Question

From the following balance sheets of ABC Ltd., Find out cash from operating activities only:
$$\begin{array}{cccc}\text{Particulars}& \text{Note No.}& 31-03-2017& 31-03-2016\\ \text{I. Equity and Liabilities:}& & & \\ \left(1\right)\text{Shareholder's Funds:}& & & \\ \left(a\right)\text{Share Capital}& & 35,000& 30,000\\ \left(b\right)\text{Reserve and Surplus}& 1& 22,000& 3,500\\ \left(2\right)\text{Non - Current Liabilities}& & & \\ \text{Long term Borrowings}& 2& 25,000& 21,000\\ \left(3\right)\text{Current Liabilities}& & & \\ \text{Trade Payables}& & \underset{–}{12,500}& \underset{–}{8,500}\\ \text{Total}& & \underset{–}{94,500}& \underset{–}{63,000}\\ \text{II. Assets:}& & & \\ \left(1\right)\text{Non- Current Assets:}& & & \\ \left(a\right)\text{Fixed Assets}& & & \\ \left(i\right)\text{Tangible Assets}& 3& 41,000& 32,000\\ \left(ii\right)\text{Intangible Assets}& 4& 8,000& 10,000\\ \left(b\right)\text{Non Current Investments}& 5& 8,000& 3,000\\ \left(2\right)\text{Current Assets:}& & & \\ \left(a\right)\text{Inventory}& & 24,500& 6,000\\ \left(b\right)\text{Cash and Cash Equivalents}& & \underset{–}{13,000}& \underset{–}{12,000}\\ \text{Total}& & \underset{–}{94,500}& \underset{–}{63,000}\end{array}$$
Notes:
$$\begin{array}{cccc}\left(1\right)& \text{Reserve and Surplus:}& 2017& 2016\\ & \text{General Reserve}& 15,000& 9,500\\ & \text{Profit and Loss Balance}& \underset{–}{7,000}& \underset{–}{(6,000)}\\ & & \underset{–}{22,000}& \underset{–}{3,500}\\ & \text{Bracket Denotes negative balance.}& & \\ \left(2\right)& \text{Long- term Borrowings:}& & \\ & 10\%\text{Debentures}& \underset{–}{25,000}& \underset{–}{21,000}\\ \left(3\right)& \text{Tangible Assets:}& & \\ & \text{Machinery}& 54,000& 41,000\\ & (-)\text{Provision for Depreciation}& \underset{–}{13,000}& \underset{–}{9,000}\\ & & \underset{–}{41,000}& \underset{–}{32,000}\\ \left(4\right)& \text{Intangible Assets:}& & \\ & \text{Goodwill}& \underset{–}{8,000}& \underset{–}{10,000}\\ \left(5\right)& \text{Rate of interest on Investments is}10\%p.a.& & \end{array}$$

Additional Information:
1. Debentures were issued on 31.3.2017
2. Investments were made on 31.3.2017

Answer 1

Calculation Of Cash From Operating Activities
for the year ended 31st March, 2017


$$\begin{array}{ccc}& \text{Rs.}& \text{Rs.}\\ \text{Net Profit before Tax (Note 1)}& & 18,500\\ \text{Adjustments for non-cash items:}& & \\ (+)\text{Depreciation}(13,000-9,000)& 4,000& \\ (+)\text{Goodwill written off}& \underset{–}{2,000}& \underset{–}{6,000}\\ & & 24,500\\ \text{Adjustments for non- operating items:}& & \\ (+)\text{Payments of interest on Long - term Borrowings}& & \\ \text{(Debentures)}(10\%onRs.21,000)& 2,100& \\ (-)\text{Interest on Non- current Investments}& \underset{–}{\left(300\right)}& \underset{–}{1,800}\\ \text{Operating profit before working capital changes}& & 26,300\\ \text{Changes in Working Capital:}& & \\ (+)\text{Increase in Trade Payables}& \text{4,000}& \\ (-)\text{Increase in Inventory}& \underset{–}{(18,500)}& \underset{–}{(14,500)}\\ \text{Net Cash flow from Operating Activities}& & 11,800\end{array}$$

Note 1:
$$\begin{array}{cc}\underset{–}{\text{Calculation of Net Profit before Tax:}}& \\ \text{Net Profit During current year (7,000 + 6,000)}& 13,000\\ (+)\text{Transfer to General Reserve}& \underset{–}{5,500}\\ & \underset{–}{18,500}\end{array}$$
Negative balance for Profit & Loss amounting to Rs. 6,000 appearing in the balance sheet on 31-03-2016 represents an amount of loss. In the current year, after covering this loss of Rs. 6,000 the Profit & Loss shows a profit of Rs. 7,000. It means that net profit during the current year must have been Rs. 7,000 + 6,000 = 13,000