Question

From the following figures, calculate cash from operating activities:
$$\begin{array}{ccc}\text{Particulars}& \mathrm{31.03.2017}& \mathrm{31.03.2018}\\ \text{Balance of Profit and Loss}& 3,00,000& 2,50,000\\ \text{Provision for Depreciation}& 60,000& 80,000\\ \text{Outstanding Wages}& 18,000& 15,000\\ \text{Prepaid Insurance}& 6,000& 9,000\\ \text{Goodwill}& 40,000& 32,000\\ \text{Provision for doubtful Debts}& 10,000& 14,000\\ \text{Balance of Trade Receivables}& 1,40,000& 98,000\\ \text{Cash and Bank Balance}& 30,000& 25,000\end{array}$$

Answer 1

Calculation of Cash From Operating Activities
for the year ended 31st March, 2018

$$\begin{array}{ccc}\text{Particulars}& \text{Rs.}& \text{Rs.}\\ \text{Net Loss (Note 1)}& & (50,000)\\ \text{Adjustments for non-cash items:}& & \\ (+)\text{Depreciation (Rs. 80,000 - Rs. 60,000)}& 20,000& \\ (+)\text{Goodwill written off (Rs. 40,000 - Rs. 32,000)}& 8,000& \\ (+)\text{Transfer to Provision for Doubtful Debts (Rs. 10,000 - Rs. 14,000)}& \underset{–}{4,000}& \underset{–}{32,000}\\ \text{Operating Loss before Working Capital Changes}& & (18,000)\\ \text{Changes in Working Capital:}& & \\ (+)\text{Decrease in Trade Receivables}& \text{42,000}& \\ (-)\text{Increase in Prepaid Insurance}& \text{(3,000)}& \\ (-)\text{Decrease in Outstanding Wages}& \underset{–}{(3,000)}& \underset{–}{36,000}\\ \text{Net Cash Flow from Operating Activities}& & \underset{–}{18,000}\end{array}$$

Notes :
(1) Calculation of Net Loss:
$$\begin{array}{cc}\text{Balance of profit and loss on 31.03.2018}& 2,50,000\\ (-)\text{Balance of Profit and Loss on 31.03.2017}& \underset{–}{3,00,000}\\ \text{Net Loss during the year}& \underset{–}{(50,000)}\end{array}$$
(2) Cash and Bank Balance will not affect Cash flow from operating activities. It will be included in Cash & Cash Equivalents.