Question

Following is the financial statement of Garima Ltd., prepare cash flow statement.
Balance Sheet
As on 31st December, 2011
$$\begin{array}{cccccc}\text{Capital and Liabilities}& \text{2010 (Rs.)}& \text{2011 (Rs.)}& \text{Assets}& \text{2010 (Rs.)}& \text{2011 (Rs.)}\\ \text{Equity Share Capital}& 2,00,000& 3,00,000& \text{Plant and Machinery}& 2,00,000& 3,64,000\\ \text{Preference Share Capital}& 80,000& 1,40,000& \text{Stock}& 60,000& 1,60,000\\ \text{Creditors}& 56,000& 1,56,000& \text{Debtors}& 20,000& 80,000\\ \text{Provision for Taxation}& 4,000& 12,000& \text{Bank}& 80,000& 28,000\\ \text{Profit}\&\text{Loss Account}& 28,000& 40,000& \text{Prepaid Expenses}& 8,000& 16,000\\ & \overline{\underset{–}{3,68,000}}& \overline{\underset{–}{6,48,000}}& & \overline{\underset{–}{3,68,000}}& \overline{\underset{–}{6,48,000}}\end{array}$$

Profit and Loss Account
for the year ended December 31, 2011

$$\begin{array}{cccc}\text{Particulars}& \text{Amt. (Rs.)}& \text{Particulars}& \text{Amt. (Rs.)}\\ \text{Opening Stock}& 60,000& \text{Sales}& 5,00,000\\ \text{Purchase}& 4,92,000& \text{Closing Stock}& 1,60,000\\ \text{Gross Profit c/d}& 1,08,000& & \\ & \overline{\underset{–}{6,60,000}}& & \overline{\underset{–}{6,60,000}}\\ \text{Salary}& 44,000& \text{Gross Profit b/d}& 1,08,000\\ \text{Depreciation}& 32,000& & \\ \text{Provision for Tax}& 16,000& & \\ \text{Net Profit c/d}& 16,000& & \\ & \overline{\underset{–}{1,08,000}}& & \overline{\underset{–}{1,08,000}}\\ \text{Dividend}& 4,000& \text{Balance b/d}& 28,000\\ \text{Balance c/d}& 40,000& \text{Net Profit b/d}& 16,000\\ & \overline{\underset{–}{44,000}}& & \overline{\underset{–}{44,000}}\end{array}$$

Answer 1

Cash Flow Statement of Garima Ltd.
as on December 31, 2011 (Direct Method)
$$\begin{array}{cccc}& \text{Particulars}& \text{Amt. (Rs)}& \text{Amt. (Rs)}\\ \text{A.}& \text{Cash Flow from Operating Activities [Working Note 3 - (i)]}& & 4,40,000\\ & \text{Cash Receipts from Customers}& & \\ & (-)\text{Cash Paid to Suppliers [Working Note 3 - (ii)]}& 3,92,000& \\ & (-)\text{Cash Paid for Expenses [Working Note 3 - (iii)]}& \underset{–}{52,000}& \underset{–}{(4,44,000)}\\ & \text{Cash Outflow from Operating Activities}& & (4,000)\\ & (-)\text{Income Tax paid (Working Note 1)}& & \underset{–}{(8,000)}\\ & \text{Net Cash used in Operating Activities}& & \underset{–}{(12,000)}\\ \text{B.}& \text{Cash Flow from Investing Activities}& & \\ & \text{Purchase of Plant and Machinery (Working Note 2)}& & \underset{–}{(1,96,000)}\\ & \text{Net Cash used in Investing Activities}& & \underset{–}{(1,96,000)}\\ \text{C.}& \text{Cash Flow from Financing Activities}& & \\ & \text{Issue of Equity Share Capital}& & 1,00,000\\ & \text{Issue of Preference Share Capital}& & \underset{–}{60,000}\\ & & & 1,60,000\\ & (-)\text{Dividend Paid}& & \underset{–}{(4,000)}\\ & \text{Net Cash from Financing Activities}& & \underset{–}{1,56,000}\\ \text{D.}& \text{Net decrease in Cash and Cash Equivalents (A + B + C)}& & (52,000)\\ & (+)\text{Cash and Cash Equivalents in the Beginning}& & \underset{–}{80,000}\\ \text{E.}& \text{Cash and Cash Equivalents at the End}& & \underset{–}{28,000}\\ & & & \end{array}$$

Working Note 1:

Dr. Provision for Tax Account Cr.
$$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}& \text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}\\ & \text{Bank A/c}& & & & \text{Balance c/d}& & 4,000\\ & \text{(Balancing Figure)}& & 8,000& & & & \\ & \text{Balance b/d}& & 12,000& & \text{Profit and Loss A/c}& & 16,000\\ & & & \overline{\underset{–}{20,000}}& & & & \overline{\underset{–}{20,000}}\\ & & & & & & & \end{array}$$

Working Note 2:

Dr. Plant and Machinery Account Cr.
$$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}& \text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}\\ & \text{Balance b/d}& & 2,00,000& & \text{Depreciation A/c}& & 32,000\\ & \text{Bank A/c (Purchase)}& & 1,96,000& & \text{Balance c/d}& & 3,64,000\\ & \text{(Balancing Figure)}& & & & & & \\ & & & \overline{\underset{–}{3,96,000}}& & & & \overline{\underset{–}{3,96,000}}\\ & & & & & & & \end{array}$$

Working Note 3:
(i) Cash receipts from the customers
= Sales + Opening Debtors – Closing Debtors
= Rs. 5,00,000 + Rs. 20,000 – Rs. 80,000
= Rs. 4,40,000

(ii) Cash paid to the creditors
=Purchase + Opening Creditors – Closing Creditors
= Rs. 4,92,000 + Rs. 56,000 – Rs. 1,56,000
= Rs. 3,92,000

(iii) Cash paid for expenses
=Salaries + Prepaid Expenses at the end – Prepaid Expenses in the beginning
= Rs. 44,000 + Rs. 16,000 – Rs. 8,000
= Rs. 52,000

Note : Debtors and creditors account can also be prepared to calculate cash receipt or cash paid.