FINANCIAL STATEMENTS OF COMPANIES 11.

91 a

Illustration 6
Ryan Ltd provides you the following information at the year-end, March 31, 20X1:

` `
Sales 6,98,000

Cost of Goods Sold (5,20,000)

1,78,000
Operating Expenses
(including Depreciation Expense of ` 37,000) (1,47,000)

31,000

Other Income / (Expenses):

Interest Expense paid (23,000)
Interest Income received 6,000

Gain on Sale of Investments 12,000

Loss on Sale of Plant (3,000)

(8,000)

23,000
Income tax (7,000)

16,000

Information available:

31st March 31st March

20X1 20X0

` `
Plant 7,15,000 5,05,000
Less: Accumulated Depreciation (1,03,000) (68,000)

6,12,000 4,37,000

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 a 11.92 ADVANCED ACCOUNTING

Investments (Long term) 1,15,000 1,27,000

Inventory 1,44,000 1,10,000
Trade receivables 47,000 55,000

Cash 46,000 15,000

Prepaid expenses 1,000 5,000
Share Capital 4,65,000 3,15,000

Reserves and surplus 1,40,000 1,32,000

Bonds 2,95,000 2,45,000
Trade payables 50,000 43,000

Outstanding liabilities 12,000 9,000

Income taxes payable 3,000 5,000

Analysis of selected accounts and transactions during 20X0-X1

1. Purchased investments for ` 78,000.
2. Sold investments for ` 1,02,000. These investments cost ` 90,000.

3. Purchased plant assets for ` 1,20,000.

4. Sold plant assets that cost `10,000 with accumulated depreciation of ` 2,000
for ` 5,000.
5. Issued ` 1,00,000 of bonds at face value in an exchange for plant assets on
31st March, 20X1.
6. Repaid ` 50,000 of bonds at face value at maturity.
7. Issued 15,000 shares of ` 10 each.
8. Paid cash dividends ` 8,000.
Prepare Cash Flow Statement as per AS-3 (Revised), using indirect method.

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 FINANCIAL STATEMENTS OF COMPANIES 11.93 a

Solution
Ryan Ltd.
Cash Flow Statement
for the year ending 31st March, 20X1

` `
Cash flows from operating activities
Net profit before taxation 23,000

Adjustments for:
Depreciation 37,000
Gain on sale of investments (12,000)

Loss on sale of plant assets 3,000

Interest expense 23,000
Interest income (6,000)

Operating profit before working capital changes 68,000

Decrease in trade receivables 8,000
Increase in inventory (34,000)

Decrease in prepaid expenses 4,000

Increase in trade payables 7,000
Increase in outstanding liabilities 3,000

Cash generated from operations 56,000

Income taxes paid* (9,000)

Net cash generated from operating activities 47,000

Cash flows from investing activities
Purchase of plant (1,20,000)
Sale of plant 5,000
Purchase of investments (78,000)

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 a 11.94 ADVANCED ACCOUNTING

Sale of investments 1,02,000

Interest received 6,000

Net cash used in investing activities (85,000)

Cash flows from financing activities

Proceeds from issuance of share capital 1,50,000

Repayment of bonds (50,000)

Interest paid (23,000)

Dividends paid (8,000)

Net cash from financing activities 69,000

Net increase in cash and cash equivalents 31,000

Cash and cash equivalents at the beginning of the 15,000

period

Cash and cash equivalents at the end of the 46,000

period

Note: Significant non-cash adjustments: Issued ₹ 1,00,000 of bonds at face value

for acquisition of plant on 31st March, 20X1.

*Working Note:

`
Income taxes paid:

Income tax expense for the year 7,000

Add: Income tax liability at the beginning of the year 5,000
12,000

Less: Income tax liability at the end of the year (3,000)

9,000

© The Institute of Chartered Accountants of India

 FINANCIAL STATEMENTS OF COMPANIES 11.95 a

Illustration 7
The balance sheets of Sun Ltd. as at 31st March 20X1 and 20X0 were as:

Particulars Notes 20X1 20X0

` `

Equity and Liabilities

1 Shareholder’s funds

(a) Share capital 1 60,000 50,000

(b) Reserve & surplus 2 5,000 4,000

2 Current liabilities

(a) Trade Payables 4,000 2,500

(b) Other current liabilities 3 - 1,000

(c) Short term provision (provision for tax) 1,500 1,000

Total 70,500 58,500

Assets

1 Non-current assets

(a) Property, Plant & Equipment 4 39,500 29,000

2 Current assets

(a) Current investments 2,000 1,000

(b) Inventories 17,000 14,000

(c) Trade receivables 8,000 6,000

(d) Cash & cash equivalents 5 4,000 8,500

70,500 58,500

© The Institute of Chartered Accountants of India

 a 11.96 ADVANCED ACCOUNTING

Notes to accounts

20X1 20X0

` `
1 Share Capital
Equity Shares of `10 each 60,000 50,000

2 Reserve & surplus

Profit and Loss Account 5,000 4,000
3 Other current liabilities

Dividend Payable - 1,000

4 Property, plant and equipment (at WDV)
Building 10,000 10,000

Fixtures 17,000 11,000

Vehicles 12,500 8,000
Total 39,500 29,000
5 Cash and cash equivalents
Cash and Bank 4,000 8,500

The profit and loss statement for the year ended 31st March, 20X1 disclosed:

Particulars `
Profit before tax 4,500
Tax expense: Current tax (1,500)
Profit for the year 3,000

Declared dividend (2,000)

Retained Profit 1,000

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 FINANCIAL STATEMENTS OF COMPANIES 11.97 a

Further information is available:

Fixtures Vehicles

` `
Depreciation for the year 1,000 2,500

Disposals:
Proceeds on disposal of vehicles — 1,700
Written down value — (1,000)

Profit on disposal 700

Prepare a Cash Flow Statement for the year ended 31st March, 20X1.
Solution
Sun Ltd.
Cash Flow Statement
for the year ended 31st March, 20X1

` `
Cash flows from operating activities

Net Profit before taxation 4,500

Adjustments for:
Depreciation 3,500
Profit on sale of vehicles (1,700 – 1,000) (700)

Operating profit before working capital changes 7,300

Increase in Trade receivables (2,000)

Increase in inventories (3,000)
Increase in Trade payables 1,500

Cash generated from operations 3,800

Income taxes paid (W.N.1) (1,000)

Net cash generated from operating activities 2,800

© The Institute of Chartered Accountants of India

 a 11.98 ADVANCED ACCOUNTING

Cash flows from investing activities

Sale of vehicles 1,700

Purchase of current investments (1,000)

Purchase of vehicles (W.N.3) (8,000)

Purchase of fixtures (W.N.3) (7,000)

Net cash used in investing activities (14,300)

Cash flows from financing activities

Issue of shares for cash 10,000

Dividends paid (W.N.2) (3,000)

Net cash generated from financing activities 7,000

Net decrease in cash and cash equivalents (4,500)

Cash and cash equivalents at beginning of period

(See Note) 8,500

Cash and cash equivalents at end of period

(See Note) 4,000

Note to the Cash Flow Statement

Cash and Cash Equivalents

31.3.20X1 31.3.20X0

Bank and Cash 4,000 8,500

Cash and cash equivalents 4,000 8,500

© The Institute of Chartered Accountants of India

 FINANCIAL STATEMENTS OF COMPANIES 11.99 a

Working Notes:

`
1. Income taxes paid
Income tax expense for the year 1,500
Add: Income tax liability at the beginning of the year 1,000
2,500
Less: Income tax liability at the end of the year (1,500)
1,000
2. Dividend paid
Declared dividend for the year 2,000
Add: Amount payable at the beginning of the year 1,000
3,000
Less: Amount payable at the end of the year -
3,000
3. Property, plant and equipment acquisitions
Fixtures Vehicles
` `
W.D.V. at 31.3.20X1 17,000 12,500
Add back:
Depreciation for the year 1,000 2,500
Disposals — 1,000
18,000 16,000
Less: W.D.V. at 31.12.20X0 (11,000 (8,000)
)
Acquisitions during 20X0-20X1 7,000 8,000

Note: Current investments may not be readily convertible to a known amount of

cash and may not be subject to an insignificant risk of changes in value as per the
requirements of AS 3 and hence those have been considered as investing
activities.

© The Institute of Chartered Accountants of India

 a 11.100 ADVANCED ACCOUNTING

Illustration 8
Ms. Jyoti of Star Oils Limited has collected the following information for the
preparation of cash flow statement for the year ended 31 st March, 20X1:

(` in lakhs)

Net Profit 25,000

Dividend paid 8,535
Provision for Income tax 5,000
Income tax paid during the year 4,248
Loss on sale of assets (net) 40
Book value of the assets sold 185
Depreciation charged to the Statement of Profit and Loss 20,000
Profit on sale of Investments 100
Carrying amount of Investment sold 27,765
Interest income received on investments 2,506
Interest expenses of the year 10,000
Interest paid during the year 10,520
Increase in Working Capital (excluding Cash & Bank Balance) 56,081
Purchase of Fixed assets 14,560
Investment in joint venture 3,850
Expenditure on construction work in progress 34,740
Proceeds from calls in arrear 2
Receipt of grant for capital projects 12
Proceeds from long-term borrowings 25,980
Proceeds from short-term borrowings 20,575
Opening cash and bank balance 5,003
Closing cash and bank balance 6,988

Prepare the Cash Flow Statement for the year ended 31 March 20X1 in accordance
with AS 3. (Make necessary assumptions)

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 FINANCIAL STATEMENTS OF COMPANIES 11.101 a

Solution
Star Oils Limited
Cash Flow Statement
for the year ended 31st March, 20X1

(` in lakhs)

Cash flows from operating activities

Net profit before taxation (25,000 + 5,000) 30,000
Adjustments for :
Depreciation 20,000
Loss on sale of assets (Net) 40
Profit on sale of investments (100)
Interest income on investments (2,506)
Interest expenses 10,000
Operating profit before working capital changes 57,434
Changes in working capital (Excluding cash and bank (56,081)
balance)
Cash generated from operations 1,353
Income taxes paid (4,248)
Net cash used in operating activities (2,895)
Cash flows from investing activities
Sale of assets (W.N.1) 145
Sale of investments (27,765 + 100) 27,865
Receipt of grant for capital projects 12
Interest income on investments 2,506
Purchase of fixed assets (14,560)
Investment in joint venture (3,850)
Expenditure on construction work-in progress (34,740)
Net cash used in investing activities (22,622)

© The Institute of Chartered Accountants of India

 a 11.102 ADVANCED ACCOUNTING

Cash flows from financing activities

Proceeds from calls in arrear 2
Proceeds from long-term borrowings 25,980

Proceed from short-term borrowings 20,575

Interest paid (10,520)
Dividend (including dividend tax) paid (8,535) 27,502

Net increase in cash and cash equivalents 1,985

Cash and cash equivalents at the beginning of the 5,003
period

Cash and cash equivalents at the end of the period 6,988

Working note:
1. Book value of the assets sold 185

Less : Loss on sale of assets (40)

Proceeds on sale 145
Illustration 9
From the following Summary Cash Account of X Ltd. prepare Cash Flow Statement
for the year ended 31st March, 20X1 in accordance with AS 3 (Revised) using the
direct method. The company does not have any cash equivalents.
Summary Cash Account for the year ended 31.3.20X1

`’000 `’000
Balance on 1.4.20X0 50 Payment to Suppliers 2,000
Issue of Equity Shares 300 Purchase of Fixed Asset 200
Receipts from Customers 2,800 Overhead expense 200

Sale of Fixed Assets 100 Wages and Salaries 100

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