Kanishk Enterprises is a manufacturer & trader of edible oil.

Kanishk has no idea about how to

calculate the amount of cash generated by his business activities every year. He seeks your help
to determine the amount of net cash inflows from the various activities of business for the year
2006-07. For this purpose the following information is provided to you. All sales are done in
cash.
Particulars Amount Particulars Amount (Cr.)
(Dr.)
Purchases 80,000 Sales 1,65,000
Direct Expenses (Wages, Power 20,000
etc.)
Gross Profit 65,000
1,65,000 1,65,000

Particulars Amount Particulars Amount (Cr.)

(Dr.)
Rent 8,000 Gross Profit 65,000
Salary 20,000
Depreciation 15,000 Gain on sale of old machinery 13,000
Provision for Bad Debts 5,000
Provision for Dividends 10,000
Provision for Taxes 2,500
Amortization of Establishment 1,500
Expenses
Net Profit 16,000
78,000 78,000
 CASH FLOW STATEMENT
Cash from operating activities: (Direct Method)

Cash Received on account of sale of goods 1,65,000

Less:
Cash paid for purchases of goods 80,000
Cash paid for Wages, Power etc. 20,000
Cash paid for Rent 8,000
Cash paid for salary Paid 20,000

Cash inflow from operating activities = 37,000

CASH FLOW STATEMENT (INDIRECT METHOD)
Net Profit (As per profit & Loss Account) 16,000

+Decrease in Current Assets

-Increase in Current Assets
+ Increase in Current Liabilities
-Decrease in Current Liabilities

+ Losses
- Gain on sale of machinery - 13,000

+ Amortization of Establishment Expenses + 1,500

+ Depreciation + 15,000
+Provision for bad debts + 5,000
+ Provision for dividends + 10,000
+ Provision for taxes + 2,500

= Net Cash flow from operating activities 37,000

QUESTION # 2

From the following summary provided by XYZ Ltd. Prepare a cash flow st. for the
year ended 31st Mar2001 in accordance with Direct Method .

Particular Amt. Particular Amt.

Opening Balance of Cash 50,000 Payment to Suppliers 20,00,000

Issue of Equity Shares 3,00,000 Purchase of Fixed Assets 2,00,000
Receipts from Customers 28,00,000 Wages & Salaries 3,00,000
Sale of Fixed Assets 1,00,000 Taxes Paid 2,50,000
Dividend Paid 50,000
Repayment of Bank Loan 3,00,000
Closing Balance of Cash 1,50,000

32,50,000 32,50,000
 CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2001

Cash Flow from Operating Activities:

Cash Receipts from Customers 28,00,000
Cash Payment to Suppliers (20,00,000)
Cash Paid for Wages (3,00,000)
Cash paid for Taxes (2,50,000)
Net Cash Generated from Operations= 2,50,000

Cash Flow from Investing Activities:

Sale of Fixed Assets 1,00,000
Purchase of Fixed Assets (2,00,000)
Net Cash Used by Investing Activities (1,00,000)

Cash From Financing Activities:

Issued Equity Shares 3,00,000
Paying Dividend (50,000)
Repayment of Bank Loan (3,00,000)
Net Cash Used by Financing Activities (50,000)

Net Increase in Cash = 1,00,000

Opening Balance of Cash = 50,000

Closing Balance of Cash = 1,50,000
QUESTION # 3
Indicate whether each of the following would be added to or deducted from net profit in
determining net cash flow from operating activities by the INDIRECT METHOD:

A) Loss on disposal of fixed assets

B) Decrease in accounts payable
C) Decrease in salaries payable
D) Depreciation of fixed assets
E) Amortization of advertisement expenditure
F) Decrease in accounts receivable
G) Increase in inventory
H) Decrease in prepaid expenses
I) Increase in bills receivable due in 90 days from customers
J) Amortization of establishment expenditure
K) Increase in bills payable due in 90 days to suppliers
 QUESTION # 4: PREPARE CASH FLOW ST. OF ABC LTD. FOR THE YEAR
2005, AS PER THE INFORMATION PROVIDED:
ABC Ltd.
Balance Sheet as at 31st March 2005
Liabilities 2004 2005 Assets 2004 2005
Equity Share Capital 2,50,000 5,00,000 Fixed Assets (Land) 4,00,000 5,00,000
Preference Share Capital 50,000 20,000 Investments 2,00,000 _
Debentures & Other Long 1,00,000 70,000 Machinery 1,50,000 3,00,000
Term Borrowings Cash in Hand 41,000 2,00,000
Net Profit 1,00,000 1,19,000
Reserves & Surplus 2,91,000 2,91,000
7,91,000 10,00,000 7,91,000 10,00,000

ABC Ltd.
Profit & Loss Account for the ear Ending 2005
Purchases (all cash) 15,000 Sales (all cash) 30,000
Salaries & wages 5,000 Interest Received 10,000
Income Tax 1,000 Dividend Income 15,000
Interest paid 6,000
Dividend (Pref. Shares) 3,000
Dividend (Equity Shares) 6,000

Net Profit 19,000

55,000 55,000
 QUESTION # 5: FROM THE FOLLOWING BALANCES YOU ARE
REQUIRED TO CALCULATE CASH FROM OPERATIONS BY
INDIRECT METHOD

Particulars 31st Dec. 2006 31st Dec. 2007

Debtors 50,000 47,000
Bills Receivable 10,000 12,500
Creditors 20,000 25,000
Bills Payable 8,000 6,000
Outstanding Expenses 1,000 1,200
Prepaid Expenses 800 700
Accrued Income 600 750
Income Received in 300 250
Advance _ 1,30,000
Net Profit made during the
year

Answer: CFO= 1,33,600

 QUESTION#6: BALANCE SHEET OF ABC LTD. IS GIVEN BELOW:
Liabilities 1 Jan 2007 31st Dec 2007 Assets 1 Jan 2007 31st Dec 2007
Bills Payable 29,000 25,000 Cash 40,000 30,000
Capital 7,39,000 6,15,000 Debtors 20,000 17,000
Stock 8,000 13,000
Building 1,00,000 80,000
Other Fixed 6,00,000 5,00,000
Assets
7,68,000 6,40,000 7,68,000 6,40,000

Additional Info:
a) Capital is reduced due to net losses incurred during the year.
b) Building got reduced due to depreciation.
c) Other fixed assets got reduced due to depreciation.

Cash from operations: Rs (10,000)