Question

Following are the Balance Sheets of X Ltd. for two years. Prepare a Cash Flow statement:
$$\begin{array}{ccccc}\text{Particulars}& \text{Note}& 31-03-2018& 31-03-2017& \\ & \text{No.}& & & \\ \text{(I) Equity and Liabilities:}& & & & \\ \left(1\right)\text{Shareholder's Fund:}& & & & \\ \text{(a) Share Capital}& & 3,00,000& 2,00,000& \\ \text{(b) Reserve and surplus}& & 80,000& 30,000& \\ \left(2\right)\text{Non- Current Liabilities:}& & & & \\ \text{Long term Borrowings}& 1& -& 75,000& \\ \left(3\right)\text{Current Liabilities:}& & & & \\ \left(a\right)\text{Short term Borrowings}& 2& 25,000& 37,000& \\ \left(b\right)\text{Trade Payables}& & 1,50,000& 96,000& \\ \left(c\right)\text{Short term (Provision for Tax)}& & \underset{–}{15,000}& \underset{–}{12,000}& \\ \text{Total}& & \underset{–}{5,70,000}& \underset{–}{4,50,000}& \\ \text{II. Assets:}& & & & \\ \text{(1) Non - Current Assets:}& & & & \\ \text{Fixed Assets}& 3& 3,40,000& 3,00,000& \\ \text{(2) Current Assets}& & & & \\ \left(a\right)\text{Current Investments (Short-term Investments)}& & 30,000& 20,000& \\ \left(b\right)\text{Inventory}& & 90,000& 60,000& \\ \left(c\right)\text{Trade Receivables}& & 97,000& 65,000& \\ \left(d\right)\text{Cash and Cash Equivalents}& & \underset{–}{13,000}& \underset{–}{5,000}& \\ \text{Total}& & \underset{–}{5,70,000}& \underset{–}{4,50,000}& \end{array}$$
Notes:
(1) $$\begin{array}{cccc}\text{Long - term Borrowings:}& 31-03-2018& 31-03-2017& \\ 15\%\text{Loan}& \text{-}& 75,000& \\ & & & \\ \left(2\right)\text{Short-term Borrowings:}& & & \\ \text{Bank Overdraft}& \underset{–}{25,000}& \underset{–}{37,000}& \\ & & & \\ \left(3\right)\text{Fixed Assets:}& & & \\ \text{Plant and Machinery}& 4,00,000& 3,50,000& \\ (-)\text{Accumulated Depreciation}& \underset{–}{60,000}& \underset{–}{50,000}& \\ & \underset{–}{3,40,000}& \underset{–}{3,00,000}& \end{array}$$
Additional Information:

(1) $$\begin{array}{ccc}& 31-03-2018& 31-03-2017\\ & \text{Rs.}& \text{Rs.}\\ \text{Contingent Liability:}& & \\ \text{Proposed Dividend}& 30,000& 20,000\end{array}$$
(2) Loan was repaid on 1st April, 2017

Answer 1

Cash Flow Statement
for the year ended 31st March, 2018
$$\begin{array}{cccc}\text{Particulars}& & \text{Rs.}& \text{Rs.}\\ \text{Net Profit before Tax (Note 1)}& & 85,000& \\ \text{Adjustments for Non - Cash items:}& & & \\ (+)\text{Depreciation on plant and machinery}& & \underset{–}{10,000}& \\ \text{Operating profit before working capital cahnges}& & 95,000& \\ \text{Changes in Working Capital:}& & & \\ (+)\text{Increase in Trade Payables}& \text{54,000}& & \\ (-)\text{Increase in Inventory}& (30,000)& & \\ (-)\text{Increase in Trade Receivables}& \underset{–}{(32,000)}& \underset{–}{(8,000)}& \\ & & 87,000& \\ \text{(-) Payment of Tax (for the year 2017)}& & \underset{–}{(12,000)}& \\ \text{Net cash from operating activities}& & \underset{–}{75,000}& 75,000\\ \text{B. Cash Flows From Investing Activities:}& & & \\ \text{Purchase of Plant and Machinery}& & \underset{–}{(50,000)}& \\ \text{Net cash used in investing activities}& & \underset{–}{(50,000)}& (50,000)\\ \text{C. Cash flows from Financing Activities:}& & & \\ \text{Issue of Share Capital}& & 1,00,000& \\ \text{Repayment of loan}& & (75,000)& \\ \text{Repayment of Short term Borrowings (Bank Overdraft)}& & (12,000)& \\ \text{Payment of Proposed Dividend (for 2017)}& & \underset{–}{(20,000)}& \\ \text{Net Cash used in Financing Activities}& & \underset{–}{(7,000)}& \underset{–}{(7,000)}\\ \text{Net Increase in cash and cash equivalents}& & & 18,000\\ (+)\text{Cash and cash equivalents in the beginning of the period}& & & \underset{–}{25,000}\\ \text{Cash and cash equivalents at the end of the period}& & & \underset{–}{43,000}\end{array}$$
Notes (1)
$$\begin{array}{cc}\text{Calculation of Net Profit before Tax:}& \text{Rs.}\\ \text{Reserve and Surplus Balance on 31st March, 2018}& 80,000\\ (-)\text{Reserve and Surplus Balance on 31st March, 2017}& \underset{–}{(30,000)}\\ & 50,000\\ (+)\text{Proposed Dividend for Previous Year}& 20,000\\ \text{Provision for Tax made during the current year}& \underset{–}{15,000}\\ \text{Net Profit before tax}& \underset{–}{85,000}\end{array}$$
Proposed dividend for previous year (i.e., 2017 ) will be added to Net profit before tax and will also be shown as Outflow under financing activities. There will be no effect of proposed dividend of Current year (i.e., 2018)
(2)
Dr. Plant and Machinery Account Cr.
$$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particular}& \text{Amount}\\ \text{Balance b/d (Given)}& 3,50,000& & \\ \text{Bank A/c (Balancing figure, being purchase)}& \underset{–}{50,000}& \text{Balance c/d (Given)}& \underset{–}{4,00,000}\\ & \underset{–}{4,00,000}& & \underset{–}{4,00,000}\end{array}$$
(3)
Dr. Accumulated Depreciation A/c Cr.
$$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particular}& \text{Amount}\\ & & \text{Balance b/d (2017 Balance)}& 50,000\\ & & \text{Statement of P and L}& \\ \text{Balance c/d (2018 Balance)}& \underset{–}{60,000}& \text{(Balancing figure) (Current year's Depreciation)}& \underset{–}{10,000}\\ & \underset{–}{60,000}& & \underset{–}{60,000}\end{array}$$

(4)
$$\begin{array}{ccc}& \text{Rs.}& \text{Rs.}\\ \text{Cash and Cash Equivalents}& 13,000& 5,000\\ \text{Current Investments}& \underset{–}{30,000}& \underset{–}{20,000}\\ & \underset{–}{43,000}& \underset{–}{25,000}\end{array}$$
(5)
As per revised CBSE Guidelines, Bank Overdraft and Cash Credit will be treated as short term Borrowings' and as per Para 17 of As-3 (Revised) Cash proceeds from short term Borrowings should be classified under Financing Activities. As such, Bank Overdraft and Cash credit will be treated as Financing Activities' instead of Cash Equivalents.