ILLUSTRATIONS – FUND FLOW STATEMENT

Illustration 11
From the following Balance Sheet of PKJ Ltd., Prepare Funds Flow Statement for 2016.
` ‘000

Liabilities 31-3-15 31-3-16 Assets 31-3-15 31-3-16

Equity Share Capital 150 200 Goodwill 50 40
9% Redeemable Preference Share 75 50 Land & Buildings 100 85
capital
Capital Reserve — 10 Plant & Machinery 40 100
General Reserve 20 25 Investments 10 15
Profit & Loss Account 15 24 Sundry Debtors 70 85
Proposed Dividend 21 25 Stock 39 55
Sundry Creditors 13 24 Bills Receivable 10 15
Bills Payable 10 8 Cash in hand 7 5
Liability for Expenses 15 18 Cash at bank 5 4
Provision for tax 20 25 Preliminary Exp. 8 5
339 409 339 409

Additional information:
1. A part of land was sold out in 2016, and the profit was credited to Capital Reserve.
2. A machine has been sold for `5,000 (written down value of the machinery was `6,000). Depreciation
of `5,000 was charged on plant in 2016.
3. An interim dividend of `10,000 has been paid in 2016.
4. An Amount of `1,000 has been received as dividend on investment in 2016.
Solution:
Funds flow Statement

Sources (` ‘000) Application (` ‘000)

Funds from Operation 67 Investment Purchased 5
Sale proceed of Plant 5 Increase in Working Capital 16
Sale proceed of Land 25 Purchase of Plant & Machinery 71
Issue of Equity Share Capital 50 Redemption of Preference Share Capital 25
Dividend on Investments received 1 Proposed Dividend for last year 21
Interim dividend paid 10
148 148
Working Note 1:
1. Calculation of changes in Working Capital:

Amount (`) in ‘000

Current Asset 31-3-15 31-3-16
Debtors 70 85
Stock 39 55
B/R 10 15
Cash in hand 7 5
Cash at bank 5 4
A: Total Current Assets 131 164

Amount (`) in ‘000

Current Liabilities 31-3-15 31-3-16
Creditors 13 24
B/P 10 8
Liabilities for exp. 15 18
Provision for Tax 20 25
B: Total Current Liabilities 58 75
Working capital (A-B) 73 89

Increase in working capital 89 – 73 = 16

2. Calculation of Fixed assets purchase during the year

Dr. Plant and Machinery A/c Cr.

Particulars (` ‘000) Particulars (` ‘000)

To Balance b/d 40 By Bank – sale proceeds 5
To Bank – Purchases (Bal. fig.) 71 By P & L-Loss 1
By Depreciation 5
By Balance C/f 100
111 111
Dr. Land and Building A/c Cr.

Particulars (` ‘000) Particulars (` ‘000)

To Balance b/d 100 By Bank (Bal. fig.) 25
To Profit-Transfer to C/R 10 By balance c/f 85
110 110

3. Calculation of Funds from Operation

Dr. P& L Adjustment A/c Cr.

Particulars (` ‘000) Particulars (` ‘000)

To Depreciation 5 By balance b/d 15
To Loss on sale of machinery 1 By Dividend Received 1
To Interim Dividend 10
To Transfer to G/R 5
To Proposed Dividend 25
To Goodwill written off 10
To Preliminary exp. written off 3
To Closing balance 24 Funds from Operation (Bal. fig.) 67
83 83

Illustration 12
The Balance Sheets of A, B, & C Co. Ltd. as at the end of 2015 and 2016 are given below:

LIABILITIES 2015 (`) 2016 (`) ASSETS 2015 (`) 2016 (`)
Share Capital 1,00,000 1,50,000 Freehold land 1,00,000 1,00,000
Share premium --- 5,000 Plant at cost 1,04,000 1,00,000
General Reserve 50,000 60,000 Furniture at cost 7,000 9,000
Profit & Loss Account 10,000 17,000 Investments 60,000 80,000
6% Debentures 70,000 50,000 Debtors 30,000 70,000
Provision for Depreciation on Plant 50,000 56,000 Stock 60,000 65,000
Provision for Dep. on Furniture 5,000 6,000 Cash 30,000 45,000
Provision for taxation 20,000 30,000
Sundry Creditors 86,000 95,000
3,91,000 4,69,000 3,91,000 4,69,000

A plant purchased for ` 4,000 (Depreciation ` 2,000) was sold for Cash for ` 800 on September 30, 2015.
On June 30, 2015 an item of furniture was purchased for ` 2,000. These were the only transactions
concerning fixed assets during 2015. A dividend of 22½ % on original shares was paid. You are required
to prepare funds Flow Statement and verify the results by preparing a schedule of changes in Working
Capital.
Solution:
Calculation of changes in Working Capital

Current Asset 2015 2016 Current Liabilities 2015 2016

Debtors 30,000 70,000 Creditors 86,000 95,000
Stock 60,000 65,000 Provision for Tax 20,000 30,000
Cash 30,000 45,000 B: Total Current Liabilities 1,06,000 1,25,000
A: Total Current Assets 1,20,000 1,80,000 Working capital (A-B) 14,000 55,000
Increase in working capital ` 55,000 – ` 14,000 = ` 41,000

Funds flow Statement

Sources Amount Application Amount (`)

(`)
Funds from Operation 49700 Investment Purchased 20,000
Sale proceed of plant 800 Increase in Working Capital 41,000
Issue of Equity Share Capital with premium 55,000 Dividend paid 22,500
Purchase of furniture 2,000
Redemption of Debentures 20,000
1,05,500 1,05,500
Working Note:
1. Calculation of Depreciation provide during the year
Provision for depreciation on plant

Opening Balance 50,000

Less: Depreciation on plant sold 2,000
48,000
Depreciation provided during the year (b/f) 8,000
Depreciation at the end 56,000

Total Depreciation provided during the year

On Plant (as above) 8,000

On Furniture (6,000-5,000) 1,000
Total depreciation provided during the year 9,000

Dr. Investment A/c Cr.

Particulars Amount (`) Particulars Amount (`)

To Balance b/d 60,000
To Bank – purchases (Bal. Fig) 20,000 By Balance c/f 80,000
80,000 80,000
Dr. P & L Adjustment A/c Cr.

Particulars Amount (`) Particulars Amount (`)

To Depreciation 9,000 By Balance b/d 10,000
To Transfer to G/R 10,000
To Loss on Sale of Plant 1,200
To Dividend (1,00,000 × 22.5%) 22,500
To Balance c/f 17,000 By Funds from Operation (Bal Fig) 49,700
59,700 59,700

Illustration 13
From the Balance Sheet of A Ltd., Please prepare:
A. A Statement of changes in the Working Capital.
B. Funds Flow Statement.
BALANCE SHEET

31st March 31st March

LIABILITIES 2015 (`) 2016 (`) ASSETS 2015 (`) 2016 (`)
Equity Share Capital: 3,00,000 4,00,000 Goodwill 1,15,000 90,000
8% Preference share capital 1,50,000 1,00,000 Land & Buildings 2,00,000 1,70,000
P & L A/c 30,000 48,000 Plant 80,000 2,00,000
General Reserve 40,000 70,000 Debtors 1,60,000 2,00,000
Proposed Dividend 42,000 50,000 Stock 77,000 1,09,000
Creditors 55,000 83,000 Bills Receivable 20,000 30,000
Bills Payable 20,000 16,000 Cash in hand 15,000 10,000
Provision for Taxation 40,000 50,000 Cash at Bank 10,000 8,000
6,77,000 8,17,000 6,77,000 8,17,000
Following is the additional information available:
(i) Depreciation of ` 10,000 and ` 20,000 have been charged on Plant and Land and Buildings
respectively in 2016.
(ii) Interim dividend of ` 20,000 has been paid in 2016.
(iii) Income tax of ` 35,000 has been paid in 2016.

Solution:
A. Calculation of changes in Working Capital

Current Asset 2015 2016

Debtors 1,60,000 2,00,000
Stock 77,000 1,09,000
B/R 20,000 30,000
Cash in hand 15,000 10,000
Cash at Bank 10,000 8,000
A: Total Current Assets 2,82,000 3,57,000
 Current Liabilities 2015 2016
Creditors 55,000 83,000
B/P 20,000 16,000
B: Total Current Liabilities 75,000 99,000
Working capital (A-B) 2,07,000 2,58,000
Increase in working capital ` 2,58,000 – ` 2,07,000 = ` 51,000
B. Funds flow Statement

Sources of fund Application of fund

Funds from Operation 2,30,000 Purchases of Plant 1,30,000
Sale proceed of Land & Building 10,000 Increase in Working Capital 51,000
Issue of Equity Share Capital 1,00,000 Tax Paid 35,000
Redemption of Preference Share Capital 50,000
Proposed Dividend 42,000
Interim Dividend paid 20,000
Preference Dividend paid 12,000
3,40,000
Working Note:
1. Land & Buildings A/c
Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 2,00,000 By Depreciation provided 20,000
By Bank – sale proceeds (b/f) 10,000
By Balance c/f 1,70,000
2,00,000 2,00,000

2. Plant A/c
Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Balance b/d 80,000 By Depreciation provided 10,000
To Bank (b/f) 1,30,000 By Balance c/f 2,00,000
2,10,000 2,10,000

3. Provision for Tax A/c

Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Bank – paid 35,000 By Balance b/d 40,000
To balance c/f 50,000 By P & L A/c –provided 45,000
85,000 85,000
 4. P & L Adjustment A/c
Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Depreciation 30,000 By Balance b/d 30,000
To Preference Dividend (1,50,000 x 8%) 12,000
To Transfer to G/R 30,000
To Provision for Tax 45,000
To Proposed Dividend 50,000
To Goodwill written off 25,000
To Interim Dividend 20,000
To Balance C/f 48,000 By Funds from Operation (b/f) 2,30,000
2,60,000 2,60,000

Illustration 14
From the following figures, prepare a statement showing the changes in the Working Capital and Funds
Flow Statement during the year 2015.

ASSETS: Dec.31, 2014 Dec.31, 2015

Fixed Assets (net) ` 5,10,000 6,20,000
Investments 30,000 80,000
Current Assets 2,40,000 3,75,000
Discount on debentures 10,000 5,000
7,90,000 10,80,000
Liabilities:
Equity share capital 3,00,000 3,50,000
Preference share capital 2,00,000 1,00,000
Debentures 1,00,000 2,00,000
Reserves 1,10,000 2,70,000
Provision for doubtful debts 10,000 15,000
Current Liabilities 70,000 1,45,000
7,90,000 10,80,000
You are informed that during the year:
(a) A machine costing ` 70,000 book value ` 40,000 was disposed of for ` 25,000.
(b) Preference share redemption was carried out at a premium of 5% and
(c) Dividend at 15% was paid on equity shares for the year 2014.

Further:
1. The provision for depreciation stood at ` 1,50,000 on 31.12.14 and at ` 1,90,000 on 31.12.15; and
2. Stock which was valued at `90,000 as on 31.12.14; was written up to its cost, ` 1,00,000 for preparing
Profit and Loss account for the year 2015.
Solution:

Funds Flow Statement

Sources of fund Amount (`) Applications of fund Amount (`)

Sale of Fixed Assets 25,000 Increase in Working Capital 50,000
Funds from Operation 2,95,000 Purchase of Fixed Assets 2,20,000
Issue of shares 50,000 Purchase of Investments 50,000
Debentures 1,00,000 Redemption of Preference Shares 1,05,000
Dividend paid 45,000
4,70,000 4,70,000

Working note:
1. Changes in Working Capital

2014 2015
Current Assets 2,40,000 3,75,000
(+) Stock under valued 10,000
2,50,000 3,75,000
Current Liabilities 70,000 1,45,000
Net Working Capital 1,80,000 2,30,000
Increase in Working Capital 50,000

2. Depreciation

(`)
Opening Provision 1,50,000
(-) Provided on sale of asset 30,000
1,20,000
(+) Provided during the year (b/f) 70,000
Closing provision 1,90,000

3. Purchase & sale of Fixed Assets

(`)
Opening (2016) 5,10,000
(-) Provided on sale of asset 40,000
(-) Sold 4,70,000
(-) Depreciation provided 70,000
4,00,000
(+) Purchases (b/f) 2,20,000
Closing (2016) 6,20,000
 P&L Adjustment A/c

Particulars Amount Particulars Amount

(`) (`)
To Depreciation 70,000 By Balance b/d (110000+10000) 1,20,000
To Loss on Sale of Fixed Assets 15,000 By Funds from Operations 2,95,000
To Loss on Redemption of Shares 5,000 By Funds from Operations (Bal. figure)
To Discount written off 5,000
To Provision for Doubtful debt 5,000
To Dividend 45,000
To Balance c/d 2,70,000
4,15,000 4,15,000

Illustration 15
The directors of Chintamani Ltd. present you with the Balance Sheets as on 30th June, 2015 and 2016
and ask you to prepare statements which will show them what has happened to the money which
came into the business during the year 2016.

(`) (`)
Liabilities: 30.6.15 30.6.16
Authorised Capital 15,000 shares of ` 100 each 15,00,000 15,00,000
Paid up capital 10,00,000 14,00,000
Debentures (2016) 4,00,000 ---
General Reserve 60,000 40,000
P & L Appropriation A/c 36,000 38,000
Provision for the purpose of final dividends 78,000 72,000
Sundry Trade Creditors 76,000 1,12,000
Bank Overdraft 69,260 1,29,780
Bills Payable 40,000 38,000
Loans on Mortgage – 5,60,000
17,59,260 23,89,780
Assets
Land & Freehold Buildings 9,00,000 9,76,000
Machinery and Plant 1,44,000 5,94,000
Fixtures and Fittings 6,000 5,500
Cash in hand 1,560 1,280
Sundry Debtors 1,25,600 1,04,400
Bills Receivable 7,600 6,400
Stock 2,44,000 2,38,000
Prepayments 4,500 6,200
Share in other companies 80,000 2,34,000
Goodwill 2,40,000 2,20,000
Preliminary expenses 6,000 4,000
17,59,260 23,89,780
You are given the following additional information:
(a) Depreciation has been charged (i) on Freehold Buildings @ 2½% p.a. on cost `10,00,000. (ii) on
Machinery and Plant `32,000 (iii) on Fixtures and Fittings @5% on cost, `10,000. No depreciation has
been written off on newly acquired Building and Plant and Machinery.
(b) A piece of land costing `1,00,000 was sold in 2016 for `2,50,000. The sale proceeds was credited to
Land and Buildings.
(c) Shares in other companies were purchased and dividends amounting to `6,000 declared out of
profits made prior to purchase has received and used to write down the investment (shares).
(d) Goodwill has been written down against General Reserve.
(e) The proposed dividend for the year ended 30th June 2015 was paid and, in additions, an interim
dividend, `52,000 was paid.
Solution:
Funds Flow Statement

Sources of fund Amount (`) Applications of fund Amount (`)

Decrease in Working capital 1,21,500 Purchase of land and building 2,01,000
Sale proceed of land 2,50,000 Purchase of plant and machinery 4,82,000
Dividend received 6,000 Purchase of shares 1,60,000
Issue of shares 4,00,000 Redemption of debentures 4,00,000
Loan 5,60,000 Dividends for 2011 paid 78,000
Funds from operations 35,500 Interim dividend paid 52,000
13,73,000 13,73,000

Working Note
1. Changes in working capital

2015 2016
Current Assets
Cash 1,560 1,280
Debtors 1,25,600 1,04,400
Bills Receivable 7,600 6,400
Prepaid 4,500 6,200
Stock 2,44,000 2,38,000
3,83,260 3,56,280
Current liabilities
Creditors 76,000 1,12,000
Overdraft 69260 1,29,780
Bills Payable 40,000 38,000
1,85,260 2,79,780
Working Capital 1,98,000 76,500

Decrease in working capital 1,21,500

Working note No. 2: Depreciation

On Buildings 25,000
On Plant & Machinery 32,000
On Furniture & Fittings 500
57,500
3. Purchase or sale of Fixed Assets / Investments:
Land and buildings:

(`)
WDV (2015) 9,00,000
(-) Depreciation 25,000
8,75,000
(-) Land sold 2,50,000
6,25,000
(+) Purchases (b/f) 2,01,000
(+) Profit on sale 8,26,000
WDV (2016) 1,50,000
Plant & machinery:

(`)
WDV (2015) 9,76,000
(-) Depreciation 1,44,000
32,000
(+) Purchase (b/f) 1,12,000
WDV (2016) 4,82,000
5,94,000
Investments:

(`)
WDV (2015) 80,000
(-) Dividend in capital nature 6,000
74,000
(+) Purchases (b/f) 1,60,000
WDV (2016) 2,34,000
4. P & L Adjustment A/c

Particulars Amount (`) Particulars Amount (`)

To depreciation 57,500 By Balance b/d 36,000
To dividend proposed 72,000 By Profit on sale of Land 1,50,000
To preliminary expenses written off 2,000 By funds from operation (bal figure) 35,500
To interim dividend 52,000
To balance c/d 38,000
2,21,500 2,21,500
Illustration 16
The following is the Balance Sheets of the Andhra Industrial Corporation Ltd. as on 31st December 2015
and 2016.
BALANCE SHEET

Assets: 2015 2016

Fixed Assets: Property 1,48,500 1,44,250
Machinery 1,12,950 1,26,200
Goodwill ---- 10,000
Current Assets: Stock 1,10,000 92,000
Trade Debtors 86,160 69,430
Cash at Bank 1,500 11,000
Pre-payments 3,370 1,000
4,62,480 4,53,880
Liabilities:
Shareholders funds: Paid up Capital 2,20,000 2,70,000
Reserves 30,000 40,000
Profit and Loss Account 39,690 41,220
Current Liabilities: Creditors 39,000 41,660
Bills Payable 33,790 11,000
Bank Overdraft 60,000 –
Provision for taxation 40,000 50,000
4,62,480 4,53,880

During the year ended 31st December, 2016, a divided of ` 26,000 was paid and assets of another
company were purchased for ` 50,000 payable in fully paid-up shares. Such assets purchased were:
Stock ` 21,640; Machinery ` 18,360; and Goodwill ` 10,000. In addition Plant at a cost of ` 5,650 was
purchased during the year; depreciation on Property ` 4,250; on Machinery ` 10,760. Income tax during
the year amounting to ` 28,770 was charged to provision for taxation. Net profit for the year before tax
was ` 76,300.
Prepare Funds Flow Statement for the year 2016.

Solution:
Funds Flow Statement

Sources Amount (`) Applications Amount (`)

Issue of shares for stock 21,640 Increase in working capital 52,530
Funds from operation 91,310 Purchase of machinery 5,650
Tax paid 28,770
Dividend paid 26,000
1,12,950 1,12,950
Working Note:
Provision for Tax A/c

Particulars Amount (`) Particulars Amount (`)

To Cash paid 28,770 By balance b/d 40,000
To Balance c/d 50,000 By P&L A/c (b/f) 38,770
78,770 78,770
Verification of P & L A/c Balance

(`) (`)
Opening P & L a/c 39,690
(+) net profit as per P & L A/c 76,300
(-) provision for tax 38,770
37,530
(-) dividend 26,000
(-) transfer to reserve 10,000
Retained 1,530
Profit at the end of the year 41,220

Changes in Working Capital

(`) (`)
Opening Closing
Current assets :
Stock 1,10,000 92,000
Debtors 86,160 69,430
Cash 1,500 11,000
Pre-Payment 3,370 1,000
2,01,030 1,73,430
Current liabilities
Creditors 39,000 41,660
Bills payable 33,790 11,000
Overdraft 60,000 52,660
1,32,790
Net Working Capital 68,240 1,20,770
Increase in Working Capital 52,530

4. Depreciation provided during the year

On Property 4,250
On machinery 10,760
15,010
5. Purchase/sale of Fixed Assets

Property Machinery
WDV opening 1,48,500 1,12,950
(-) Depreciation 4,250 10,760
1,44,250 1,02,190
(+) Purchases Ni 18,360 (by issue of shares)
WDV at the end 5,650 (by cash)
1,44,250 1,26,200

Dr. P & L Adjustment A/c Cr.

Particulars Amount (`) Particulars Amount (`)

To Depreciation 15,010 By Balance b/d 39,690
To Dividend 26,000 By Funds from Operations(b/f) 91,310
To Transfer to reserve 10,000
To Provision for tax 38,770
To Balance c/d 41,220
1,31,000 1,31,000

Illustration 17
The following is the Balance Sheet of Gama Limited for the year ending March 31, 2015 and March 31,
2016;

Particulars 2015 (`) 2016 (`)

Capital and Liabilities
Share Capital 6,75,000 7,87,500
General Reserves 2,25,000 2,81,250
Capital Reserve (Profit on Sale of Investment) -- 11,250
Profit & Loss Account 1,12,500 2,25,000
15% Debentures 3,37,500 2,25,000
Accrued Expenses 11,250 13,500
Creditors 1,80,000 2,81,250
Provision for Dividends 33,750 38,250
Provision for Taxation 78,750 85,500
Total 16,53,750 19,48,500
Assets
Fixed Assets 11,25,000 13,50,000
Less: Accumulated depreciation 2,25,000 2,81,250
Net Fixed Assets 9,00,000 10,68,750
Long – Term Investments (at cost) 2,02,500 2,02,500
 Stock (at cost) 2,25,000 3,03,750
Debtors (net of provision for doubtful debts of ` 45,000 and ` 56,250 2,53,125 2,75,625
respectively for 2015 and 2016 respectively)
Bills receivables 45,000 73,125
Prepaid Expenses 11,250 13,500
Miscellaneous Expenditure 16,875 11,250
Total 16,53,750 19,48,500

Additional Information:
1. During the year 2015-16, fixed assets with a net book value of `11,250 (accumulated depreciation,
` 33,750) was sold for ` 9,000.
2. During the year 2015-16, Investments costing `90,000 were sold, and also Investments costing
`90,000 were purchased.
3. Debentures were retired at a Premium of 10%.
4. Tax of `61,875 was paid for 2015-16.
5. During the year 2015-16, bad debts of ` 15,750 were written off against the provision for Doubtful
Debt account.
6. The proposed dividend for 2007-2008 was paid in 2015-16.

Required:
Prepare a Fund Flow Statement (Statement of changes in Financial Position on working capital basis)
for the year ended March 31, 2016.

Solution:
In the books of Gama Ltd.
Fund Flow Statement
For the year ended March 31, 2016

Sources of Fund Amount Application of Funds Amount

(`) (`)
Increase in Share Capital 1,12,500 Debenture Redemption 1,12,500
Sale of Assets 9,000 Redemption Premium 11,250
Fund from operation 3,84,750 Tax paid 61,875
Sale of Investment 1,01,250 Dividend paid 33,750
Increase in WC 28,125
Purchase of fixed assets 2,70,000
Purchase of investment 90,000
6,07,500 6,07,500
Working Notes:
Statement showing funds from Operations

Particulars Amount (`) Amount (`)

Net Profit [2,25,000 – 1,12,500] 1,12,500
Add: Transfer to General Reserve (2,81,250 – 2,25,000) 56,250
Loss on sale of fixed assets (11,250 – 9,000) 2,250
Premium on Redemption of Debentures (1,12,500 × 10%) 11,250
Provision for Tax 68,625
Provision for Dividend 38,250
Depreciation 90,000
Misc. exp. w/off 5,625 2,72,250
Funds from Operation (16,875 – 11,250) 3,84,750

Statement showing changes in Working Capital

Particulars Amount (`) Amount (`)

2015 2016
Current Assets
Stock 2,25,000 3,03,750
Debtors 2,53,125 2,75,625
Bills Receivables 45,000 73,125
Prepaid Expenses 11,250 13,500
Total Current Assets (A) 5,34,375 6,66,000
Current Liabilities
Accrued Expenses 11,250 13,500
Creditors 1,80,000 2,81,250
Total Current Liabilities 1,91,250 2,94,750
Working Capital (A) – (B) 3,43,125 3,43,125
Increase in Working Capital 28,125

Provision for Doubtful Debt A/c

Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Bad Debts 15,750 By Balance b/d 45,000
To Balance c/d 56,250 By P & L A/c 27,000
72,000 72,000

Provision for Dividends

Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Div. paid 33,750 By Balance b/d 33,750
To Balance c/d 38,250 By P & L A/c 38,250
72,000 72,000
 Provision for Tax
Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Tax paid 61,875 By Balance b/d 78,750
To Balance c/d 85,500 By P & L A/c 68,625
1,47,375 1,47,375
Accumulated Depreciation A/c
Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Asset sold 33,750 By Balance b/d 2,25,000
To Balance c/d 2,81,250 By P & L A/c 90,000
3,15,000 3,15,000
Fixed Assets A/c
Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Balance b/d 11,25,000 By Account Depreciation 33,750
To Bank 2,70,000 By Bank 9,000
By P & L A/c 2,250
By Balance c/d 13,50,000
13,95,000 13,95,000

ILLUSTRATIONS – CASH FLOW STATEMENT

Illustration 18
From the information contained in Income Statement and Balance Sheet of ‘A’ Ltd, prepare Cash Flow
Statement.
Income Statement for the year ended March 31, 2016

(`)
Net Sales (A) 2,52,00,000
Less:
Cash cost of sales 1,98,00,000
Depreciation 6,00,000
Salaries and Wages 24,00,000
Operating Expenses 8,00,000
Provision for Taxation 8,80,000
(B) 2,44,80,000
Net Operating Profit (A – B) 7,20,000
Non-recurring Income – Profits on sale of equipment 1,20,000
8,40,000
 Retained earnings and Profits brought forward 15,18,000
23,58,000
Dividends declared and paid during the year 7,20,000
Profit and Loss A/c balance as on March 31, 2016 16,38,000

Balance Sheet as on

(`) (`)
Assets March 31, 2015 March 31, 2016

Fixed Assets:
Land 4,80,000 9,60,000
Buildings and Equipment 36,00,000 57,60,000
Current Assets:
Cash 6,00,000 7,20,000
Debtors 16,80,000 18,60,000
Stock 26,40,000 9,60,000
Advances 78,000 90,000
90,78,000 1,03,50,000
Balance Sheet as on

(`) (`)
Liabilities and Equity March 31, 2015 March 31, 2016
Share Capital 36,00,000 44,40,000
Surplus in Profit and Loss A/c 15,18,000 16,38,000
Sundry Creditors 24,00,000 23,40,000
Outstanding Expenses 2,40,000 4,80,000
Income – Tax payable 1,20,000 1,32,000
Accumulated Depreciation on Buildings and Equipment 12,00,000 13,20,000
90,78,000 1,03,50,000
The original cost of equipment sold during the year 2015-16 was ` 7,20,000.

Solution:
Working Notes:
1. Cash receipt from customers

(`)
Sales revenue 2,52,00,000
Add: Debtor at beginning 16,80,000
2,68,80,000
Less: Debtor at the end 18,60,000
Total cash receipt from customer 2,50,20,000
2. Income tax paid

(`)
Tax payable at beginning 1,20,000
Add: Provision for taxation 8,80,000
10,00,000
Less: Tax payable at the end 1,32,000
Tax paid during the year 8,68,000
3. Cash paid to supplier & employee

(`) (`)
Cost of goods sold 1,98,00,000
Add: Operating expenses 8,00,000
Salary and wages 24,00,000
2,30,00,000
Add: Creditor at the beginning 24,00,000
Stock at the end 9,60,000
Advance at the end 90,000
Outstanding exp. at the beginning 2,40,000 36,90,000
2,66,90,000
Less: Creditors at the end 23,40,000
Stock at the beginning 26,40,000
Advance at the beginning 78,000
Outstanding expenses at the end 4,80,000 55,38,000
Total Cash Paid 2,11,52,000

4. Accumulated depreciation on equipment sold

(`)
Accumulated depreciation at beginning 12,00,000
Add: Depreciation for the year 6,00,000
18,00,000
Less: Accumulated depreciation at the end 13,20,000
Accumulated depreciation on equipment sold 4,80,000

5. Sale price of equipment

(`)
Cost Price 7,20,000
Less: Accumulated depreciation 4,80,000
2,40,000
Add: Profit on sale 1,20,000
Sale price 3,60,000
6. Purchase of building and equipments

(`)
Opening balance 36,00,000
Less: Cost of equipment sold 7,20,000
28,80,000
Balance at end 57,60,000
Purchase during the year 28,80,000

Cash Flow Statement of A Ltd. for the year ended 31st March 2016

(A) Cash flow from Operating Activity: (`) (`)

Cash receipt from customers 2,50,20,000
Less: Cash paid to supplier & employees 2,11,52,000
Cash generated from operation 38,68,000
Less: Income tax paid (8,68,000)
Net cash from operating activity 30,00,000
(B) Cash flow from Investing Activity:
Purchase of land (4,80,000)
Purchase of building & equipment (28,80,000)
Sale of equipment 3,60,000
Net cash used in financing activity (30,00,000)
(C) Cash flow from Financing Activity:
Issue of share capital 8,40,000
Dividends paid (7,20,000)
Net cash from financing activity 1,20,000
Net increase in cash & cash equivalent 1,20,000
Cash & Cash equivalent at beginning 6,00,000
Cash & Cash equivalent at the end 7,20,000

Illustration 19
The Balance Sheet of JK Limited as on 31st March, 2015 and 31st March, 2016 are given below:
Balance Sheet as on
(` ‘000’)
Liabilities 31.03.15 31.03.16 Assets 31.03.15 31.03.16
Share Capital 1,440 1,920 Fixed Assets 3,840 4,560
Capital Reserve -- 48 Less: Depreciation 1,104 1,392
General Reserve 816 960 Net Fixed Asset 2,736 3,168
Profit and Loss A/c 288 360 Investment 480 384
9% Debenture 960 672 Cash 210 312
Current Liabilities 576 624 Other Current Assets
Proposed Dividend 144 174 (including Stock) 1,134 1,272
Provision for Tax 432 408 Preliminary Expenses 96 48
Unpaid Dividend -- 18
4,656 5,184 4,656 5,184
Additional Information:

1. During the year 2015-2016, Fixed Assets with a book value of `2,40,000 (accumulated depreciation
` 84,000) was sold for ` 1,20,000.

2. Provided ` 4,20,000 as depreciation.

3. Some investments are sold at a profit of `48,000 and profit was credited to Capital Reserve.

4. It decided that stocks be valued at cost, whereas previously the practice was to value stock at
cost less 10 per cent. The stock was ` 2,59,200 as on 31.03.15. The stock as on 31.03.16 was correctly
valued at ` 3,60,000.

5. It decided to write off Fixed Assets costing `60,000 on which depreciation amounting to ` 48,000
has been provided.

6. Debentures are redeemed at ` 105.

Required:
Prepare a Cash Flow Statement.

Solution:
Cash Flow Statement (as on 31st March, 2016)

(`) (`) (`)

1. Cash flows from Operating Activities
Profit and Loss A/c [3,60,000 -(2,88,000 + 28,800)] 43,200
Adjustments:
Increase in General Reserve 1,44,000
Depreciation 4,20,000
Provision for Tax 4,08,000
Loss on Sale of Machine 36,000
Premium on Redemption of debenture 14,400
Proposed Dividend 1,74,000
Preliminary Exp written off 48,000
Fixed Assets written off 12,000 12,56,400
Funds from operation 12,99,600
Increase in Sundry Creditors 48,000
Increase in Current Assets [12,72,000 -(11,34,000 + 28,800)] (1,09,200)
Cash before Tax 12,38,400
Tax paid 4,32,000
Net Cash from operating activities 8,06,400
2. Cash from Investing Activities
Purchase of fixed assets (10,20,000)
Sale of Investment 1,44,000
Sale of Fixed Assets 1,20,000 (7,56,000)
 3. Cash from Financing Activities
Issue of Share Capital 4,80,000
Redemption of Debenture (3,02,400)
Dividend paid (1,26,000) 51,600
Net increase in Cash and Cash equivalents 1,02,000
Opening Cash and Cash equivalents 2,10,000
Closing Cash 3,12,000

Working Notes:
Fixed Assets Account
Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 27,36,000 By Cash 1,20,000
To Purchases (balancing figure) 10,20,000 By Loss on sales 36,000
By Depreciation 4,20,000
By Assets written off 12,000
By Balance c/d 31,68,000
37,56,000 37,56,000

Depreciation Account
Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Fixed Assets (on sales) 84,000 By Balance b/d 11,04,000
To Fixed Assets w/o 48,000 By Profit and Loss A/c 4,20,000
To Balance c/d 13,92,000
15,24,000 15,24,000

Illustration 20
Balance Sheets of a company as on 31st March, 2015 and 2016 were as follows:
(`‘000’)
Liabilities 31.03.15 31.03.16 Assets 31.03.15 31.03.16
Equity share capital 10,00,000 10,00,000 Goodwill 1,00,000 80,000
8% Pref. Share capital 2,00,000 3,00,000 Land and Building 7,00,000 6,50,000
General Reserve 1,20,000 1,45,000 Plant and Machinery 6,00,000 6,60,000
Securities Premium --- 25,000 Investments (non trading) 2,40,000 2,20,000
Profit & Loss A/c. 2,10,000 3,00,000 Stock 4,00,000 3,85,000
11% Debentures 5,00,000 3,00,000 Debtors 2,88,000 4,15,000
Creditors 1,85,000 2,15,000 Cash and Bank 88,000 93,000
Provision for tax 80,000 1,05,000 Prepaid Expenses 15,000 11,000
Proposed Dividend 1,36,000 1,44,000 Premium on Redemption of debenture --- 20,000
24,31,000 25,34,000 24,31,000 25,34,000
Additional Information:
1. Investments were sold during the year at a profit of ` 15,000.
2. During the year an old machine costing ` 80,000 was sold for ` 36,000. Its written down value was `
45,000.
3. Depreciation charged on Plant and Machinery @ 20% on the opening balance.
4. There was no purchase or sale of Land and Building.
5. Provision for tax made during the year was ` 96,000.
6. Preference shares were issued for consideration of cash during the year.
You are required to prepare:
a. Cash Flow Statement as per AS-3.
b. Schedule of changes in Working Capital.

Solution:
a. Cash Flow Statement as per AS-3.
Cash Flow Statement for the year ending 31st March, 2016

Particulars Amount (`) Amount (`)

A Cash flow from Operating Activities
Profit and Loss A/c as on 31.3.2016 3,00,000
Less: Profit and Loss A/c as on 31.3.2015 2,10,000
90,000
Add: Transfer to General Reserve 25,000
Provision for Tax 96,000
Proposed Dividend 1,44,000 2,65,000
Profit before Tax 3,55,000
Adjustment for Depreciation
Land and Building 50,000
Plant and Machinery 1,20,000 1,70,000
Profit on Sale of Investments (15,000)
Loss on Sale of Plant and Machinery 9,000
Goodwill written off 20,000
Interest on Debenture 33,000
Operating Profit before Working Capital changes 5,72,000
Adjustment for Working Capital changes:
Decrease in Prepaid Expenses 4,000
Decrease in Stock 15,000
Increase in Debtors (1,27,000)
Increase in Creditors 30,000
Cash generated from Operations 4,94,000
Income tax paid (71,000)
Net Cash Inflow from Operating Activities (a) 4,23,000
 B Cash flow from Investing Activities
Sale of Investment 35,000
Sale of Plant and Machinery 36,000
Purchase of Plant and Machinery (2,25,000)
Net Cash Outflow from Investing Activities (b) (1,54,000)
C Cash flow from Financing Activities
Issue of Preference Shares 1,00,000
Premium received on issue of securities 25,000
Redemption of Debentures at a premium (2,20,000)
Dividend paid (1,36,000)
Interest paid to Debenture holders (33,000)
Net Cash outflow from Financing Activities (c) (2,64,000)
Net increase in Cash and Cash Equivalents during the year (a+b+c) 5,000
Cash and Cash Equivalents at the beginning of the year 88,000
Cash and Cash Equivalents at the end of the year. 93,000
Working Notes:
Provision for the Tax Account
Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Bank (paid) 71,000 By Balance b/d 80,000
To Balance c/d 1,05,000 By Profit and Loss A/c 96,000
1,76,000 1,76,000

Investment Account
Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 2,40,000 By balance (bal fig) 35,000
To profit and loss (profit on sale) 15,000 By balance c/d 2,20,000
2,55,000 2,55,000

Plant & Machinery Account

Dr. Cr.

Particulars Amount (`) Particulars Amount (`)

To Balance b/d 6,00,000 By Bank (sale) 36,000
To Bank A/c (Purchase) 2,25,000 By Profit and Loss A/c (loss on sale) 9,000
By Depreciation 1,20,000
By Balance c/d 6,60,000
8,25,000 8,25,000
Note:
In this question, the date of redemption of debentures is not mentioned. So, it is assumed that the
debentures are redeemed at the beginning of the year.
b. Schedule of change in Working Capital

31 March 31 March Changes in Working Capital

Particulars
2015 (`) 2016 (`) Increase (`) Decrease (`)
Current Assets
Stock 4,00,000 3,85,000 -- 15,000
Debtors 2,88,000 4,15,000 1,27,000 --
Prepaid Expenses 15,000 11,000 -- 4,000
Cash and Bank 88,000 93,000 5,000 --
Total (A) 7,91,000 9,04,000
Current Liabilities
Creditors 1,85,000 2,15,000 -- 30,000
Total (B) 1,85,000 2,15,000
Working Capital (A-B) 6,06,000 6,89,000 83,000
Increase in Working Capital 83,000 -- --
6,89,000 6,89,000 1,32,000 1,32,000

Illustration 21
The Balance Sheets of a company as on 31st March, 2015 and 2016 are given below:
(`)

Liabilities 31.03.15 31.03.16 Assets 31.03.15 31.03.16

Equity Share Capital 14,40,000 19,20,000 Fixed Assets 38,40,000 45,60,000
Capital Reserve -- 48,000 Less: Depreciation (11,04,000) (13,92,000)
General Reserve 8,16,000 9,60,000 27,36,000 31,68,000
Profit & Loss A/c 2,88,000 3,60,000 Investment 4,80,000 3,84,000
9% Debentures 9,60,000 6,72,000 Sundry Debtors 12,00,000 14,00,000
Sundry Creditors 5,50,000 5,90,000 Stock 1,40,000 1,84,000
Bills Payable 26,000 34,000 Cash in hand 4,000 --
Proposed Dividend 1,44,000 1,72,800 Preliminary Expenses 96,000 48,000
Provision for tax 4,32,000 4,08,000
Unpaid dividend -- 19,200
46,56,000 51,84,000 46,56,000 51,84,000

Additional Information:
During the year ended 31st March, 2016 the company:
1. Sold a machine for ` 1,20,000; the cost of machine was ` 2,40,000 and depreciation provided on it
was ` 84,000.
2. Provided ` 4,20,000 as depreciation on fixed assets.
3. Sold some investment and profit credited to capital reserve.
4. Redeemed 30% of the debenture @ 105.
5. Decided to write off fixed assets costing ` 60,000 on which depreciation amounting to ` 48,000 has
been provided.
You are required to prepare Cash Flow Statement as per AS-3.

Solution:
Cash Flow Statement for the year ending 31st March, 2016

Particulars Amount (`) Amount (`)

A Cash flow from Operating Activities
Profit and Loss A/c (3,60,000 – 2,88,000) 72,000
Adjustments:
Increase in General Reserve 1,44,000
Depreciation 4,20,000
Provision for Tax 4,08,000
Loss on Sale of Machine 36,000
Premium on Redemption of Debentures 14,400
Proposed Dividend 1,72,800
Preliminary Expenses written off 48,000
Fixed Assets written of 12,000
Interest on Debentures 60,480 13,15,680
Funds from Operations 13,87,680
Increase in Sundry Creditors 40,000
Increase in Bills Payable 8,000
48,000
Increase in Sundry Debtors (2,00,000)
Increase in Stock (44,000) (1,96,000)
Cash before tax 11,91,680
Less: Tax paid 4,32,000
Cash in flows from Operating Activities 7,59,680
B Cash in flows from Investing Activities
Purchase of Fixed Assets (10,20,000)
Sale of Investment 1,44,000
Sale of Fixed Assets 1,20,000
Cash out flows from Investing Activities (7,56,000)
C Cash Flows from Financing Activities
Issue of share capital 4,80,000
Redemption of Debentures (3,02,400)
Dividend Paid (1,44,000 – 19,200) (1,24,800)
Interest on Debentures (60,480)
Cash outflow from Financing Activities (7,680)
Net Increase in Cash and Cash Equivalents (4,000)
Cash and Cash Equivalents at the beginning of the year 4,000
Cash and Cash Equivalents at the end of the year Nil
Working Note:
(1) It is presumed that the 30 percent debentures have been redeemed at the beginning of the year.
(2)
Dr. Fixed Assets Account Cr.

Particulars Amount (`) Particulars Amount (`)

To Balance b/d 27,36,000 By Cash 1,20,000
To Purchases (balance figure) 10,20,000 By Loss on sales 36,000
By Depreciation 4,20,000
By Assets written off 12,000
By Balance c/d 31,68,000
37,56,000 37,56,000

Illustration 22
The summarized Balance Sheet of XYZ Limited as at 31st March, 2015 and 2016 are given below:

Liabilities 2015 (`) 2016 (`) Assets 2015 (`) 2016 (`)
Preference share capital 4,00,000 2,00,000 Plant and Machinery 7,00,000 8,20,000
Equity share capital 4,00,000 6,60,000 Long term investment 3,20,000 4,00,000
Share Premium A/c 40,000 30,000 Goodwill --- 30,000
Capital Redemption --- 1,00,000 Current Assets 9,10,000 11,41,000
Reserve
General Reserve 2,00,000 1,20,000 Short term investment (less 50,000 84,000
than 2 months)
P & L A/c 1,30,000 1,75,000 Cash and Bank 1,00,000 80,000
Current Liabilities 6,40,000 9,00,000 Preliminary Expenses 40,000 20,000
Proposed Dividend 1,60,000 2,10,000
Provision for tax 1,50,000 1,80,000
21,20,000 25,75,000 21,20,000 25,75,000

Additional Information:
During the year 2016 the company:
1. Preference share capital was redeemed at a premium of 10% partly out of proceeds issue of 10,000
equity shares of `10 each issued at 10% premium and partly out of profits otherwise available for
dividends.
2. The company purchased plant and machinery for `95,000. It also acquired another company stock
`25,000 and plant and machinery `1,05,000 and paid `1,60,000 in Equity share capital for the
acquisition.
3. Foreign exchange loss of `1,600 represents loss in value of short term investment.
4. The company paid tax of `1,40,000.
You are required to prepare Cash Flow Statement.
Solution:
Cash Flow Statement as per AS 3 for the year ending 31st March, 2016
Particulars Amount (`) Amount (`)
A Cash flow from Operating Activities
Profit before tax (2,75,000 + 1,70,000) 4,45,000
Add: Depreciation on machinery 80,000
Foreign exchange loss 1,600
Preliminary expenses written off 20,000
Cash flow before working capital adjustment 5,46,600
Add: Stock acquired from other company 25,000
Increase in Current Liabilities 2,60,000
Less: Increase in Current Assets (2,31,000)
Cash flow before tax paid 6,00,600
Less: Tax paid (1,40,000)
Cash flow from operating activities 4,60,600
B Cash flow from Investing Activities
Purchase of Machinery (95,000)
Purchase of Investment (80,000) (1,75,000)
C Cash flow from Financing Activities
Issue of shares at premium 1,10,000
Payment of Dividend (1,60,000)
Redemption of preference shares at premium (2,20,000) (2,70,000)
Net increase/decrease in cash and cash equivalent (a+b+c) 15,600
Cash and cash equivalent at the beginning of the year 1,50,000
Cash and cash equivalent at the end of the year 1,65,600

Working Notes:
Dr. Plant and Machinery Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 7,00,000 By Depreciation (balancing figure) 80,000
To Bank A/c 95,000 By Balance c/f 8,20,000
To acquired from other 1,05,000
9,00,000 9,00,000

Dr. Provision for Tax Account Cr.

Particulars Amount (`) Particulars Amount (`)
To Bank A/c 1,40,000 By Balance b/d 1,50,000
To Balance c/f 1,80,000 By P & L 1,70,000
3,20,000 3,20,000

Dr. Profit for the year 2016 Cr.

Particulars Amount (`)
P & L Account (1,75,000 – 1,30,000) 45,000
Transfer to general reserve (1,20,000 + 1,00,000 for Redemption – Opening 2,00,000) 20,000
Proposed dividend 2,10,000
Net profit 2,75,000
4. Cash and Cash Equivalent
Opening balance + Short term investment =
1,00,000 + 50,000 = `1,50,000. Closing balance =
Closing cash + Short term investment + Foreign
exchange loss
= 80,000 + 84,000 + 1,600 = `1,65,600