Cash Flow Assignment

Statement of Cash Flow: (IAS-7)
While preparing statement of financial position and statement of comprehensive income we use accrual
basis of accounting. In accrual basis of accounting;
 Incomes are recorded when they are earned whether or not received; and
 Expenses are recorded when they are incurred whether or not paid.
However in a statement of cash flow information to users are provided on the basis of cash concept.
Therefore always consider cash flow statement just like a receipt & payment in a statement form.
 Receipt and payment A/c is a combined cash and bank A/c. e.g
Receipts and Payments
b/d 10,000 b/d 2,000 (Bank O/D)
Receipts 500,000 Payments 400,000
(Bank OD) c/d 12,000 c/d 120,000
A simplified cash flow statement from this receipt and payment account can be prepared as follows:
Receipts 500,000
Payments (400,000)
Net cash flow 100,000
Opening Balance (10,000 – 2,000) 8,000
Closing Balance (120,000 – 12,000) 108,000
Important points to remember:

 If there is no opening and closing balances of debtors then sale should be equal to receipt.
 If there is no opening and closing balances of creditors then purchase is equal to payment.
 If there is no opening and closing balances of stock then purchase is equal to cost of sales in a
trading organization.
 If there is no opening and closing balances of prepaid expenses or expenses payable then it means
expense is equal to payment.
 If there is no opening and closing balances of dividend payable then it means dividend declared is
equal to dividend paid.
Example:
Opening balance of advance tax is 70,000
Opening balance of income tax payable is 100,000
Current tax expense for the period 800,000
Closing balance of advance tax is 50,000
Closing balance of income tax payable is 120,000
Required:
Calculate the tax paid during the period.
Page 1 of 39
Prepared by: Dawood Shahid CA(f), CPA, MPhil, MBA, OCE
Solution
Advance Tax + Tax Payable
b/d 70,000 b/d 100,000
Cash (Bal) 760,000 Tax expense 800,000
c/d 120,000 c/d 50,000
Conclusion
Always prepare separate ledger of every expense payable or prepaid expense however;
If there is no breakup of expense into prepaid expense ledger and expense payable ledger then we can
prepare a combined ledger of prepaid expense and expense payable to calculate balancing figure of
payment.
Format of Cash Flow Statement
Cash flow from operating activities X
Cash flow from investing activities X
Cash flow from financing activities. X
Net cash inflow (or outflow) during the period X
Cash and cash equivalents at the beginning of the period X
Cash and cash equivalents at the end of the period X
Important Definitions:
Financing Activities: Those activities which results into changes in equity and borrowing of business.
Investing Activities: Acquisition and disposal of *non-current assets and those investment not included
in cash and cash equivalents.
*Non-current Assets include Property, plant and equipment, intangible assets, capital work in progress
and long term investments etc.
Operating Activities Principal revenue producing activities of the business; e.g Receipts from customers,
payment to suppliers, payments for expenses etc.
Example
Identify operating, Investing and financing activities from the following:
a) Cash received from debtor
b) Cash received from sale of goods
c) Cash received from sale of fixed assets
d) Cash received from issue of shares
e) Cash repayments of amount borrowed
f) Dividend received
g) Dividend paid
h) Wages paid to employees
i) Interest paid
j) Interest received
Page 2 of 39
k) Purchase of fixed assets
l) Acquisition of fixed asset by issue of shares
m) Cash advances to suppliers
n) Taxes paid
o) Depreciation charge for the year
p) Cash paid to purchase goods
q) Loan given by the company to its subsidiary company
List of Non-cash Transactions

 Revaluation surplus/Loss
 Amortization
 Bad debts expenses/ Bad debt written off etc.
Components of cash & cash equivalents
Cash in hand -
Cash at bank -
*Short term investment -
Bank overdraft (-)
Total of cash & cash equivalents -
*Short term investments in cash flow statement means those investments having a maturity date of 3
months or less from the date of acquisition (i.e date of investment)
For example
 Amount investment in bank on 15-6-2015 is Rs 1,000,000
 Statement of Financial Position date is 30-6-2015
 Encashment date (i.e maturity date) is 15-12-2015
It is a short term investment for the purpose of preparing statement of financial position but for cash
flow statement it is not a cash equivalent investment. Had the maturity date is upto 15-9-2015, then this
short term investment should be classified as cash equivalent for the purpose of cash flow statement.
Presentation of Cash Flow from Operating Activities

 
Direct Method Indirect Method
Direct Method (Format) Assumed Figures

Statement of cash flows: direct method Cash flows from operating Rs.
activities
Cash receipts from customers xxx
Cash payments to suppliers (xxx)
Cash payments to employees (xxx)
Cash paid for other operating expenses (if any) (xxx)
Cash generated from operations xxx
Taxation paid (Xxx)
Interest charges paid (Xxx)
Net cash flow from operating activities xxx
Page 3 of 39
Q.1 The following data relates to Shahnawaz Sports (Private) Limited for the year ended June 30,
2007 2006
Particulars
Rs. Rs.
Inventory 230.000 185,000
Prepaid expenses 14,000 16,000
trade debtors 52,000 30,000
Cash 15,000 38,000
Accounts payable 39,000 44,000
Income tax payable 5,000 4,000
Sales 500,000
Cost of sales 310,000
Operating expenses 80,000
Interest expenses 21,000
Taxation 30,000
Depreciation - included in operating expenses 6,000
included in cost of goods sold 6,000
Profit before tax 89,000
Required:
What will be the net cash flow from operating activities as under:
(i) Direct method
(ii) Indirect method
Indirect Method (Format):

Cash flow from operating activities:
Profit before tax xxx
Adjustment for:
i) Non-cash Transactions
e.g Depreciation/ Amortization xxx
Bad debts/bad debts reversed xxx/(xxx)
Revaluation Loss etc xxx
ii) Those items effect of which should have been in investing activities:
e.g Gain on disposal/Loss on disposal (xxx)
Dividend income (xxx)
Interest Income etc (xxx)
iii) Increase/decrease in some items of current assets and current liabilities:
Increase in Current Asset  In cash flow statement - ve figure
Decrease in Current Asset  In cash flow statement + ve figure
Increase in Current Liabilities  In cash flow statement + ve figure
Decrease in Current Liabilities  In cash flow statement - ve figure
Cash generated from operations xx

Interest paid (xx)
Tax Paid (xx)
Net cash from Operating Activities xx
Page 4 of 39
Q.2 Hickory Limited manufactures clocks which it sells to retailers around the country. The following
balances were extracted from its financial statements for the years ended 31 July 20X5 and 20X6
respectively:
20X6 20X5
Revenue 3 000 000 2 000 000
Cost of sales 2 000 000 1 300 000
Profit after tax 390 000 240 000
Plant and equipment 500 000 450 000
Accumulated depreciation - plant and equipment 50 000 45 000
Inventory 340 000 348 500
Accounts receivable 450 000 400 000
Provision for doubtful debts 25 000 18 000
Trade payables 250 000 235 000
Accrued expenses 15 000 -
Current tax payable 2 000 1 500
Additional information
 New plant costing Rs 90 000 was purchased during the year. Plant with a carrying amount of Rs 10
000 was sold during the year at a profit of Rs 5 000.
 The tax rate is 40%.
Required:
(i) Prepare the operating activities section of the cash flow statement for the year ended 31 July 20X6
using the direct method.
(ii) Prepare reconciliation between profit before tax and cash generated from operations.
Note: There is no need of income statement data of previous period while preparing cash flow
statement.
Before next questions always remember the following points:
Important points to remember:
 In a question of cash flow statement, if a statement of financial position is given then it means that all
accounting entries should have been correctly made and recorded unless there is any indication in the
question.
 Short term investments can be classified as cash and cash equivalents or can be presented in investing
activities. Do not include short term investments in cash and cash equivalents unless maturity date is
given.
 Short term finance can be included in cash and cash equivalents as bank overdraft or can be classified in
financing activities. Preferably include in financing activities.
 If information is available then always prepare separate ledger of cost and accumulated depreciation.
Similarly information is available prepare separate ledger of debtors without deducting the provision
and separate ledger of provision for bad debts.
 If there is no information about items of income statement then statement of cash flow can not be
prepared by using the direct method.
 Always prepare statement of cash flow by using indirect method unless examiner requires to use the
direct method.
Sequence of questions
Extra questions 1, 3, universal, quality
5.1, 5.9
Page 5 of 39
Data traders
Discussion of share capital and dividend
Nadir ltd, Davis, Waseem
Answers of practice questions
A.1 i) Direct Method

Shahnawaz Sports (Pvt) Limited
Statement of Cash Flow
For the year ended June 30,2007
Cash flow from Operating Activities:

Cash received from debtors 478,000
Cash paid to suppliers (354,000)
Expenses paid (72,000)
Cash generated from Operations 52,000
Interest paid (21,000)
Taxes Paid (29,000)
Net cash from Operating Activities 2,000
Debtors Accounts Payable

b/d 30,000 Cash 478,000 Cash 354,000 b/d 44,000
Sales 500,000 c/d 52,000 c/d 39,000 Purchase 349,000
Inventory
b/d 185,000 Cost of sales (310- 304,000
6)
Prepaid Expense
Purchas 349,000 c/d 130,000
b/d 16,000 Expenses 74,000
e
cash 72,000 c/d 14,000
Taxation Payable
Cash 29,000 b/d 4,000
c/d 5,000 Tax 30,000
ii) Indirect Method

Shahnawaz Sports (Pvt) Limited
For the year ended June 30,2007
Depreciation 12,000
Interest Expense 21,000
Operating Profit before working capital 122,000
Changes in working capital:
Prepaid Expense 2,000
Inventory (45,000)
Page 6 of 39
Debtors (22,000)
Accounts Payable (5,000)
Cash generated from operations 52,000
Interest Paid (21,000)
Tax Paid (29,000)
Net cash from operating Activities 2,000
A.2
i)
HICKORY LIMITED
STATEMENT OF CASH FLOWS (DIRECT METHOD)
FOR THE YEAR ENDED 31 JULY 20X6
Cash flows from operating activities
Cash receipts from customers 2 950 000
Cash paid to suppliers (1 941 500)
Cash paid to Operating expenses (333 000)
Cash generated from operations 675 500
Taxation paid (259 500)
Net cash inflow from operating activities 416 000
ii) Indirect Method

Profit before tax 650 000
Depreciation 35 000
Bad debts 7 000
Gain on sale of plant (5 000)
Profit before working capital changes 687,000
Working capital changes
Decrease in inventories 8 500
Increase in accounts receivable (50 000)
Increase in accrued expense 15 000
Increase in accounts payable 15 000
Cash generated from operations 675 500
Accounts Receivable Accounts Payable

b/d 400 000 Cash 2 950 000 Cash 1 941 b/d 235 000
Sales 3 000 000 c/d 450 000 c/d 500 Purchase 1 956 500
250 000 s
Plant And Equipment Accumulated Depreciation
b/d 450 000 Disposal 40 000 Disposal 30 000 Balance 45 000
Cash 90 000 c/d 500 000 c/d 50 000 Depreciation 35 000
Disposal
PPE 40 000 Acc Depreciation 30 000
Gain 5 000 Cash 15 000
Page 7 of 39
Accrued Expense
Inventory
Cash 333 000 b/d -
b/d 348 500 Cost of sales 1 965 000
Expenses 348 000
Purchases 1 956 500 (2 000000 - 35 000)
c/d 15,000 (355 000 - 7 000)
c/d 340 000
Workings
Hickory Limited
Statement of Comprehensive Income
For the year ended 31 JULY 20X6
Sales 3 000 000
Cost of sales (2 000 000)
Gross profit 1 000 000
Operating Expenses (bal) (355 000)
Gain on disposal 5 000
Profit before tax 650 000
Tax @ 40% (260 000)
Profit after tax 390 000
ICAP Question bank:

5.1 TRANGO LIMITED
The following information has been extracted from the financial statements of Trango Limited for the
year ended 31 December 2015.
Statement of comprehensive income for the year ended 31 December 2015
Rs.
Sales 905,000
Cost of sales (311,000)
Gross profit 594,000
Loss on disposal of non-current asset (9,000)
Wages and salaries (266,000)
Other expenses (including depreciation Rs.46,000) (193,000)
126,000
Interest charges
(24,000)
Tax on profit (38,000)
Profit after tax 64,000
The asset disposed of had a carrying amount of Rs. 31,000 at the time of the sale.
Extracts from the statements of financial position:
At At
1 January 2015 31 December 2015
Rs. Rs.
Trade receivables 157,000 173,000
Inventory 42,000 38,000
Trade payables 43,600 35,700
Accrued wages and salaries 4,000 4,600
Accrued interest charges 11,200 10,000
Tax payable 45,000 41,000
Page 8 of 39
Required
Present the cash flows from operating activities as they would be presented in a statement of cash
flows:
a) Using the direct method
b) Using the indirect method.
5.9 MR. MOOSANI
The comparative statements of financial position of Mr. Moosani show the following information:
December 31
2015 2014
Rs. Rs.
Cash 5,200 41,400
Accounts receivable 31,700 21,500
Inventory 25,000 19,400
Investments - 16,900
Furniture 80,000 64,000
Equipment 86,000 43,000
Total 227,900 206,200
Allowance for doubtful accounts 6,500 9,700
Accumulated depreciation on equipment 24,000 18,000
Accumulated depreciation on furniture 8,000 15,000
Trade creditors 10,800 6,500
Accrued expenses 4,300 10,800
Bills payable 6,500 8,600
Long-term loans 31,800 53,800
Capital 136,000 83,800
Total 227,900 206,200
Additional data related to 2015 is as follows:

 Equipment that had cost Rs. 23,000 and was 40% depreciated at the time of disposal was sold
for Rs. 6,500.
 Payments against long-term loans amounted to Rs. 22,000 of which Rs. 12,000 was paid by Mr.
Moosani out of his personal account.
 On January 1, 2015, the furniture was completely destroyed by a fire. Proceeds received from
the insurance company amounted to Rs. 60,000.
 Investments were sold at Rs. 7,500 above their cost.
 Mr. Moosani withdraws Rs. 15,000 each month for his personal use.
Required:
Prepare a statement of cash flows for the year ended 31 December 2015. (12).
5.3 HOT SAUCE LIMITED

Hot Sauce Limited summarised final accounts are as follows
Statements of financial position
31 December 2014 31 December 2015
Rs.000 Rs.000 Rs.000 Rs.000
Non-current assets:
Plant and machinery at cost 2,700 3,831
Accumulated depreciation (748) (1,125)
Page 9 of 39
Carrying amount 1,952 2,706
Current assets:
Inventory 203 843
Receivables 147 184
Bank 51 -
401 1,027
Total assets 2,353 3,733
Ordinary share capital (Rs1 740 940
shares)
Share premium account 0 100
Retained earnings 671 1,034
1,411 2,074
Non-current liabilities:
Loans 320 150
Current liabilities:
Bank overdraft 0 766
Trade payables and Accruals 152 141
Current taxation 470 602
622 1,509
Total equity and liabilities 2,353 3,733
Statement of comprehensive income for year ended 31 December 2015
R.s 000
Taxation (602)
Profit after tax 593
Dividend payments during the year were Rs.230, 000.

The following information is also available:
 The only new loan raised during the year was a five-year bank loan amounting to Rs.65, 000.
 Interest charged during the year was Rs.156, 000. Interest accrued was Rs.24, 000 last year and
Rs.54, 000 this year.
 Depreciation charged during the year amounted to Rs.401, 000.
 During the year plant which originally cost Rs.69, 000 was disposed of for Rs.41, 000.
 During the year the company issued 200,000 new shares.
Required
Prepare a statement of cash flows. (20)
Note: if an accounting head in statement of financial position includes more than one items for which
treatment is different then prepare separate workings.
5.6 TARBELA TRADERS

Tarbela Traders is the trading name of a sole trader.
The statements of financial position of Tarbela Traders at the end of two consecutive financial years
were:
Statements of financial position at
31 December 2015 31 December 2014
Rs.000 Rs.000
Non-current assets (at WDV)
Premises 37,000 38,000
Page 10 of 39
Equipment 45,800 17,600
Motor vehicles 18,930 4,080
101,730 59,680
Investments 25,000 17,000
126,730 76,680
Current assets
Inventories 19,670 27,500
Trade receivables and prepayments 11,960 14,410
Short-term investments 4,800 3,600
Cash and bank balances 700 1,800
37,130 47,310
Total assets 163,860 123,990
Capital and reserves

Opening capital 75,040 67,940
Capital introduced/(withdrawn) (6,500) 4,000
Profit/(loss) for year 25,200 15,300
Drawings (15,130) (12,200)
Closing capital 78,610 75,040
Non-current liabilities
Interest-bearing borrowings 25,000 28,000
Current liabilities
Trade payables and accrued expenses 32,050 20,950
Bank overdraft 28,200 —
60,250 20,950
Total equity and liabilities 163,860 123,990
Profit for the year ended 31 December 2015 (Rs.25,200,000) is after accounting for
Rs.000
Depreciation:
Premises 1,000
Equipment 3,000
Motor vehicles 3,000
Profit on disposal of equipment 430
Loss on disposal of motor vehicle 740
Interest expense 3,000
The written down value of the assets at date of disposal was:

Rs.000
Equipment 5,200
Motor vehicles 2,010
Interest accrued at 31 December 2015 is Rs. 400,000.
Required:
Prepare a statement of cash flows for the year ended 31 December 2015. Assume that short-term
investments are cash equivalents. (14)
Page 11 of 39
Answers of Question Bank
5.1 TRANGO LIMITED
Statement of cash flows: direct method Rs.
Cash receipts from customers 889,000
Cash payments to suppliers (314,900)
Cash payments to employees (265,400)
Cash paid for other operating expenses (193 -46) (147,000)
Taxation paid (42,000)
Interest charges paid (25,200)
Net cash flow from operating activities 94,500
Statement of cash flows format: indirect method Rs.

Profit before taxation 102,000
Adjustments for:
Depreciation and amortization charges 46,000
Loss on disposal of non-current asset 9,000
Interest charge 24,000
181,000
Increase in receivables (173,000 - 157,000) (16,000)
Decrease in inventories (42,000 - 38,000) 4,000
Decrease in trade payables
(43,600 + 4,000) - (35,700 + 4,600) (7,300)
Workings: in 000
Debtor account
Balance b/d 157 Cash (bal) 889

Sale 905 Balance c/d 173
1,062 1,062
Inventory account
Balance b/d 42 Cost of sales 311

Purchase (bal) 307 Balance c/d 38
349 349
Trade payables account
Cash (bal) 314.9 Balance b/d 43.6

Balance c/d 35.7 Purchase 307
350.6 350.6
Page 12 of 39
Accrued wages account
Cash (bal) 265.4 Balance b/d 4

Balance c/d 4.6 Expense 266
Interest payable account

Balance c/d 10.0 Expense 24.0
35.2 35.2
Tax payable account

Balance c/d 41.0 Expense 38.0
83.0 83.0
5.9.
Mr. Moosani
For the year ended December, 31, 2015
Cash Flow From Operating Activities:
Rs.
Profit before tax (W-1) 220,200
Bad debts (3,200)
Depreciation (W-2) 23,200
Profit on sale of investment (7,500)
Loss on disposal – Equipment (W-3) 7,300
Gain on disposal – Furniture (W-4) (11,000)
Increase / Decrease:
Accounts receivable (10,200)
Inventories (5,600)
Creditors 4,300
Accrued Expenses (6,500)
Bills Payable (2,100)
Cash generated from Operations 208,900
Cash Flow from Investing Activities:

Proceeds from sale of equipment 6,500
Purchase of equipment (66,000)
Proceeds from insurance claim 60,000
Purchase of furniture (W-3) (80,000)
Proceeds from sale of investments (16,900 + 7,500) 24,400
Net Cash from Investing Activities (55,100)
Cash Flow from Financing Activities:

Repayment of loan (10,000)
Drawings (15,000 × 12) (180,000)
Net Cash from Financing Activities (190,000)
Page 13 of 39
Net Cash Flow (36,200)
Cash & Cash equivalents at the beginning of the period 41,400
Cash & Cash equivalents at the end of the period 5,200
WORKINGS:
Capital Account
Rs. Rs.
Drawings (15,000 × 12) 180,000 b/d 83,800
Loan 12,000
c/d 136,000 Profit (bal) 220,200
Accumulated Depreciation Account
Rs. Rs.
Disposal 9,200 b/d 18,000
Depreciation (bal) 15,200
c/d 24,000
Furniture Account
Rs. Rs.
b/d 64,000 Disposal 64,000
Cash (bal) 80,000
c/d 80,000
Accumulated Depreciation Account

Rs. Rs.
Disposal 15,000 b/d 15,000
Depreciation(bal) 8,000
c/d 8,000
Disposal Account – Equipment
Rs. Rs.
Equipment 23,000 Accumulated Depreciation 9,200
Cash 6,500
Loss(bal) 7,300
Disposal Account – Furniture
Rs. Rs.
Furniture 64,000 Accumulated Depreciation 15,000
Cash 60,000
Gain 11,000
Equipment Account
Rs. Rs.
b/d 43,000 Disposal 23,000
Cash 66,000
c/d 86,000
Provision for bad debts
Rs. Rs.
Bad debts (bal) 3,200 b/d 9,700
c/d 6,500
5.3. HOT SAUCE LIMITED

Statement of cash flows for the year ended 31 December 2015
Rs.000 Rs.000
Adjustments for:
Depreciation 401
Loss on sale of plant 4
Interest charges in the statement of comprehensive
Page 14 of 39
Income 156
1,756
Increase in receivables (184 - 147) (37)
Increase in inventories (843 - 203) (640)
Decrease in trade payables (41)
Taxation paid (470)
Interest charges paid (126)
Net cash flow from operating activities 442
Cash flows from investing activities
Purchase of non-current assets (1,200)
Proceeds from sale of non-current assets 41
Net cash used in (or received from) investing activities (1,159)
Cash flows from financing activities
Proceeds from issue of shares (200 +100) 300
Bank loan raised 65
Repayment of loans (235)
Dividends paid to shareholders (230)
Net cash used in (or received from) financing activities (100)
Net increase/(decrease) in cash and cash equivalents (817)
Cash and cash equivalents at beginning of the year 51
Cash and cash equivalents at the end of the year (766)
Workings
Cash and cash equivalents 2015 2014
Bank - 51
Bank overdraft (766) -
(766) 51
Loan account
cash (bal) 235 Balance b/d 320

Balance c/d 150 Cash 65
385 385
Tax payable account
Cash (bal) 470 Balance b/d 470

Balance c/d 602 Expense 602
1,072 1,072
Disposal account
Asset 69 Acc depreciation 24

cash 41
Loss 4
69 69
Page 15 of 39
trade payable account
difference 41 Balance b/d (152 - 24) 128

Balance c/d (141 - 54) 87
128 128
Interest payable account
Cash (bal) 126 Balance b/d 24

Balance c/d 54 Expense 156
170 170
Plant and machinery account
Balance b/d 2,700 Disposal 69
Cash (bal) 1,200

Balance c/d 3,831
3,900 3,900
Accumulated depreciation account
disposal 24 Balance b/d 748

Balance c/d 1,125 depreciation 401
1,149 1,149
5.6.
TARBELA TRADERS
Statement of cash flows for the year ended 31 December 2015
Rs.000 Rs.000
Net profit 25,200
Adjustments for:
Depreciation 7,000
Net loss on disposals (740 - 430) 310
Operating profit before working capital changes 35,510
Decrease in trade receivables 2,450
Decrease in inventories 7,830
Increase in trade payables 10,700
Net cash from operating activities 53,890
Cash flows from investing activities
Purchase of long-term investments (25,000 - 17,000) (8,000)
Purchase of equipment and cars (36,400 + 19,860) (56,260)
Proceeds from sale of equipment and cars (W3) 6,900
Net cash used in investing activities (57,360)
Capital and other drawings (6,500 + 15,130) (21,630)
Borrowings repayment (3,000)
Net cash used in financing activities (24,630)
Page 16 of 39
Net decrease in cash and cash equivalents (28,100)
Cash and cash equivalents at beginning of period 5,400
Cash and cash equivalents at end of period (22,700)
Workings
Cash and cash equivalents 2015 2014
Cash and bank 700 1,800
Bank overdraft (28,200) -
Short term investment 4,800 3,600
(22,700) 5,400
Premises (WDV)
Rs.000 Rs.000
Bal b/d 38,000 Depreciation 1,000
Bal c/d 37,000
38,000 38,000
Equipment (WDV)
Rs.000 Rs.000
Bal b/d 17,600 Disposal 5,200
Depreciation 3,000
Additions (bal) 36,400 Bal c/d 45,800
54,000 54,000
Motor vehicles (WDV)
Rs.000 Rs.000
Bal b/d 4,080 Disposal 2,010
Depreciation 3,000
Additions (bal) 19,860 Bal c/d 18,930
23,940 23,940
Disposal
Rs.000 Rs.000
Equipment 5,200
Profit on disposal (equipment) 430 Proceeds (bal) 5,630
5,630 5,630
Disposal
Rs.000 Rs.000
Motor vehicle 2,010 Loss on disposal (vehicles) 740
Proceeds (P) 1,270
2,010 2,010
FORMATS
Format-Direct Method Assumed Figures
Statement of cash flows: direct method Rs.
Cash receipts from customers 348,800
Cash payments to suppliers (70,000)
Cash payments to employees (150,000)
Cash paid for other operating expenses (if any) (30,000)
Page 17 of 39
Cash flows from investing activities:
Acquisition of shares (debentures, etc.) (5,000)
Purchase of property, plant and machinery (35,000)
Proceeds from sale of non-current assets 6,000
Interest received/dividends received 1,500
Cash flows from financing activities:
Proceeds from issue of shares 30,000
Proceeds from new loan 10,000
Dividends paid to shareholders (25,000)
Net increase/decrease in cash/cash equivalents 40,800
Cash/cash equivalents at the beginning of the year 5,000
Cash/cash equivalents at the end of the year 45,800
Format of the indirect method Assumed Figures

Statement of cash flows: indirect method Rs. Rs.

Adjustments for:
Depreciation and amortization charges 20,000
Interest charges in the statement of profit or loss 2,300
Gains on disposal of non-current assets (6,000)
Losses on disposal of non-current assets 4,500
Increase in trade and other receivables (7,000)
Decrease in inventories 2,000
Increase in trade payables 3,000
Cash flows from investing activities:

Acquisition of shares (debentures, etc.) (5,000)
Purchase of property, plant and machinery (35,000)
Proceeds from sale of non-current assets 6,000
Interest received/dividends received 1,500
Cash flows from financing activities:
Proceeds from issue of shares 30,000
Proceeds from new loan 10,000
Page 18 of 39
Dividends paid to shareholders (25,000)
Net increase/decrease in cash/cash equivalents 40,800
Cash/cash equivalents at the beginning of the year 5,000
Cash/cash equivalents at the end of the year 45,800
Page 19 of 39
Extra practice:
Q.1 Following is the abridged balance sheet of Platinum International Traders Limited as at June 30, 2006.
Rs. 000
Particulars
2006 2005
Property, plant and equipment 10,500 10,000
Intangible assets 1,200 1,000
Short term investments 750 500
Stocks 1,290 1,000
Trade receivables (net of provisions) 450 400
Advances and deposits 200 200
Cash and bank balances 160 100
Bank overdraft 400 200
Creditors and other liabilities 500 400
Provision for taxation 2,250 1,500
Net Assets 11,400 11,100
Net Equity and Surplus on Revaluation of Fixed assets 11,400 11,100
The following additional information is also available:

(i) Accounting profit after tax is Rs. 3,000,000.
(ii) Income tax paid during the year amounted to Rs. 1,000,000.
(iii) Depreciation for the year is Rs. 750,000.
(iv) Provision for doubtful debts at the end of the year amounted to 5% of closing balance of trade
receivables. The opening balance of the provision was NIL.
(v) 48,000 shares were issued during the year at a premium of Rs. 2.50 per share. Face value of the
company’s share is Rs. 10.
(vi) Markup paid during the year amounted to Rs. 500,000.
(vii) An old machine having book value of Rs. 500,000 was exchanged with a new machine costing Rs.
950,000. The company paid Rs. 350,000 as the difference. No other fixed asset was sold during the
year.
(viii) Intangibles are amortized at 35% of book value.
(ix) The company revalues its major fixed assets periodically. A revaluation carried out during the year
showed that the value of fixed assets had declined by Rs. 3,300,000. The amount was charged against
surplus recorded in earlier years.
Required:
Prepare a cash flow statement under ‘indirect method’ in accordance with IAS-7. Also submit necessary
workings.
Note:
 If only statement of financial position is given in a question of statement of cash flow then question
cannot be solved by using direct method.
 If the figure of debtors given in statement of financial position is net of allowance for doubtful debts then
prepare separate workings for gross debtors and allowance for doubtful debts. From allowance a/c find
out bad debts for the period and difference in gross debtors should be presented in working capital
changes (if indirect method is used).
 In a question of cash flow statement, if a statement of financial position and/or statement of
comprehensive income is given then it means all accounting entries would have been correctly made and
recorded.
Page 20 of 39
Q.2 The following information has been extracted from its financial statements of Sky Limited (SL) for
the year ended 30 June 2014.
Debit Credit
Particulars
Rs. in million
Sales 172
Cost of sales 80
Operating and selling expenses 40
Bad debt expense 6
Loss on settlement of insurance claim 2
Finance charges paid 8
Taxation expense 15
Closing stock in trade 10
Trade receivables 28
Provision for doubtful debts 6
Trade payables 20
Provision for taxation 5
Property, plant and equipment - WDV 105
Additional information:
(i) At the beginning of the period, the assets and liabilities were valued as under:
Rs. in million
Property, plant and equipment 52
Stock in trade 4
Trade receivables 8
Trade payables 12
(ii) During the year, SL incurred a capital expenditure of Rs. 70 million.
(iii) Loss on settlement of insurance claim relates to a car which was destroyed in an accident. Its cost and
written down value at the time of accident was Rs. 5 million and Rs. 4 million respectively. There were
no other disposals during the year.
Required:
1. Prepare operating activities section of the statement of cash flows for the year ended 30 June 2014
using the direct method in accordance with the International Financial Reporting Standards.
2. Prepare operating activities section of the statement of cash flows for the year ended 30 June 2014
using the indirect method in accordance with the International Financial Reporting Standards.
Q.3 One of your clients has contacted you to prepare cash flow statement as per the requirements of IAS-7 and
has provided you the following information.
2005 2004
Rupees in ‘000’
Cash and bank 21,750 17,000
Trade & other receivable 17,000 13,400
Stocks 14,000 12,000
Investments-(Non-current) - 4,000
Building 28,000 35,000
Equipments 40,000 20,000
Intangible Asset 5,000 6,250
Provision for doubtful debts 3,000 4,500
Accumulated depreciation-Equipments 3,500 6,000
Accumulated depreciation-Building 8,500 12,000
Creditors 12,000 10,000
Dividend payable - 6,000
. Current maturity of long term loans 3,000 4,000
Long term loans 33,000 29,000
Issued, subscribed & paid up capital 40,000 28,000
Un-appropriated profit 22,750 8,150
Page 21 of 39
Additional data relating to the accounts for the year ended June 30, 2005 is as follows:
 Equipment that had cost Rs. 11 million and was 40% depreciated at the time of disposal was sold for Rs.
2.5 million.
 Investments were sold at Rs 2.5 million above their cost.
 Rs. 12 million of the long term loan was settled by issuing, 1,200,000 ordinary shares of Rs.10 each.
 Cash dividend of Rs. 6.0 million was paid on September l, 2004.
 A long term loan of Rs. 16 million was obtained to Finance the purchase of equipment.
 On July 1, 2004 a portion of the building was completely destroyed by fire. Insurance claim of Rs. 15
million was received from the insurance company. The additions to the building during the year
amounted to Rs. 10.5 million and depreciation provided during the year was Rs 2.0 million.
 Interest and income taxes paid during the year were Rs. 2 million and Rs. 5 million respectively.
Required:
Prepare cash how statement for the year ended June 30, 2005.
Q. 4 A summary of revenues and expenses of AB Enterprise for the year ended 30 June 2013 is given
below:
Rupees
Sales 2,345,000
Cost of goods manufactured and sold (1,624,000)
Gross profit 721,000
Selling, general and administrative expenses (509,000)
Net income before income tax 212,000
Income tax (90,000)
Net income 122,000
Net changes in working capital items for the year ended 30 June 2013 were as follows:
Net changes
Dr. Cr.
Cash 32,000
Trade receivables (net) 74,000
Inventories 105,000
Prepaid expenses (selling and general) 6,000
Accrued expenses 15,000
Income tax payable 28,000
Trade payables 90,000
Depreciation for the year amounted to Rs. 68,000.

Required:
Prepare a cash flow statement for the year ended 30 June 2013.
Page 22 of 39
Q. 5 Galaxy Brothers commenced their business on 1 January 2013 with cash of Rs. 50 million, a building
valued at Rs. 25 million and a motor vehicle costing Rs. 1.4 million. Following is the summarized Trial
Balance as of 31 December 2013:
Rs. In millions
Particulars Debit Credit
Sales 136.00
Cost of sales (including depreciation expense of Rs. 9 million) 83.5
Operating and selling expenses (including depreciation expense of Rs. 6.25 37.3
million)
Miscellaneous income (net of loss of Rs. 0.35 on settlement of total loss
claim) 0.50
Finance charges 2.50
Taxation expense 6.00
Cash and bank balances 5.00
Bank overdraft 23.00
Accounts receivable 18.00
Provision for doubtful debts 0.90
Closing inventory 10.00
Accounts payable 14.00
Interest payable 1.20
Provision for taxation (net of payments) 1.00
Partners' capital (net of cash withdrawals) 73.95
12% Long term loan payable 25.00
Property, plant and equipment 128.25
Accumulated depreciation 15.00
290.55 290.55
Settlement of the insurance claim pertained to an accident of a new car costing Rs. 1.8 million and
having a depreciation charge of Rs. 0.25 million for the period in use.
Required:
Prepare a statement of cash flow for the year ended 31 December 2013. (13)
Page 23 of 39
Q. 6 Financial statements of Data Traders are as follows:
30 June 2014 30 June 2013
Assets: Rs. In ‘000’ Rs. In ‘000’
Non-Current Assets:
Fixed assets 161,300 160,500
Investment 20,500 12,200
Current Assets:
Stock in trade 34,200 36,600
Short term investment-Cash equivalents 1,500 2,300
Trade debts (Net) 25,500 18,700
Prepayments 2,700 3,000
Cash and bank 4,100 --
249,800 233,300
Equity and Liability:
Capital 166,100 139,900
Revaluation surplus (building) 8,000 3,000
Non-Current Liabilities:
Bank loan 20,300 22,500
Current liabilities:
Overdraft -- 4,000
249,800 233,300
Additional Information:
(i) Provision for doubtful debt at 30 June 2014 was Rs. 1.2 million (2013: Rs. 1.7 million.)
(ii) During the year total payment of 7.6 million including interest was made to bank against loan.
(iii) Proprietor makes a monthly drawing of Rs. 3 million. Additionally, he withdrew stock of Rs. 8
million during the year.
(iv) Interest and tax expense for the year was Rs. 3.5 million and Rs. 20.1 million respectively.
(v) Accrued expenses include interest payable of Rs. 1.1 million (2013: Rs. 0.4 million) and tax payable
of Rs. 4.5 million (2013: Rs. 3 million).
(vi) Following is the details of fixed assets:
30 June 2014 30 June 2013
Rs. In ‘000’ Rs. In ‘000’
Land and building 88,700 85,200
Plant and machinery 65,600 67,300
Intangibles 7,000 8,000
161,300 160,500
(a) Renovation of building of Rs. 3 million was capitalized during the year.
(b) Proprietor purchased machines of Rs. 10 million for business from his own pocket.
(c) Depreciation expense of land & building and plant and machinery was Rs. 4.5 million and 6.5
million respectively for the year just ended.
(d) Few machines were sold at profit of Rs. 500,000.
Required:
Prepare statement of cash flows for the year ended 30 June, 2014 using indirect method as per IAS-7. (18)
Page 24 of 39
Q.7 Following are the extracts from income statement of Quality Enterprises (QE) for the year ended 31
December 2015 and its statement of financial position as al that date, together with some additional
information:
Income statement for the year ended 31 December 2015
Rs. in million
Profit from operations 6,402
Other income 1,357
Interest expense (100)
Income tax expense (1,376)
Profit for the year 6,283
Statement of financial position as at 31 December 2015
2015 2014 2015 2014
Equity and liabilities Assets
— Rs. in '000 — --- Rs. in '000 ---
Non-current assets
Owner's capital 14,219 10,703 Property, plant and equipment 19,628 11,845
Un-appropriated profit 10,652 6,697 Investments 7,645 6,498
27,273 18,343
Revaluation surplus 2,676 1,911
10%bank loan 6,000 -
Current liabilities Current assets
Trade and other payables 3,337 4,953 Inventories 4,642 3.073
Income tax payable 1,300 994 Trade and other receivables 2,273 3.865
Bank overdraft - 27 Cash and bank 3,996 4
4,637 5,974 10,911 6,942
38,184 25,285 38,184 25,285
(i) During the year, movements in property, plant and equipment include:
 Depreciation amounting to Rs. 5,280,000.
 Machinery having a carrying amount of Rs. 2,481,000 was sold for Rs. 3,440,000.
 Factory building was revalued from a carrying amount of Rs. 5,963,000 to Rs. 8,000,000.
 An office building which had previously been revalued, was sold at its carrying amount of Rs.
2,599,000.
(ii) The owner of QE withdrew Rs. 300,000 per month. The amounts were debited to un-appropriated
profit.
(iii) Trade debts written off during the year amounted to Rs. 200,000. The provision for bad debts as at
31 December 2015 was Rs. 400,000 (2014: Rs. 550,000)
(iv) The interest on bank loan is payable on 30th June every year. The bank loan was received on 1
November 2015. Interest for two months has been accrued and included in trade and other
payables.
(v) Other income includes investment income of Rs. 398,000. As at 31 December 2015, trade and
other receivables included investment income receivable amounting to Rs. 96,000 (2014: Rs.
80,000).
Required:
Prepare a statement of cash flows for Quality Enterprises for the year ended 31 December 2015, using
the indirect method. (18)
Page 25 of 39
Q.8 Following are the extracts from the financial statements of Universal Limited
(UL) for the year ended 30 June 2017:
Statement of Financial Position as on 30 June 2017
2017 2016 2017 2016
Assets Equity & Liabilities
Rs. in 000 Rs. in 000
Property, plant and equipment 158,500 120,000 Share capital (Rs. 10 each) 175,000 150,000
Stock in trade 58,000 45,000 Retained earnings 54,434 21,500
Trade receivables 68,000 56,000 Revaluation Surplus 10,000 -
Cash 47,934 48,000 Debentures 18,000 26,000
Interest payable 1,000 2,500
Accrued liabilities 20,000 18,000
Unearned maintenance 2,000 4,000
Provision for taxation 10,000 8,000
332,434 269,000 332,434 269,000
Statement of profit or loss for the year ended 30 June 2017
Rs. in ‘000’
Sales 273,000
Cost of sales (187,500)
Gross profit 85,500
Operating expenses (46,766)
Other income 11,200
Profit before interest and tax 49,934
Interest expense (2,000)
Tax expense (15,000)
(i) 60% of sales were made on credit.
(ii) UL maintains a provision for doubtful receivables at 6%. During the year, trade receivables of Rs. 7
million were written off.
(iii) Depreciation expense for the year was Rs. 22.5 million. 70% of the depreciation was charged to
cost of sales.
(iv) Other income comprises of:
 Gain of Rs. 3 million on disposal of vehicles for Rs. 12 million;
 Maintenance income of Rs. 8.2 million
Required:
Prepare UL’s statement of cash flows for the year ended 30 June 2017 using direct method. (15)
Page 26 of 39
Answers
A.1
Platinum International Traders
For the year ended 30-6-2006
Rs 000 Rs 000
Cash flow from operating activities
Profit before tax (3,000 + 1,750) 4,750
Depreciation 750
Bad debts 24
Interest Expense 500
Amortization of Intangibles 646
Gain on exchange of machine (100)
Profit from operations before working capital changes 6,570
Working capital changes
Increase in stock in trade (290)
Increase in trade receivable (74)
Increase in creditors 100
Income tax (1,000)
Interest paid (500)
Cash flow from investing activities
Property, Plant and equipment (4,100 + 350) (4,450)
Intangible assets (846)
Short term investment (750-500) (250)

Cash received from issuance of share (48,000 x 12.5) 600
Net cash flow from financing activities 600
Net decrease in cash and cash equivalents (140)
Cash and cash equivalents at the beginning of the period (100)
Cash and cash equivalents at the end of the period (240)
Working
W.1 2006 2005
Note for cash and cash equivalent 160 100
Cash and bank balance (400) (200)
Bank overdraft (240) (100)
W.2 Rs 000
Profit before tax
Income tax expenses (W-3) 1,750
W.3
Provision for taxation
Cash 1,000 b/d 1,500
c/d 2,250 Tax expense (bal) 1,750
3,250 3,250
W.4
Machinery Disposal
Page 27 of 39
Fixed Asset (book value) 500 Fixed Asset (950-350) 600
Profit & Loss (Gain) 100
600 600
W.5
Fixed Assets
b/d 10,000 Depreciation 750
Disposal 600 Disposal 500
Cash (bal) 4,100 Revaluation Surplus 3,300
Cash (machine) 350 c/d 10,500
15,050 15,050
W.6
Intangible Assets
b/d 1,000 Amortization 646
(1,200÷65% x 35%)
Cash (bal) 846 c/d 1,200
1,846 1,846
W.6
Net Equity & Surplus on Revaluation of Fixed Asset
b/d 11,100
Revaluation Deficit 3,300 Profit for the year 3,000
c/d 11,400 Cash (shared issue) (480+120) 600
16,450 16,450
A.2
1.
Sky Limited
Extracts from Statement of Cash Flows (direct method)
for the year ended 30 June 2014
Rs. in million
Cash receipts from customers 152
Cash paid to suppliers (65)
Cash paid for expenses (40)
Cash generated from operations 47
Interest paid (8)
Taxation paid (10)
Net cash inflow from operating activities 29
Debtor Stock
b/d 8 Cash 152 b/d 4 Cost of sales 67
(80-13)
Sales 172 c/d 28 Purchases 73 c/d 10
Creditor
Cash 65 b/d 12
c/d 20 Purchase 73
Page 28 of 39
PPE-WDV
b/d 52 Disposal 4
Cash 70 Depreciation 13
c/d 105
Tax Payable
Cash 10 b/d -
c/d 5 Expense 15
2.
Sky Limited
Extracts from Statement of Cash Flows (indirect method)
for the year ended 30 June 2014
Rs. in million
Profit before tax (172-80-40-6-2-8) 36
Adjustments for:
Depreciation 13
Bad debts 6
Loss on disposal 2
Financial charges 8
Profit before working capital changes 65
Changes in working capital
Stock (10 - 4) (6)
Trade receivables (28 - 8) (20)
Trade payables (20 - 12) 8
Cash generated from operations 47
Interest paid (8)
Taxation paid (14)
Net cash inflow from operating activities 25
A.3
CLIENTS
Rs. 000
Profit before taxation (14,600 + 5,000) 19,600
Adjustments for:
Depreciation: Equipment 1,900
Depreciation: Building 2,000
Gain on investment 2,500
Loss on sale of equipment (W3) 4,100
Amortization of intangible asset 1,250
Gain on receipt of insurance claim (W4) (3,000)
Reversal of provision for doubtful debts (1,500)
Operating profit before working capital changes 23,850
Working capital changes:
Increase in trade and other receivables (3,600)
Increase in stock (2,000)
Increase in creditors 2,000
Income tax paid (5,000)
Net cash generated from operating activities 13,250
CASH FLOW FROM INVESTING ACTIVITIES
Page 29 of 39
Purchase of equipment (W1) (31,000)
Sale proceeds of equipment 2,500
Purchase of building (W2) (10,500)
Insurance claim received 15,000
Receipts from sale of investments 6,500
CASH FLOW FROM FINANCING ACTIVITIES
Long term loan received 16,000
Repayment of long term loan (1,000)
Dividend paid (6,000)
Net cash generated from financing activities 9,000
Net increase in cash and cash equivalents 4,750
Cash and bank at beginning of year 17,000
Cash and bank at end of the year 21,750
ADDITITIONAL DISCLOSURES REGARDING NON-CASH INVESTING ANFD FINANCIANG TANSACTION

During the year Rs 12 million of the long term loan was settles by issuing 1,200,000 ordinary shares of Rs 10
each.
Workings
W-1
Equipment
b/d 20,000
Cash 31,000 Disposal 11,000
c/d 40,000
W-2
Building
b/d 35,000
c/d 28,000
W-3
Disposal - Equipment
Equipment 11,000 Cash 2,500
Acc depreciation 4,400
Loss 4,100
W-4
Disposal - Building
Building 17,500 Cash 15,000
Gain 3,000 Acc Depreciation 5,500
W-5
Acc Depreciation- Building
c/d 8,500 Depreciation 2,000
W-6
Acc Depreciation- Equipment
Retained Earnings
b/d 8,150
c/d 22,750 Profit after tax (bal) 14,600
Long Term Loan

Share capital 12,000 b/d 33,000
Cash 1000 Cash 16,000
Page 30 of 39
A.4
AB Enterprise
Cash flow for the year ended 30 June 2013
--Rs.in 000’s-
Net income before income tax 212
Add non-cash item: Depreciation 68
280
Changes In working capital:
Increases: Debtors 74
Prepaid expenses 6 80
Decreases:
Inventory 105
Accrued expenses 15
Trade payables 90 210 (130)
150
Income tax paid (90+28) (118)
Increase in cash 32
Tax payable
Cash 118,000 b/d (suppose) 100,000
c/d 72,000 Expense 90,000
A.5
Galaxy Brothers
For the Year Ended 31-12-2013
Rs. In Millions
Profit before tax (136 – 83.5 – 37.3 + 0.5 – 2.5) 13.2
Adjustment for:
Depreciation (9 + 6.25) 15.25
Finance charge 2.50
Bad debts 0.90
Loss on settlement of claim 0.35
Profit before increase / decrease 32.20
Increase / Decrease:
Accounts receivables (18.00)
Inventories (10.00)
Accounts payable 14.00
Cash generated from Operations 18.20
Finance charge paid (1.30)
Income taxes paid (5.00)
Net Cash from operating activities 11.90
Cash Flow From Investing Activities:
Purchase of property, plant & equipment (103.65)
Page 31 of 39
Proceeds from settlement of claim 1.20
Net cash from investing activities (102.45)
Cash Flow From Financing Activities:
Cash contributions by partners 50
Drawings made (2.45)
Proceeds from long term loan 25.00
Net cash from financing activities 72.55
Net cash Flow (18.00)
Cash and Cash equivalents at the beginning --
Cash and cash equivalents at the end (18.00)
WORKINGS:
2013 2012
Cash & Bank 5.00 --
Bank overdraft (23.00) --
(18.00) --
Property Plant and Equipment
b/d -- Disposal 1.8
Capital 25
Motor vehicle 1.4
103.65 c/d 128.25
Interest Payable
Cash 1.3 b/d --

Expense 2.5
c/d 1.2
Tax Payable
Cash 5 b/d --
Expense 6
c/d 1
Disposal Account
Asset 1.8 Account Depreciation 0.25
Cash 1.2
Loss 0.33
Accumulated Depreciation
Disposal 0.25 b/d --
Expense 15.25
c/d 15
Capital Account
Cash (drawings) 2.45 b/d --

Cash 50
Building 25
MV 1.4
c/d 73.95
*(As income statement is not yet prepared so capital account is without profit)
Page 32 of 39
A.6
Statement of Cash Flows
For the year ended 30 June 2014
Rs. In ‘000’ Rs. In ‘000’
Operating actives:
Profit before tax (W-1: 60,200 + 20,100) 80,300
Depreciation (4,500 + 6,500) 11,000
Amortization (8,000 – 7,000) 1,000
Decrease in provision (1,200 – 1,700) (500)
Profit on sale of machine (500)
94,800
Working capital adjustments:
Increase in inventory (W-2) (5,600)
Increase in debtors (20,400 – 26,700) (6,300)
Decrease in prepayments (3,000 – 2,700) 300
Decrease in payables (35,100 – 22,400) (12,700)
Increase in accrued expenses (W-3) (27,400 – 25,400) 2,000
Cash generated from operation 72,500
Interest paid (W-4) (2,800)
Tax paid (W-5) (18,600)
Net cash from operating activities 51,100
Investing Activities:
Cash received from disposal of machinery (W 6) 5,700
Cash paid for renovation (3,000)
Cash paid for investment (20,500 – 12,200) (8,300)
Net cash from investing activities (5,600)
Financing Activities:
Drawings (3,000 × 12) (36,000)
Loan obtained (W-8) 2,600
Loan repaid (7,600 – 2,800) (4,800))
Net cash Flow 7,300

Add: Opening cash and cash equivalents (2,300 – 4,000) (1,700)
Closing cash and cash equivalents (1,500 + 4,100) 5,600
(W-1) Capital Account All figures in ‘000’

b/d 139,900
Cash drawings 36,000 Profit after tax (bal) 60,200
Stock drawings 8,000 Machine 10,000
c/d 166,100
210,100 210,100
(W-2) Inventory
b/d 36,600 Capital 8,000
Increase (bal) 5,600
c/d 34,200
42,200 42,200
(W-3)
Page 33 of 39
30 June 2014 30 June 2013
Rs. In ‘000’ Rs. In ‘000’
Interest payable 1,100 (400)
Tax payable 4,500 (3,000)
Remaining 27,400 25,400
(W-4) Interest Payable
b/d 400
Cash 2,800 Expense 3,500
c/d 1,100
3,900 3,900
(W-5) Tax Payable
b/d 3,000
Cash 18,600 Expense 20,100
c/d 4,500
23,100 23,100
(W-6) Plant and Machinery

b/d 67,500 Depreciation 6,500
Capital 10,000 Disposal (bal) 5,200
c/d 65,600
77,300 77,300
(W-7) Land and Building
Cash 3,000
Revaluation (Balancing figure) 5,000
c/d 88,700
93,200 93,200
(W-8) Bank Loan
b/d 22,500
Cash paid (7,600 – 2,800) (W-4) 4,800 Loan obtained (bal) 2,600
c/d 20,300
25,100 25,100
Disposal
Plant and Machine 5,200 5,700

Gain 500
5,700 25,100
Intangibles
b/d 8,000 Amortization (bal) 1,000

c/d 7,000
8,000 8,000
Page 34 of 39
A. 7 Quality Enterprises:
Cash Flow from Operating Activities:
Profit before tax 7,659,000
Investment income (398,000)
Depreciation 5,280,000
Bad debts (200 – 150) 50,000
Profit on disposal (959,000)
Profit before working capital changes 11,732,000
Working Capital Charges:
Inventories (3,073 – 4,642) (1,569,000)
Debtors 1,558,000
Trade and other payables (1,716,000)
Cash generated from operations 10,005,000
Tax paid (1,070,000)
Net cash from operating activities 8,935,000
Purchase of PPE (16,106,000)
Sale of PPE (3,440 + 2,599) 6,039,000
Investment income received 382,000
Purchase of investment (7,645 – 6,498) (1,147,000)
Net cash flow from investing activities (10,832,000)
Receipt from bank loan 6,000,000
Additional capital 3,516,000
Drawings (3,600,000)
Net cash flow from financing activities 5,916,000
Net cash flow 4,019,000
Opening balance (23,000)
Closing balance 3,996,000
Workings:
Components of Cash and Cash Equivalents:
2015 2014
Cash and bank 3,996,000 4,000
Bank overdraft (27,000)
3,996,000 (23,000)
PPE
R.S 2,037 Disposal 2,481
c/d 19,628
R.S
R.E (balance) 1,272 b/d 1,911
PPE 2,037
Page 35 of 39
c/d 2,676
R. Earnings
Drawing 3,600 b/d 6,697
R.Surplus 1,272
c/d 10,652
Capital
b/d 10,703
Cash 3,516
c/d 14,219
Trade Debtors
b/d (3,865 – 80 + 550) 4,335 Bad debts 200
Decrease 1,558
c/d [2,273-96+400] 2,577
Provision
b/d 550
Bad debts 150
c/d 400
Interest Receivable
b/d 80
Income 398 Cash 382
c/d 96
Trade payable
Decrease 1,716 b/d 4,953
c/d (3,337 – 100) 3,237
Interest Payable
b/d --
Expense 100
c/d 100
Tax Payable
b/d 994
Cash 1,070 Exp. 1,376
c/d 1,300
Disposal
PPE 2,481 Cash 3,440
Gain 959
Disposal
PPE 2,599 Cash 2,599
Page 36 of 39
A.8
Universal Limited
Cash Flow from Operating Activities:
Cash receipt from customer [273,000 × 40% + 144,034] 253,234
Receipt from maintenance services (W) 6,200
Payment to suppliers (W) (181,750)
Payment for expenses (W) (30,250)
Tax paid (13,000)
Net cash from operation activities 30,934
Receipt from disposal 12,000
Purchase of PPE (60,000)
Receipt from issue of shares 25,000
Repayment of debentures (8,000)
Net cash from financing activities 17,000
Net cash flow (66)
Cash and cash equivalents at the beginning of the period 48,000
Cash and cash equivalents at the end of the period 47,934
Workings:
Cash and Cash Equivalents:
2017 2016
Cash 47,934 48,000
PPE
b/d 120,000 Disposal 9,000
R.S 10,000 Depreciation 22,500
Cash 60,000
c/d 158,500
Stock
b/d 45,000 Cost of sales 171,750
[187,500 – 22,500 × 70%]
Purchases 184,750
c/d 58,000
Provision A/c
b/d 35,761
Expenses 766
c/d 4,340
Trade Receivables
b/d [56,000 + 3,574] 59,574 Bad debts 7,000
Sales 163,800 Cash 144,034
c/d [68,000 + 4,390] 72,340
Share Capital
b/d 150,000
Cash 25,000
c/d 175,000
R/Earnings
Page 37 of 39
b/d 21,500
PAT 32,934
c/d 54,434
R. Surplus
b/d --
PPE 10,000
c/d 10,000
Debentures
b/d 26,000
Cash 8,000
c/d 18,000
Interest Payable
b/d 2,500
Cash 3,500 Expenses 2,000
c/d 1,000
Trade Payable
b/d 39,000
Cash 181,750 Purchases 184,750
c/d 42,000
Accrued Liability
b/d 18,000
Cash 30,250 Expenses
[46,766 – 7,000 – 22,500 × 30% - 766] 32,250
c/d 20,000
Unearned maintenance Income
b/d 4,000
Income 8,200 Cash 6,200
c/d 2,000
Disposal
Cash 12,000
PPE 9,000
Gain (bal) 3000
Provision for Tax
b/d 8,000
Cash 13,000 Expenses 15,000
c/d 10,000
A.8
Cash Flow From Operating Activities: (by using Indirect Method)
Rs. in ‘000’
Depreciation 22,500
Bad debts [7,000 + 766] 7,766
Gain on disposal (3,000)
Profit before working capital charges: 77,200
Working Capital Changes:
Stock (13,000)
Debtors (19,766)
Trade payable 3,000
Accrued expenses 2,000
Unearned Income (2,000)
Cash Generated from Operations 47,434
Page 38 of 39
Trade receivable
b/d 59,574 Bad debts 7,000
Net increase 19,766
c/d 72,340
Summary of discussion about dividend

It is a distribution of profits to owners (shareholder). If dividend Is given as a percentage then multiply the rate
with the amount of share capital (nominal value of share capital) which is at the date of declaration of dividend to
calculate the amount of dividend. A company may pay dividend either in cash or in form of shares.
Dividend
Cash Dividend (Either Final or Interim) Shares (Either Final or Interim)
When Declared When bonus shares are issued from Retained Earnings
Dividend(Retained Earnings) XXX Dividend (Retained Earnings) XXX
Dividend Payable A/c XXX Share Capital A/c XXX
When Paid When bonus Shares are issued from “Share Premium
Dividend Payable A/c XXX Account”
Cash/ Bank A/c XXX Dividend (Share Premium A/c) XXX
Share Capital A/c XXX
 If nothing is mentioned then assume that bonus shares are distributed from retained earnings.
 Dividend is recognized on the date of declaration.
 If the dividend is declared after reporting date but before the authorization of the financial statements it is
disclosed in the financial statement to which it relates.
 Dividend is adjusted against retained earnings in the statement of changes in equity,
 If the date of declaration is not given, then:
1. For interim dividend assume that dividend is declared during the accounting period.
2. For final dividend assume declared after the reporting date.
 If nature of dividend (means whether final or interim) is not given then assume final dividend.
 If type of dividend (means cash or bonus) is not available then assume cash dividend.
Nadir limited Davis and Waseem
Page 39 of 39

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Statement of Cash Flow: (IAS-7)

Important points to remember:

Format of Cash Flow Statement

Cash flow from operating activities X

Cash flow from investing activities X

Cash flow from financing activities. X

Net cash inflow (or outflow) during the period X

Cash and cash equivalents at the beginning of the period X

Cash and cash equivalents at the end of the period X

List of Non-cash Transactions

Components of cash & cash equivalents

Presentation of Cash Flow from Operating Activities

Direct Method (Format) Assumed Figures

Indirect Method (Format):

Cash generated from operations xx

A.1 i) Direct Method

Cash flow from Operating Activities:

Debtors Accounts Payable

ii) Indirect Method

ii) Indirect Method

Accounts Receivable Accounts Payable

ICAP Question bank:

Additional data related to 2015 is as follows:

5.3 HOT SAUCE LIMITED

Dividend payments during the year were Rs.230, 000.

5.6 TARBELA TRADERS

Capital and reserves

The written down value of the assets at date of disposal was:

Statement of cash flows format: indirect method Rs.

Balance b/d 157 Cash (bal) 889

Balance b/d 42 Cost of sales 311

Cash (bal) 314.9 Balance b/d 43.6

Cash (bal) 265.4 Balance b/d 4

Interest payable account

Cash (bal) 25.2 Balance b/d 11.2

Tax payable account

Cash (bal) 42.0 Balance b/d 45.0

Cash Flow from Investing Activities:

Cash Flow from Financing Activities:

Accumulated Depreciation Account

5.3. HOT SAUCE LIMITED

cash (bal) 235 Balance b/d 320

Tax payable account

Cash (bal) 470 Balance b/d 470

Asset 69 Acc depreciation 24

difference 41 Balance b/d (152 - 24) 128

Cash (bal) 126 Balance b/d 24

Balance b/d 2,700 Disposal 69

Cash (bal) 1,200

disposal 24 Balance b/d 748

Format of the indirect method Assumed Figures

Cash flows from operating activities

Profit before taxation 80,000

Cash flows from investing activities:

The following additional information is also available:

Depreciation for the year amounted to Rs. 68,000.

Cash flows from financing activities

CASH FLOW FROM INVESTING ACTIVITIES

ADDITITIONAL DISCLOSURES REGARDING NON-CASH INVESTING ANFD FINANCIANG TANSACTION

Long Term Loan