Question

Gujarat Spinning Mills Ltd. faced the acute shortage of trained manopower. Other companies in the same trade were also facing the same problem. After consultation with one another, they set up a institute for technical training where training was imparted to unemployed youth to make them ready for employment. Following are the balance sheets of the company;

$$\begin{array}{cccc}\text{Particulars}& \text{Note}& \text{31-03-2018}& \text{31-03-2017}\\ & \text{No.}& \text{Rs.}& \text{Rs.}\\ \text{I. Equity and Liabilities:}& & & \\ \text{(1) Shareholder's Fund}:& & & \\ \text{(a) Share Capital}& & 5,00,000& 4,00,000\\ \text{(b) Reserve and Surplus}& 1& 3,05,000& 2,10,000\\ \text{(2) Non- Current Liabilities:}& & & \\ \text{Long term Borrowings}& 2& 3,10,000& 3,00,000\\ \text{(3) Current Liabilities:}& & & \\ \text{Trade Payables}& & \underset{–}{95,000}& \underset{–}{80,000}\\ \text{Total}& & \underset{–}{12,10,000}& \underset{–}{9,90,000}\\ \text{II. Assets}& & & \\ \text{(1) Non- Current Assets:}& & & \\ \text{(a) Fixed Assets}& & 7,00,000& 5,00,000\\ \text{(b) Non- Current Investments}& & 56,000& 70,000\\ \text{(2) Current Assets:}& & & \\ \text{(a) Inventory}& & 2,80,000& 2,10,000\\ \text{(b) Trade Receivables}& 3& 1,14,000& 1,40,000\\ \text{(c) Cash and Cash Equivalents}& & \underset{–}{60,000}& \underset{–}{70,000}\\ \text{Total}& & \underset{–}{12,10,000}& \underset{–}{9,90,000}\end{array}$$

Notes:
$$\begin{array}{ccc}& 31-03-2018& 31-03-2017\\ & \text{Rs.}& \text{Rs.}\\ \left(1\right)\text{Reserve and Surplus:}& & \\ \text{General Reserve}& 1,15,000& 1,00,000\\ \text{Profit and Loss Balance}& \underset{–}{1,90,000}& \underset{–}{1,10,000}\\ & \underset{–}{3,05,000}& \underset{–}{2,10,000}\\ \left(2\right)\text{Long term Borrowings:}& & \\ 12\%\text{Debentures}& 1,50,000& 2,00,000\\ 14\%\text{Mortgage Loan}& \underset{–}{1,60,000}& \underset{–}{1,00,000}\\ & \underset{–}{3,10,000}& \underset{–}{3,00,000}\\ \left(3\right)\text{Trade Receivables:}& & \\ \text{Sundry Debtors}& 94,000& 1,25,000\\ \text{Bills Receivables}& \underset{–}{20,000}& \underset{–}{15,000}\\ & \underset{–}{1,14,000}& \underset{–}{1,40,000}\end{array}$$
Total interest Paid on Long - term Borrowings during the year amounted to Rs. 37,800.
You are required to prepare a cash flow statement.

Answer 1

$\text{Gujarat Spinning Mills Ltd.}$
$\text{CASH FLOW STATEMENT}$
$\text{for the year ended 31st March, 2018}$
$\begin{array}{cccc}\text{Particulars}& & \text{Rs.}& \text{Rs.}\\ \text{A. Cash flows from Operating Activities :}& & & \\ \text{Net Profit before Tax (Note 1)}& & 95,000& \\ \text{Adjustments for non-operating items :}& & & \\ \text{Add : Interest paid}& & \underset{–}{37,800}& \\ \text{Operating profit before working capital changes}& & 1,32,800& \\ \text{Changes in working capital:}& & & \\ \text{Add : Decrease in Sundry Debtors}& & 31,000& \\ \text{Add : Increase in Trade Payables}& & 15,000& \\ \text{Less : Increase in Inventory}& & (70,000)& \\ \text{Less : Increase in Bills Receivable}& & \underset{–}{(5,000)}& \\ \text{Net cash flow from operating activities}& & & 1,03,800\\ \text{B. Cash flows from Investing Activities :}& & & \\ \text{Purchase of Fixed Assets}& & (2,00,000)& \\ \text{Sale of Non-current Investments}& & \underset{–}{14,000}& \\ \text{Net cash asset in investing activities}& & & (1,86,000)\\ \text{C. Cash flows from Financing Activities :}& & & \\ \text{Issue of shares}& & 1,00,000& \\ \text{Proceeds from Mortgage loan}& & 60,000& \\ \text{Redemption (Repayment) of Debentures}& & (50,000)& \\ \text{Interest paid}& & \underset{–}{(37,800)}& \\ \text{Net cash flow from financing activities}& & & \underset{–}{72,200}\\ \text{Net decrease in cash and cash equivalents}& & & (10,000)\\ \text{Add : Cash and cash equivalents in the beginning of the period}& & & 70,000\\ \text{Cash and Cash equivalents at the end of the period}& & & \overline{\underset{–}{60,000}}\end{array}$

Note : (1)
$\begin{array}{cc}& \\ \text{Calculation of net Profit before Tax :}& \text{Rs.}\\ \text{Profit loss Baslance on 31st March, 2018}& 1,90,000\\ \text{Less : Profit loss Balance on 31st March, 2017}& \underset{–}{1,10,000}\\ & 80,000\\ \text{Add : Transfer to General Reserve (Rs. 1,15,000 - Rs. 1,00,000)}& \underset{–}{15,000}\\ \text{Net Profit before Tax}& \underset{–}{95,000}\end{array}$

(2) Interest paid on long - term borrowings is added back to net Profit before tax because it is an expense relating to financing activity. It is shown as outfolow of cash under financing activity.

(3) Figures in brackets represent minus items.