Cash flow statement

Computation of Cash flows from operations

Indirect method

Illustration –Profit & loss Account for the year ended 31st March, 2009

Particulars Rs. Particulars Rs.

Administration expenses 15,000 Gross Profits 45,000

Depreciation 12,000 Profit on sale of machinery 4,000

Loss on sale of plant 1,000

Goodwill w/off 4,000

Provision of taxation 5,000

Net profits 12,000

49,000 49,000

Additional information 31.03.08 31.03.09

Stock 22,000 27,000

Debtors 20,000 19,000

Prepaid insurance 1,000 1,200

Creditors 7,000 8,000

Salaries o/s 2,000 2,500

Net profits as per profit and loss account 1

Adjustment for non-cash expenses/incomes: 2

Add: Non-cash expenses +

Deduct: Non-cash incomes -

Adjustment for non-operating incomes and losses: 3

Add: non-operating losses +

Deduct: non-operating incomes -

Adjustment for working capital changes: 4

Add: ↓ in current assets +

↑ in current liability +

Deduct: ↑ in current assets -

↓ in current liability -

Cash flows operating activities before payment of taxes

1 (+/-) 2, 3, 4

Tax payments -

Cash flows operating activities after tax payments

Based on accounting equation

Assets = Liabilities + CapitalCA + NCA = CL + NCL + CCash + AR + Inv + Mar. sec. + NCA = CL + NCL + CCash= CL + NCL + C – AR – Inv – Mar. sec. – NCA • CL + NCL + C have positive relation with cash • – AR – Inv – Ppd exp – NCA have negative

relation with cash

Illustration –Profit & loss Account for the year ended 31st March, 2009

Particulars Rs. Particulars Rs.

Administration expenses 15,000 Gross Profits 45,000

Depreciation 12,000 Profit on sale of machinery 4,000

Loss on sale of plant 1,000

Goodwill w/off 4,000

Provision of taxation 5,000

Net profits 12,000

49,000 49,000

Additional information 31.03.08 31.03.09

Stock 22,000 27,000

Debtors 20,000 19,000

Prepaid insurance 1,000 1,200

Creditors 7,000 8,000

Salaries o/s 2,000 2,500

Net profits 12,000

Adjustment for non-fund and non-recurring expenses/incomes:

Add: Depreciation 12,000

Goodwill written off 4,000

Provision for taxation 5,000 21,000

Adjustment for gains/losses on non-current assets:

Add: Loss on sale of plant 1,000

Less: Profit on sale of land (4,000) (3,000)

Adjustment for working capital changes:

Add: ↓ in debtors 1,000

↑ in creditors 1,000

↑ in salary o/s 5,00

Less: ↑ in stock (5,000)

↑ in prepaid insurance (2,00) (2,700)

Cash from operating activities 27,300

Cash from investing activities

Add: Sale of non-current assets -

Sale of long term investment -

Dividend received -

Interest received on long term investment -

Deduct: Purchase of non-current assets -

Purchase of long term investment -

Cash from investing activities -

Illustration - Kanishk• The following transactions occur at Kanishk

Enterprises:

Particulars Amount (Rs.)

Purchased a machinery for 1,50,000

Sold shares worth 2,00,000

Received interest on debentures 10,000

Received dividend on shares held 20,000

Sold old machinery 50,000

Solution

Cash Flow from Investing Activities:Sale of Shares 2,00,000Interest received 10,000Sale proceeds of old machinery 50,000Dividend received 20,000 2,80,000Less: Outflow on account of machine purchase 1,50,000 Cash flow from Investing Activities 1,30,000

Kanishk EnterprisesCash Flow Statement

Cash from financing activities

Add: Issue of share capital -Issue of debentures -

Raising long term loans -Less: Redemption of debentures -Repayment of long term loans -

Dividends paid -Interest paid -

Cash from financing activities -

Cash from Financing ActivitiesSupposing during the year Kanishk

Enterprises has taken a loan of Rs 1,50,000 and paid an interest of Rs 15,000 thereon, how much is the cash flow from financing activities

Cash flow from financing activities = Rs 1,35,000 (i.e., 1,50,000 - 15,000)

Preparing a Cash Flow StatementCASH FLOW STATEMENT

Cash from operating activities 1

Add: cash from investing activities 2

Add: cash from financing activities 3

Cash generated during the year 1+2+3

Add: Cash at the beginning of the year 4 (From BS)

Cash at the end of the year 1+2+3+4