)
Dividend Paid (10% of ` 12,50,000) (1,25,000)
Finance Cost Paid (` 10,000 + ` 40,000 – ` 23,000) (27,000)
Cash Flow from Financing Activities 1,05,000
D. Net Increase in Cash and Cash Equivalents (A + B + C) 1,57,000
Add: Opening Cash and Cash Equivalents (` 2,500 + ` 13,500) 16,000
E. Closing Cash and Cash Equivalents (` 96,000 + ` 7,700) 1,73,000

Working Notes:
1. Dr. PROVISION FOR TAX ACCOUNT Cr.
Particulars
` Particulars `
To Bank A/c (Tax Paid) (Balancing Figure) 1,10,000 By Balance b/d 1,00,000
To Balance c/d 40,000 By Statement of Profit & Loss (Provision) 50,000
  1,50,000 1,50,000

12
2. Dr. PLANT ACCOUNT Cr.
Particulars
` Particulars `

To Balance b/d 1,91,000 By Accumulated Depreciation A/c (Asset Sold) 60,000

To Bank A/c (Purchase) (Bal. Fig.) 1,07,000 By Bank A/c 20,000
By Balance c/d 2,18,000
  2,98,000 2,98,000

3. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars
` Particulars `

To Plant A/c 60,000 By Balance b/d 1,06,000

To Balance c/d 91,000 By Depreciation A/c 45,000
  1,51,000 1,51,000

4. Dr. DEBENTURES ACCOUNT Cr.

Particulars
` Particulars `

To Bank A/c (Redemption) (Bal. Fig.) 2,43,000 By Balance b/d 1,04,000

To Balance c/d 1,11,000 By Bank A/c (Issue) 2,50,000
  3,54,000 3,54,000

5. Cash Flow Statement is started from Net Profit as per Statement of Profit & Loss. Since, Dividend paid is not accounted in
Statement of Profit & Loss, adjustments will not be made for dividend while calculating Net Profit before Tax and Extraordinary
Items.
Illustration 7.
Following is the Balance Sheet of Thermal Power Ltd. as at 31st March, 2014:
BALANCE SHEET OF THERMAL POWER LTD. as at 31st March, 2014
Particulars Note No. 31st March, 31st March,
2014 (`) 2013 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 12,00,000 11,00,000
(b) Reserves and Surplus 1 3,00,000 2,00,000
2. Non-Current Liabilities
Long-term Borrowings 2,40,000 1,70,000
3. Current Liabilities
(a) Trade Payables 1,79,000 2,04,000
(b) Short-term Provisions 50,000 77,000
Total 19,69,000 17,51,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i ) Property, Plant and Equipment 2 10,70,000 8,50,000
(ii) Intangible Assets 3 40,000 1,12,000
2. Current Assets
(a) Current Investments 2,40,000 1,50,000
(b) Inventories 1,29,000 1,21,000
(c) Trade Receivables 1,70,000 1,43,000
(d) Cash and Cash Equivalents 3,20,000 3,75,000
Total 19,69,000 17,51,000

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Notes to Accounts
Particulars 31st March, 31st March,
2014 (`) 2013 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 3,00,000 2,00,000
2. Property, Plant and Equipment
Machinery 12,70,000 10,00,000
Less: Accumulated Depreciation (2,00,000) (1,50,000)
10,70,000 8,50,000
3. Intangible Assets
Goodwill 40,000 1,12,000

Additional Information:
During the year a piece of machinery, costing ` 24,000 on which accumulated depreciation
was ` 16,000, was sold for ` 6,000.
Prepare Cash Flow Statement. (Delhi 2015)

Solution: Thermal Power Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2014
Particulars ` `

I. Cash Flow from Operating Activities

Net profit before Tax and Extraordinary Items (` 3,00,000 – ` 2,00,000) 1,00,000
Add: Non-cash and Non-Operating Expenses:
Goodwill amortised 72,000
Depreciation on Machinery (WN 2) 66,000
Loss on sale of Machinery 2,000
Operating profit before Working Capital changes 2,40,000
Less: Increase in Current Assets and Decrease in Current Liabilities:
Trade Receivables 27,000
Inventories 8,000
Trade Payables 25,000
Short-term Provisions 27,000 87,000
Cash Flow from Operating Activities 1,53,000
II. Cash Flow from Investing Activities
Purchase of Machinery (WN 1) (2,94,000)
Proceeds from Sale of Machinery 6,000
Cash Used in Investing Activities (2,88,000)
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares 1,00,000
Money raised from Borrowings 70,000
Cash Flow from Financing Activities 1,70,000
IV. Net increase in Cash and Cash Equivalents (I + II + III) 35,000
V. Opening Balance of Cash and Cash Equivalents
Current Investments 1,50,000
Cash and Cash Equivalents 3,75,000 5,25,000
5,60,000
VI. Closing Balance of Cash and Cash Equivalents
Current Investments 2,40,000
Cash and Cash Equivalents 3,20,000 5,60,000

14
Working Notes:

1. Dr. MACHINERY ACCOUNT Cr.

Particulars ` Particulars `

To Balance b/d 10,00,000 By Bank A/c—Sale 6,000

To Bank A/c—Purchase 2,94,000 By Accumulated Depreciation A/c 16,000
(Balancing Figure) By Loss on Sale of Machinery A/c 2,000
(Statement of Profit & Loss)
By Balance c/d 12,70,000
12,94,000 12,94,000

2. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars ` Particulars `
To Machinery A/c 16,000 By Balance b/d 1,50,000
To Balance c/d 2,00,000 By Depreciation A/c (Balancing Figure) 66,000
2,16,000 2,16,000

Illustration 8.
Following is the Balance Sheet of K.K. Ltd. as at 31st March, 2022:

BALANCE SHEET as at 31st March, 2022

Particulars Note No. 31st March, 31st March,
2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 10,00,000 8,00,000
(b) Reserves and Surplus 1 4,00,000 (1,00,000)
2. Non-Current Liabilities
Long-term Borrowings 2 9,00,000 10,00,000
3. Current Liabilities
(a) Short-term Borrowings 3 3,00,000 1,00,000
(b) Short-term Provisions 4 1,40,000 1,80,000
Total 27,40,000 19,80,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 5 20,06,000 14,40,000
(ii) Intangible Assets 6 40,000 60,000
(b) Non-current Investments 2,00,000 1,50,000
2. Current Assets
(a) Current Investments 1,00,000 1,20,000
(b) Inventories 7 2,14,000 90,000
(c) Cash and Cash Equivalents 1,80,000 1,20,000
Total 27,40,000 19,80,000

15
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000 (1,00,000)
2. Long-term Borrowings
12% Debentures 9,00,000 10,00,000
3. Short-term Borrowings
Bank Overdraft 3,00,000 1,00,000
4. Short-term Provisions
Provision for Tax 1,40,000 1,80,000
5. Property, Plant and Equipment
Machinery 24,06,000 16,42,000
Less: Accumulated Depreciation (4,00,000) (2,02,000)
20,06,000 14,40,000
6. Intangible Assets
Goodwill 40,000 60,000
7. Inventories
Stock-in-Trade 2,14,000 90,000

Additional Information:
(i) 12% Debentures were redeemed on 31st March, 2022.
(ii) Tax ` 1,40,000 was paid during the year.
Prepare Cash Flow Statement. (Delhi 2016, Modified)
Solution: K.K. Ltd.
CASH FLOW STATEMENT for the year ended 31st March, 2022
Particulars ` `
I. Cash Flow from Operating Activities
Closing Balance as per Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000
Less: Opening Balance as per Surplus, i.e., Balance in Statement of Profit & Loss (Loss) (1,00,000)
5,00,000
Add: Provision for Tax (WN) 1,00,000
Net Profit before Tax and Extraordinary Items 6,00,000
Add: Non-cash and Non-operating Expenses:
Depreciation 1,98,000
Interest on 12% Debentures 1,20,000
Goodwill amortised 20,000 3,38,000
Operating Profit before Working Capital changes 9,38,000
Less: Increase in Current Assets:
Inventories 1,24,000
Cash Generated from Operations 8,14,000
Less: Payment of Tax 1,40,000
Cash Flow from Operating Activities 6,74,000
II. Cash Flow from Investing Activities
Payment for purchase of Machinery (7,64,000)
Purchase of Non-current Investments (50,000)
Cash Used in Investing Activities (8,14,000)

16
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares 2,00,000
Repayment of Long-term Borrowings (12% Debentures) (1,00,000)
Payment of Interest on 12% Debentures (1,20,000)
Increase in Bank Overdraft 2,00,000
Cash Flow from Financing Activities 1,80,000
IV. Net Increase in Cash and Cash Equivalents (I + II + III) 40,000
Add: Opening Balance of Cash and Cash Equivalents 2,40,000
(Cash and Cash Equivalents + Current Investments)
V. Closing Balance of Cash and Cash Equivalents 2,80,000
(Cash and Cash Equivalents + Current Investments)

Working Note:
Dr. PROVISION FOR TAX ACCOUNT Cr.
Particulars ` Particulars `
To Bank A/c (Tax Paid) 1,40,000 By Balance b/d 1,80,000
To Balance c/d 1,40,000 By Statement of Profit & Loss 1,00,000
(Provision made) (Balancing Figure)
2,80,000 2,80,000

Illustration 9.
Following is the Balance Sheet of Thermal Power Ltd. as at 31st March, 2022:

BALANCE SHEET OF THERMAL POWER LTD.

as at 31st March, 2022

Particulars Note No. 31st March, 31st March,

2022 (`) 2021 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 15,00,000 10,00,000
(b) Reserves and Surplus 1 (2,12,500) (2,68,750)
2. Non-Current Liabilities
Long-term Borrowings 2 3,75,000 3,12,500
3. Current Liabilities
Trade Payables 2,37,500 3,37,500
Total 19,00,000 13,81,250
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment (Machinery) 8,62,500 6,25,000
(b) Non-current Investments 1,50,000 2,50,000
2. Current Assets
(a) Inventories 5,00,000 3,75,000
(b) Trade Receivables 3,00,000 56,250
(c) Cash and Cash Equivalents 87,500 75,000
Total 19,00,000 13,81,250

17
Notes to Accounts
Particulars 31st March, 31st March,
2022 (`) 2021 (`)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss (2,12,500) (2,68,750)
2. Long-term Borrowings
10% Debentures 3,75,000 3,12,500

Additional Information:
(i) Debentures were issued on 1st April, 2021.
(ii) Depreciation charged during the year was ` 1,00,000.
(iii) Non-current Investments were sold at a profit of 20%.
(iv) During the year, a piece of machinery costing ` 2,50,000 on which depreciation charged
was ` 87,500, was sold for ` 1,87,500.
Prepare Cash Flow Statement.

Solution: Thermal Power Ltd.

CASH FLOW STATEMENT for the year ended 31st March, 2022

Particulars ` `

I. Cash Flow from Operating Activities

Net Profit before Tax and Extraordinary Items [– ` 2,12,500 – (– ` 2,68,750)] 56,250
Adjustment of Non-cash and Non-operating Items:
Depreciation on Machinery 1,00,000
Interest on Debentures (10% of ` 3,75,000) 37,500
Gain(Profit) on Sale of Machinery (WN) (25,000)
Gain(Profit) on Sale of Non-current Investment [(` 2,50,000 – ` 1,50,000) × 20/100] (20,000)
Operating profit before Working Capital changes 1,48,750
Less: Increase in Current Assets and Decrease in Current Liabilities:
Trade Receivables (2,43,750)
Inventories (1,25,000)
Trade Payables (1,00,000)
Cash Used in Operating Activities (3,20,000)
II. Cash Flow from Investing Activities
Purchase of Machinery (WN) (5,00,000)
Proceeds from Sale of Machinery 1,87,500
Sale of Non-current Investment 1,20,000
Cash Used in Investing Activities (1,92,500)
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares (` 15,00,000 – ` 10,00,000) 5,00,000
Money raised from Borrowings (10% Debentures ` 3,75,000 – ` 3,12,500) 62,500
Interest on Debentures (10% of ` 3,75,000) (37,500)
Cash Flow from Financing Activities 5,25,000
IV. Net increase in Cash and Cash Equivalents (I + II + III) 12,500
V. Opening Balance of Cash and Cash Equivalents 75,000
VI. Closing Balance of Cash and Cash Equivalents 87,500

18
Working Note:
Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 6,25,000 By Depreciation A/c 1,00,000
To Statement of Profit and Loss (Gain on Sale)* 25,000 By Bank A/c (Sale) 1,87,500
To Bank A/c (Purchase)—Balancing Figure 5,00,000 By Balance c/d 8,62,500
11,50,000 11,50,000

*Gain(Profit) on Sale of Machinery = Sale – Book Value

= ` 1,87,500 – ` 1,62,500 (` 2,50,000 – ` 87,500) = ` 25,000.

19