Cash Flow Statement (C.F.S.) It is a statement that shows the flow of Cash & Cash Equivalents during a period.

[Cash Equivalents are short term highly liquid investments that are readily convertible into the known amount of cash and which are subject to an insignificant risk of change in value. EgMarketable securities, Treasury Bills, Commercial paper, Money Market Funds etc.] Objectives of C.F.S. :(1) To determine sources of Cash & Cash Equivalents for Operating, Investing & Financing

activities. (2) To determine uses of Cash & Cash Equivalents for Operating, Investing & Financing activities. (3) To know the net change in Cash & Cash Equivalents. Uses of C.F.S.:(1) Short term financial planning: Sources & uses facilitate easy planning about Operating,

Investing & Financial needs of business.

(2) Helps in understanding liquidity & solvency : Helps to know the ability to meet S.T.

liabilities.
(3) Efficient cash Management: CFS gives information about surplus or deficit so

arrangement of funds can be made accordingly.

(4) Comparative Study : Inter firm as well as Intra firm comparisons are facilitated. (5) Reasons for cash position: CFS gives information on reasons for lower or higher cash

balance. Limitations of CFS:(1) Non cash transactions are ignored: Eg Purchase of an asset by issue of shares. (2) Not considered suitable form of Income Statement: Income statement reveals both cash

& non-cash items but CFS shows only the Cash & Cash Equivalents inflows & out flows so, no information about Net Profits is revealed. (3) Historical in nature: CFS just re-arranges the information given in Income & Position Statement No projections are made. (4) It ignores the basic accounting concept Accrual Concept. C.F.S. Operating Activities - Are the Principal revenue generating activities. Investing Activities - Purchase & Sale of L.T. Assets & Investments. Financing Activities- Change in owners capital & Borrowings of the business.

INDIRECT METHOD FORMAT OF CASH FLOW STATEMENT for the year ended. [As per Accounting Standard -3 (Revised)] Particulars I. Cash Flow from Operating Activities Net Profit as per profit and loss A/c ( or Difference between Closing Balance and Opening Balance of Profit and loss A/c) Add: Transfer to reserve Proposed dividend for current year Interim dividend paid during the year Provision for tax made during the current year Extraordinary item, if any , debited to the profit and loss A/c Less: Extraordinary item, if any , credited to the profit and loss A/c Refund of tax credited to profit and loss A/c (A) Net Profit before Taxation and Extraordinary items Adjustment for Non-cash and Non - operating items (B) Add: Items to be Added - Depreciation . - Preliminary Expenses/ Discount on issue of Shares and Debentures written off . - Goodwill, Patents and Trade Marks Amortised . - Interest on Borrowings and Debentures - Loss on Sale of Fixed Assets . (C) Less: Items to be Deducted - Interest Income . - Dividend Income . - Rental Income . - Profit on Sale of Fixed Assets . (D) Operating Profit before Working Capital Changes (A+ B -C) (E) Add: Decrease in Current Assets and Increase in Current Liabilities Detail: - Decrease in Stock/ Inventories - Decrease in Debtors/ Bills Receivables - Decrease in Accrued incomes - Decrease in Prepaid Expenses - Increase in Creditors/ Bills Payables - Increase in Outstanding Expenses - Increase in Advance Incomes - Increase in Provision for Doubtful Debts (F) Less: Increase in Current Assets and Decrease in Current Liabilities Detail: - Increase in Stock/ Inventories Rs.

() () .

Increase in Debtors/ Bills Receivable Increase in Accrued Incomes Increase in Prepaid Expenses Decrease in Creditors/ Bills Payables Decrease in Outstanding expenses Decrease in Advance Incomes Decrease in Provision for Doubtful Debts

(G) Cash Generated From Operations (D+E-F) (H) Less: incomes Tax paid (Net of Tax Refund received ) (I) Cash Flow from before Extraordinary items (J) Cash Flow From (or Used in ) Operating Activities II. Cash from Investing Activities - Proceeds from Sale of Fixed Assets - Proceeds from Sale of investments - Proceeds from Sale of Intangible Assets - Interest and Dividend received (for non- financial Companies only) - Rent income - Purchase of Fixed Assets - Purchase of Investments - Purchase of intangible Assets like Goodwill Cash flow from (or used in ) Investing Activities III. Cash Flows from Financing Activities - Proceeds from issue of shares and Debentures - Proceeds from Other Long-term Borrowings - Final Dividend Paid - Interim Dividend Paid - Interest on Debentures and Loans Paid - Repayment of Loans - Redemption of Debentures/ Preference shares Cash flow from (or used in) Financing Activities IV. V. Net Increase/ Decrease in cash and cash Equivalents (I+II+III) Add. Cash and Cash Equivalents in the beginning of the year - Cash in Hand - Cash at Bank (Less: Bank Overdraft ) - Short-term Deposits - Marketable Securities Cash and Cash Equivalents in the end of the year - Cash in Hand - Cash at Bank (Less: Bank Overdraft ) - Short-term Deposits - Marketable Securities

VI.

Note: Amounts in brackets indicate negative amounts, i.e., amounts that are to be deducted.

QUESTIONS:
The following are the Balance Sheets of Agrawal Limited as on 31st December, 2006 and 2007: BALANCE SHEETS as at 31st March Liabilities 2006 Rs. 2007 Rs. Assets 2006 Rs. 2007 Rs. Share Capital 2,00,000 2,00,000 Fixed Assets 2,20,000 3,75,000 Profit and Loss A/c 20,000 1,25,000 Less: Accumulated Mortgage Loan 50,000 75,000 Depreciation 36,000 52,000 Provision for Tax 10,000 15,000 1,84000 3,23,000 Proposed Dividend 20,000 28,000 50,000 72,000 Creditors 70,000 36,000 Stock 60,000 51,000 Debtors 15,000 . Bills Receivable 2,000 . Prepaid Expenses 59,000 33,000 Cash and Bank Q.1. 3,70,000 4,79,000 3,70,000 4,79,000

You are required to prepare the Cash Flow Statement. [Cash from Operating Activities Rs. 1,24,000; Cash used in investing Activities Rs. 1,55,000; and Cash from Financing Activities Rs. 5,000]

Q.2.

From the following Balance Sheet of X Ltd., prepare the Cash Flow Statement: Liabilities March 31, 2007 Rs. 1,80,000 20,000 4,000 2,400 14,000 22,000 8,400 11,600 13,600 2,76,000 March 31, 2006 Rs. 1,55,000 25,000 4,000 2,000 12,000 24,000 6,000 10,000 25,000 2,63,000 Assets Fixed Assets Less: Accumulated Depreciation Debtors Stock Prepaid Expenses Cash in Hand March 31, 2007 Rs. 1,80,000 30,000 1,50000 48,000 70,000 1,000 7,000 2,76,000 March 31, 2006 Rs. 1,82,000 22,000 1,60,000 40,000 60,000 600 2,400 2,63,000

Equity Share Capital 12% Preference Share Capital General Reserve Profit and Loss A/c 10% Debentures Creditors Provision for Tax Proposed Dividend Bank Overdraft

Additional Information: (i) Fixed Assets sold Rs. 10,000 their cost Rs. 20,000 and accumulated depreciation till date of sale on them Rs. 6,000. (ii) The interim dividend during the year Rs. 9,000. (iii) Tax paid Rs. 7,000. [Cash Flow from operating Activities Rs. 22,200; Cash used in Investing Activities Rs. 8,000; Cash Flows from Financing Activities -Rs. 1,800]

Q.3.

From the following Balance Sheets, prepare the Cash Flow Statement for the year ended March 31st , 2005: Liabilities 31.3.04 Rs. 2,00,000 50,000 30,500 70,000 1,50,000 30,000 31.3.05 Rs. 2,50,000 60,000 30,600 1,35,200 35,000 Assets Land and Buildings Plant and Machinery Stock Sundry Debtors Cash Bank Goodwill 31.3.04 Rs.. 2,00,000 1,50,000 1,00,000 80,000 500 5,30,500 31.3.05 Rs.. 1,90,000 1,69,000 74,000 64,200 600 8,000 5,000 5,10,800

Share Capital General reserve Profit and Loss A/c Bank Loan Sundry Creditors Provision Tax

5,30,500

5,10,800

Additional Information: (i) The Dividend of Rs. 23,000 was paid. (ii) The Income tax paid during the year Rs. 28,000. (iii) Machinery was purchased during the year Rs. 33,000. (iv) Depreciation written off on machinery Rs. 14,000; building Rs. 10,000. [Cash Flow from Operating Activities Rs. 89,100; Cash used in Investing Activities Rs. 38,000; Cash used in Financing Activities -Rs. 43,000; Net increase in Cash and Cash Equivalents-Rs. 8,100] Q.4. From the following information, prepare the Cash Flow Statement of Crispin Ltd.: Liabilities Equity Share Capital 8% Preference Share Capital 8% Debenture Reserves and Surplus Current Liabilities 31.3.06 Rs. 4,05,000 2,70,000 1,35,000 1,48,500 1,08,000 31.3.07 Rs. 5,72,500 1,35,000 2,70,000 3,64,500 2,16,000 Assets Fixed Assets (W.D.V.) Investments Cash Other Current Assets Discount on Issue of Debentures 31.3.06 Rs. 6,88,500 40,500 54,000 2,70,000 13,500 31.3.07 Rs. 8,37,000 1,08,000 2,01,250 4,05,000 6,750

10,66,500

15,58,000

10,66,500

15,58,000

Additional Information: (i) Depreciation charged on fixed assets was Rs. 81,000. (ii) An interim dividend of 15% was paid on equity shares. Additional shares were issued on March 31, 2007. (iii) Preference shares were redeemed at a premium of 15% (iv) Fixed Assets with a book value of Rs. 54,000 were sold at Rs. 33,750. (v) Preference dividend paid during the year Rs. 21, 600. (vi) Debenture interest paid during the year 10,800.

[Cash Flow from Operating Activities Rs. 4,10,400; Cash used in Investing Activities Rs. 3,17,250; Cash Flows from Financing Activities -Rs. 54,100; Net increase in Cash and Cash Equivalents Rs. 1,47,250]