,UJI

Cash Flow Statement-Based on

Accounting Standard-3 (Revised)
; (Only for Non-Financing Companies)

TEARNING OBIECTIVES MEANING OF KEY TERMS USED

The Study of thls Chapter would
IN THE CHAPTER
enable you to underctand: 1. Cash Flow Statement
. Meaning of Cash Flow and Casn It is the statement that shows flow of Cash and Cash
Flow Statement Equivalents during the period under report.
. Oblectives of Cash Flow Statement 2. Cash Flows
. lmportance or Uses of Cash Flow These are the inflows (receipts) and outflows (payments) of.Cash
Statement and Cash Equivalents.
. Limitations of Cash Flovr; Statement
3. Cash
. lmportant Definitions as pe' lt compnsqs of Cash on Hand and demand deposits with banks.
Accounting Standard-3 (Revised)
. t1"f".tl""tt
preparalion of cash Ftow state- l:"-tl .
these are short_term, highly liquid investrirents that are readily
menr convertible into known amount of casn and which are subject
to an insignificant risk of change in value. An investment normally qualifies as cash equivalent only
when it has short maturity period of, say, three months 0r less from the dare of acqulsition, Le.,
purcnase.
As per the Guidelines of the Council, Short-term Investments, Marketable Securittes and tsank
Overdraft/Cash Credit are to be taken as Cash and Cash Equivalents.
Cash equivalents are held for the purpose of meeting short-term cash commitments rather than
for investment or other purposes.

,l 5. Operating Activities
These are the principal revenue producing activities of the enterprise and other actlvities that are
not Investlng and Financing Activities.
6. Investing Activities
These are activities of acquisition and disposal of long-term assets and other investmenls not
included in cash equivalents.

7. Financing Activities
These are the activities that result rn change in the size and composition of the owner's caprrar
(including prelerence share capital in the case of a company) and bonowings of the enterprise.
 J.,r-
Management Accounting (Section B)_lSC XII
MEANING OF CASH FLOW AND CASH FLOW STATEMENT
Cash Flow statement is a statement that shows inflow
and outflow of Cash and Cash
Equivalents-from operating, Investing and Financing activities
during the period of report.
Cash Flow statement is prepared according to Accoirnting
standard-3 (Revised) issued by
the Institute of Chartered Accountants of India (ICAI).
Cash flow is movement of cash and Cash Equivarents,
i.e., infrow and outflow of Cash
a1d Equivalents. Transactions that lead to increase in Cash
lasf and Cash Equivalents are
classified, 1.e., shown as inflow and transactions that lead
to its aec.eas" ai.ll*ror"a, i.r.,
shown as outflow.
Cash and Cash hand, balance with bank, marketable securities,
and credit bala r bank overdraft account. Thus,
Cqs,h and Cash rd + !212n." with Bank + Marketable Securities
ance (Liability) in Cash Credit Account and
ccount.
w Statement, requires that cash flow shoulcl be
ent under the following tirree activities:
1. Operating Activitics; 2. Investing Activities; and 3. Financing Activities.
OBJECTIVES OF CASH FLOW STATEMENT
The objectives of preparing Cash FIow Statemeni are:
o To show Cash a nd cash Equivarents geuernted, i.e,,
inflow urder each activi ty (r e., operarrng/
Investing/F ina ncing Activity) by the enterprise,
' To show Cash and Cash Equivalent s use,r, i.e., outflow
under each activity (i c, operahng/
Investing/Financing Activitv) by the enterprise.
' To shorv net chLtn c in Cash and cash Eqtiivarents, r.e.,
the differe'ce between inflow
and outflow under rhe three activities between the
two Balance sheet dates.
IMPORTANCE OR USES OF CASH FLOW STATEMENT
1. ShorFteri,n Planning: Cash FIow State
and Cash Ec1-rivalents for a peri
lnvesting and Financing Aitiv
helps to plan investment, oper
2. Cash Flow Statement helps in understa
ability of an enterprise to meet its liabilitiesr

like banks, prefer Cash Flow Statement to assess the

capability of the enterprise ro pay
its liabilities towards intercst and principal in time.
3. Efficient Cash Management: Cash Flow Statcment prr)vides
inf,,rmation on surl .ls
or deficit of casli. An e.terprise, therefore, is in a p.srtron
to pran investment of the
surplus and can arrange credit in case of deficit.
4 comparative study: A comparison of the cash FIow statement for the year with
the
budggl 5ho11'5 the exte^t to which cash generated
and appried met -- '^ -
the r'""
pran. lt is,
therefore, useful for the maragement to prepare
the cash'n'"Jg.tr.
5' Reasons for Cash position: Cash Florv statement explains the reasons
for lorver and
higher cash balances with the enterprise. Sometimes,
an e.terprise has lorver cash
balance in spite,of higher profits or has higher cash
barance in spite of rower profits,
Reasons for such situatrons are known frJm Cash plow
Statem"it.
6' Test for the Nlanagement D.ecisions: It is a general rr-rle that fixed
assets are purchased
.r'rt of long-term s.urces ancr repav rong-term dchts
out of profits. cash Fkrw staterne.t
JI Cash Flow Statement-Based on Acccunting Stanilard-3 (Reztiseil) J.J

shows whether cash inflow from operating Activities have been used for purchase of
-L
fixed assets or whether these assets have been purchased from cash inflows from
rt. Iong-term funds. Similarly, it also shows whether the debentures have been redeemed
)y out of profits or not. Thus, Cash Flow Statement can be used to iest the credibility of the
management decisions.
ih 7. Preparation of Projected Cash Flow Statement: On the basis of the Cash Flow
re Statement for the current year, the enterprise can prepare a proiected Cash Flow
e.l Statement which is useful for decision-making.

LIMITATIONS OF CASH FLOW STATEMENT

:S,
Cash Flow Statement is a very useful tool of financial analysis but it has its own limitations.
These limitations are:
Ld
1. Non-cash Transactions are not Reported: Cash Flow Statement shows only inflows
and outflows of cash and cash equivalents. It does not show non-cash transactions such
as purchase of building by the issue of shares or debentures to the vendors.
)e
2. Not a substitute for Income statement but is an Additional statement: An Incorne
Statement shows both cash and non-cash transactions leading b determination of profit
or loss. Income statement shows net income of the firm whereas Cash Flow statcnent
shows inflow or outflow of cash and cash equivalenis which is not net profir or loss
of the enterprise. lt is a Statement prepared in addition to Income Statement.
3. Not a Substitute for Balance Sheet: It is not a substitute for Balance Sheet (position
Statement) because it does not disclose the financial position (i.e, Total Equity, Non,
Current Liabilities, Current LiabilitiAs, Non-Current Assets ancl Current AsseLs).
4. Historical in Nature: It rearranges the exrsting inftlrmation available in tht- Incomc
Statement and the Balance Sheet. It will become more useful if it is accompaniecl bv
the proiected Cash Flow Statement.
5. It ignores Fundamental Accounting Concept, i.e., accrual concept.

IMPORTANT DEFINITIONS AS PER ACCOUNTING STANDARD.3 (REVISED)

h
1. Cash: Cash comprises of cash on hand and den-.and deposits with banks.
2. Cash Equivalents: Cash Equi','alents are short-term, highiy liquid investmerrts that are
It
readily convertible into known amount of cash arl u'hich are subject to an insignificant
risk of change in value. An investment normally oualifies as cash equivalent only, when
S
it has a short maturity period of, say, three months or less from the date of acrluisition,
r,e., purchase. Examples of cash equivalents are: (a) treasury bills, (b) commercial papey5,
v (c) money market funds and (d) investment in Preference Shares redeemable within
three months if there is insignificant risk of change in its value.
5

e It should be noted that Marketable Securities are shown under'Current Investments,

while preparing ,Balance Sheet as per Schedule Vl of the Companies Act, 1956
(Scheduie lll of the Companies Act, 2013).
e
i/
IMPORTANT
As per the Guidelines issued by the Council
t '1
. Short-term Investments and Marketable Securities are to be included in Cash and
'1
Cash Eouiva lents.
2. Bank Overdrafticash Credit are also to be taken as Cash and Cash Equivalents.
It means if Barrk overdraft or Cash Credit Account has credit balance, l. e. . it is a
Iiability of the company, it is to be deducted to determlne the amcunt of Cash and
Cash 5ou ivalents.
 -----

3.4 Management Accounting (section Bl_lSC nI Crts

3. Cash !Flows inflows anct
r.,wD .rre urrruws and outlows
outflows ot
of Cash
Uash and Cash
Cash Equivalents.
4. operating Activities: operating Activities are the principal .evenue Solr
producing activities 'I'rai
other acrivities that are not investing or financing
. :j-lT.::l.lP.,r.rland rnvesting Activities are the
5.
acHvf;ie;.
l:l^.,:,lLg,o:,:tties: acquisit"io;u;;;;il'"r'i"'.g_*.r" (r
assets and other investments not included in cash equivalents. (r ri
6. ocrivities are the activiti rs thar resutr in change in the
:,:T::Ti^1.j11111.'.: f'.i?"..r lllu
:::11."."":r-"^']:i:i_"{
case of a company) and th"
owners' capital (including pr"f...n.. ,h;;;
borrowings oithe enterprisei
;;;;;:i; il; Soir

Classif ication of Activities I'.ryr

prepared to show cash rlow rrom business transactions

durins (ii)
;fi:Jl;,:,:fj:Tij," a
lttitt
(r) operating Activities; (ri) Investing Activities; and (iir)
Financing Activities.
Let us discuss each of these activities in detail.
Iikt:
(i) Operating Activities hcld
operating Actiaities are the principnl reuenue producirtg nctiuitics f rort
of the enterprise and other actntities
th0t Ire.n\t inapstitg or
t'inmrciw nciruifles. Therefore, cish flow under the operatint acrivity r.rult, il
fioni ihe Ii-airsaci.io.s anci events that cietermine tire net profit
o, roir. rnJ.i"*11n, ur., ]I
] !"ri receipts from the sale of goods and rendering or
servrces. 'rl
receipts from royalties, feis, ,commission anci orher
1 !^.1 payments
l.,
revenue.
lrri to suppliers of goocls and iervices.
(
4. Cash payments to and on behaF oi employees for sAlaries
5 Cash payrnents cr.efunds.f income tax unless they can be and wages, etc_
identified \,vith financing
II
and investing activities
6 ' cash receipts of premiunrs and payments of claims, annuities (
and other poricy benefits
(for an insurance Company). iJ
pRtNctpAL REVENUE pRoDUCtNG t, Ii
. ACTTV|nES
Principal Revenue producing Activities means business Ilius
activities that are its operating
Activities, r.e-, activities carried out by the enterprise lrt r t.:
to earn protit.
For example. (,) (
(i) For a computer manufacturing company, manufacturing
and seling of computers Ittr)i
is its principal revenue producing activity.
(iil For trading company, purchase and sare of goods (i'l ,

.a is its principar revenue Solut

producing activity.
(iii) po, un insurance company, receipt of premiums (i) (
and payment of claims, annuities,
etc., is its principal revenue producing activity. ii') I
(iv) For financiar enterprises, cash advances
and roans made by them are crassified as Illust
operatrng activities since they rerate to the principar
revenue- producing
r. -sgv.i:' qv('v''
activity of rv ith
that ente!'prise.
Solut
n:l
effe.ct of cash flow ,tnn,r. un
Ih". ynr
cash FIow from (or Cash used in, if o'tflow is P,r
more than trre inflow of cash) opera'ng
Activities in Cash Flow Statement. f)Lliah
Illustration 1. Identify out of the following, transactions (iii) r
that are classifieci or shown as
Operating Activity;
F u t,l tt
(r) Cash received fron sale of goods, (il) Cash
paid for purchase of Stock_in_Trade.
(ri) Salaries and Wages paid. (ri) Pavment of interest on loan. '['hLrs,
(r,) I{epayment of loan, (r,r) i'urchase of ivlachinc.r:y at)rl t(
(i'z ) I)iviclend paid
r
(r'ili ) Salt'ot Vt'h iclc. ft r rltt l
.II Cssh FIow Statement-Based on Accounting Standard-3 (Reaisedl
3.5

Solution:
Transactions that are classified as Operating Activity are:
(l) Cash received from sale of goods. (ii) Cash paid for purchase of'stock-in Trade.
(ili) Salaries and Wages paid.
Illustration 2. State a lransaction that is always classified as an operating Activity
Solution:
..
Payments ol employees' salaries, provident funds, bonus, etc.

(iil lnvesting Activities

lnuesting Actiaities are the ncquisition and disposnl of long-term t$sets antl
other inoestments n1t
in_cluded in cush equiualenfs. These activities include purchase
and sale of long-term assets
like machinery, land and building, long-term investments, etc. It means
assets that are not
held f-or the purpose of sale are shown und6r Investing Activitibs. Examples
of Cash Flow
from Investing Actjvities are:
CS
1. Payments for purchase of fixed assets (both tangibles and intangibles).
tS

e
2. Receipts from disposal of fixed assets (both tangibles and intangibles).
3. Payments for purchase of shares, warrants or debt instruments of other enterprises, etc.,
' other than short-term investments and Marketable Securities. These are includeo
rn
Cash and Cash Equivalents.
4- Receipts from sale of shares, warrants or debt instruments of other enterpnses,
etc_,
t(t other than short-term inveshnents anC Marketable Securit^es. These are incluclecl
in
Cash and Cash Equivalents.
5. Loans and advances to third parties.
6. Receipts from repayments of loans and aclvances to third parties.
,
Illustration 3. Identify out of the fbllowing, transactions that are classified or shown
as
Investing Activity:
(i) Cash proceeds from sale of fixed asset. (it Cash paid for purchase of Stock-in-Tracie.
(rii) Repayment of loan taken. (,i,) Debentures purchr;ed.
(zr) Loan advanced. -(ui) Purchase of Patents.
Solution:
(l) Cash proceeds from sale of fixed asset. (itt) Debentures pu rchased.
(u) Loan advanced. (ai) Purchase of Patents.
Illu;tration 4. state a transaction that is always classified as arr Investing Activity along
with the reason for such classification.
Solution:
iS l'ayment towards purchase of fixed asset, as it is not purchased for resale. Eramplcs
are
g purchase of building, furniture for office use, goodwill, etc.
(iii) Fi nancing Activities
rs
Fimncing Actiuities are the actiaities ithich result in change irt size attd conLpositiott the ozttners,
e
capitn rce sh,re upitar in case of a coipniry).nnd borroiuittgs of ihe enterprise.
Thus, capital, redemption of prefeience Shares, incr.use in borrowi.g
and r etc., are shown uncier financing acti,,,ity. Examples of Cash Flow
from es arc.
 3.6 Management Accounting lSection Bl-ISC Xll Casl,

1. Proceeds from issue of shares or other similar instrumenrs. Cia""

2. Proceeds from issue of debenfures, loan notes, bonds and other short-term borrowings. Inflc
. 3. Repayments of the amounts borrowed including redemption of debentures.
4. Payments of dividend on equity and Prefeience Shares.
5. Buy-back of Equity Shares.
6. Pavment of interest on borrowings (debentures and loans).
Illustration 5.Identify out of the following, transactions that are shown as Financing Activity:
(i) Repayment of Loan taken. (ir) proceeds from Issue of shares.
(lil) Debentures subscribed by the company. (lu) Redemption of prefrirence shares. (

(zr) Interest paid. (zri) Dividend paid. (i

Solution: (,'
(i) Repayment of Loan taken. (ii) Proceeds from Issue of Shares.
(

(lzr) Redemption of Preference Shares. (u) Interest paid.

(ai) Dividend paid.
Illustration 6. State a transaction that is always classified as Financing Activity along with
the reason for such classificatron
5olution:
Payment of dividends is always classified as Financing Activity because it is a payment
relating to share capital, which is a Financing Activity.
Illustration 7. cive a transac ion, a part of which is shoryn as an Investing Activitv and
another parl as a Financing Activity.
Solution:
Payment of iustalments of a Hire-purchase transaction. The instalment has two components,
,.r., principal antl interest. Principal is shown as an Investing Activity ancl inteiest as a
J'inancing Activitv.

REMEMBER
1. Net cash flow within an activity operating, investing or financing-may be positive
-
or negattve.
2. sum of cash flows from all the activities taken together, together with the opening
cash and cash Equivarents, equars the crosing cash and cash Equivarents.
3. A transaction is classified as an operating Activity or Investing Activity or Financing
Activitv,
4. A single transaction may include cash flow under two different activities, for
Instance, if a machinery is purchased on hire-purchase instalments, each instalment
will include interest and a part of pnncipal. cash paid for interest is a Financing Inr;'t,r
Activity whereas the cash payment for principal amount is an Investing Activity.
5. lssue of shares and debentures for consideration other than cash and also the
conversion of debentures into shares or other types of securities are not shown in The amc
cash Flow statement. For exampre, purchase of a buirding by issuing shares to the Actrvitii
vendor does not involve receipt and payment of cash. similarly, issue of bonus extent t'
shares does not involve receipt or payment in cash. €nterpn
whether
6. An inflow or outflow between components of Cash and Cash Equivalents is nor
to maint
considered while preparing the cash Flow statement. For example, cash deposited
enterpri:
into bank. lt is not a part of cash Flow statement bur is management of catsh. For
and.mal
example, cash deposited into bank or cash withdrawn from bank for business are helpfrtl i

not cash f low. operatro

:il Cash EIow Statement-Based on Accounting
S.tandarit_3 (Reaiseitl 17
Classification of Business.Activities as per AS_g (Revised),
showing
Inflow and Outflow of Cash

I
Operating Activities

Cash Outflow
(i) Cash Sales
(j) Cash Purchases
( ) Cash received from Debtors
(ii) Payment to Creditors
(l/) Cash received towards Commission and Fees (iiil Cash paid for Operating Expenses
(iv) Royalty received
(ivl Payment of Salaries and Wages
(v) Income Tax Refund
(v) Income Tax paid

lnvesting A(tivities
th
Cash lnflow
Cash Outflow
(i) Sale of Fixed Assets
(r) Purchase of Fixed Assets
nt (ti) Sale of Investments
(ii) Purchase of Investments (other than
(iii) Interest received
Marketable Securities)
liv I Dividend received (iii) Cash paid for Interest
lo (v) Cash received for Interest
and (iv) Purchase of Securities (other
than
Dividends marketable Securities)
(vi) Sale of Securities (v) Incorne Tax paid, if related to Investing
Activities
a

Financing Activities

Cash lnflow
Cosh Outflow
(i ) lssue of Shares in Cash (i) Repayment of Loans
(il) lssue of Debentures in Cash (ll) Redemption of preference Snares
(ti) Proceeds from Long-term gorrowrngs (,ji) Redemption of Debentures
(iv) Buy-back of Equity Shares
(y) Payment of Dividend
(vi ) Payment of Interest

Importance of separate disclosu re of cash flow

under each activrry.
Operuting Activitiet
Finoncing Activities
The amountofcash flow from Operating Separate disclosure of cash flows Separate disclosure of cash flows
Activities is a key indicator cf the arising from investing activities is arising from Financing Activities is
extent to which the operations of the important because the cash flows useful in assessing claims on future
enterprise have generated cash,, ie., represent the extent to which cash flows by providers offunds to the
whetherthe cash generation is adequate expenditure has been incurred on enterpflse.
to mainta;n operating capability of the resources intended to generate
enterprise, pay dividends, repay loans future income and cash flows.
and make new investments. tt is also
helpful in foreca5ting cash flow from
operatr0ns.
3.8 Management AccountiflS lsection Bl - ISC Xll Ca

Illustration 8. Identify which of the follo-"ving transactions are (i) OPerating Activities,
(ll) Investing Activities, (rii) Financing Activities and (lu) Cash and Cash Equivalents:
1. Cash Sales; 2. Cash Purchase;
3. Rent paid; 4. Cash Balance;
5. Income Tax paid; 6. Office Expenses;

7. Bank Balance; 8. Sale of Machinery;

9. Issue of Debentures; 10. Dividend paid;
'
11. Cash paid to Creditors; 12. Purchase of Machinery;
Solr
13. Income Tax Refund received; 14. Short-term Investments.
Op,
Solution:
Operating Actiaities : Cash Sales, Cash Purchase, Rent paid, Income Tax paid, Inue
Office Expenses, Cash paid to Creditors, Income Tax
Refund received.
Innpclirro Artinitipc Sale of lr_,lachincr.y, Purchase of Machinery F irrn

Financing Actiaities Issue of Debentures, Dividend paid.

Cas/r
Cnsh antl Cnsh Equiaalents Cash Balance, Bank Balance, Short-term Investments.
Illu:
Illustration 9. Identify r,vhich of the following transactions are (i) Operating Activities, 1
(li) Investing Activities, (iil) Financing Activities and (irr) Cash and Cash Equivalents: 2.
1. Issue of Share Capital; 2. Sale of Patents; 3.
4.
3. Marketing Expenses; 4. Purchase of Goodwili;
-5.,
5. Short-term Deposits in Banks; 6. Purchase of Investments; (i. t

7. Cash received from Debbrs; 8. Buy-back of Equity Shares; 7. )

9. Repayment of a Long-term Loan; 10. Commission received; B1

Cive
1i. Selling and Distribution Expenses; 12. Redemption of Debentures;
13. Investments in Marketable Securities; 14. Bank Overdraft. Solul
ll
Solution: s
Opernting Actittities Marketing Expenses, Cash received from Debtors, Commission I
received, Selling and Distribution Expenses. 2t.
Inttestirtg Actioities Sale of Patents, Purchase of Goodwill, Purchase of (
Investments.
F inttncing Actiaities : Issue of Share Capital, Buy-back of Equity Shares, When
Repayment of a. Long-term Loan, Redempiion of
Cash l
Debentures. of Cas
Cash und Cash Equiunlents : Shorlterrn Deposits in Banks, Investments in Marketable (1/ :

Securities, Bank Overdraft. I

{
Illustration 10. Identifi' rvliich of the foliowing. transactions are (i) Operating Activities,
.(ri) i
(il) Investing Activitics, (ili) Financing Activities and (iu,) Cash ancl Cash Eq'-rii'alents:
t
 Cash Flow Statement _Baseil
on Accounting Stawlatd_J (Reaiseit)
3.9
1. Sale of Investments;

Business is a Real Estate

Business;
Business is Manufacturing;
Loans;

8. Proceeds from Shares issued.

Solution:
Operating Actiaities
Rent_received by a Company
whose main Business is a
Real Estate Business.
id, Inuesting Actiaities
'ax

Financing Actiuities

Cash atd Cnsh Equiztalents

Marketable Securities.

s out of thd tbllowing transactions:

S;

rities;

Give reason for the answer.

Solution:
1' Diuidend pnid to the sharehordus:.It
is a financing actruty as
share Capital of the corhpany. dividend is paid on the
shrr" c";li;J;, .' .";'
,"" o. ,n"." as Financing
)n per AS-3, Cash Flow Statement. ' Activity as

e shown as Financing Activity

of as per AS_3,
borrowings, therefore, ii will;ho;;
sh;rvn

When does the Flow of

Cash Arise?
rf
Cash Flow arises when the
net effect of a transaction .
of Cash a nd cash Equi varen eithet -
le
r,.."r;oi";;;;;;;l::il'fi
rs. Thus,
f ::ffiTtril:llT#
(i) it affects a Current Account (other
than Cash and Cash Equivalent)
Equivatenr, on the other on one hand and
aaffkli.a-^ tuna. fo. rxample, cash received
from
(ri) it affects a Non-Curre^t
Account on one hand and
the other l.rand. For exar ple, Casrr and cash Equivalents
<,rn
purchase of machinery.
3.10 Management Accounting (Section Bl - ISC XII

Illustration 12. Identify which of the following would result in inflowf outllow of Cash and
Cash Eouivalents:
(i) Sile of fixed asset (Book Value t 50,000) at a loss of { 5,000;
(ii) Purchases of Stock-in-Trade for cash;
(iii) Purchase of fixed assets by issue of shares;
(iz) Cash received from debtors 10,000; t
(o) Cash deposited into bank;
(ul) Cash withdrawn from bank;
(uii) Issue of fully paid bonus shares;
(oiii) Sale of marketable securities for cash at par;
(ir) Declaration of final dividend;
(r) Writing off Bad Debts against Provision for Doubtful Debts;
(xi) Declaration of Interim Dividend T 25,000 and
(rii) Sale of Current Investments.
Soiution:
STATEMENT SHOWING THE EFFEO OF TRANSACTION ON CASH AND CASH EQUIVALENIS

Effect en Cash cnd Ccsh Equiv1lents

(') Cash is increased by { 45,000.

(ii1 Cash is decreased bv the amount of Stock-in-Trade.

(tiiJ Cash is not affected as it is not a cash transaction. *

[ix
(tv Cash is increased by { 10,000. ;+
Pr,

lv) Cash and bank both are the parts of cash and cash
equivalents

{vi) Cash and bank both are the parts of cash and (ash
equivalents. Ca lr
C+^r
Cash is not affected. lt is capitalisation of profits.

{vllr ) No effect Cash and cash equivalents which includes marketable Step
securities also is not affected

Ux) No effect Cash is not affected because final divid€nd declared

willbe paid in the following year.

(x) No effect Cash is not affected.

Cash is decreased by { 25,000. Interim dividend is

paid within the year.

(xii) Current Investments are part ofCash and Cash Equivalents.

Transactions not Considered as Cash Flow

Trnnsnctiorrs thnt are mouement betuteeu itents of Cash nnd Cnsh Equiualents nre not corrsidered
ns Cnsh Flott,. These components are part of the cash management of an enterprise and not
part of its Operating, Investing or Financing Activities. Examples: (l) Cash deposited rnto
bank, (ii) Cash withdrawn from bank.

PREPARATION OF CASH FLOW STATEMENT

Cash Flow Statement is prepared showing:

'
1. Cash Flow f rom Operating Activities;
2. Cash Flow from Investing Activities; and
3. Cash Flow from Financins Activities.
CXII Cash FIow Statement _Bnsed
on Accounting Statidard_3 (Reaisedl
3.11
r ano 1. CASH FLOW FROM
OPERATING ACTIVITIES
'tl l;L Jilffi oo':1"* o"'ll:',:1'-+.+;.jiF
(ii)
bv
Indirect Method.
using ei rher:

Direct Method C;trd"d f rom the syilaous.-rri[]f,[1f,1ffi

Indirect Method of Calcu
Under this method, Cash Fl Activities is calculated from
the information
",,,.. sh: ;i Ti.; r,lff 1fiJ:j?Jfr:l,T;
llows:

the.starting point for calculating

Cash Flow
ated as follows:
between {
serves and Surplus
ny
v'
alReserveJ .

profit and
Loss_* f..f

Calculation
statement. nd not in the Cash Flow

etable Step 2: Adjust Net

. credited kr
',{
s. mean expenses and losses
debitecl to
involve payment of cash.
E*u^pf .l o.J
rovision for doubtful debts,
profit
etc.. l
to Net before Tnx becnuse it does
alents.

dered
I not
rnto

tled to Net profit before Tux

because
titrity a1y Finnncitrg A ctiuity.
3.t2 Management Accounting (Sectiott B)-ISC nI Ca:

Non-operating Incomes and Gains: Non-operating Incomes and Gains are those Illu
incomes and gains that are not earned from the operating activities by the enterprise. t:-
I rartl
Examples are: profit on sale of lixed assets and investments, interest, rent or dividend I

,ryceived, etc.
I Oper

ff ,,-2, t Non-operating incotnes flfld gains are deducted from Net Profit before Tat because CIosl
t)" | 'these are shown either under lnaesting Actioity or Financing Actiztity. Tran:
) prop
The amount nt'ter the abooe adjustments is Opertrting Prcfit bet'ore Working
Capital Changes. . Inter.
Step 3: Adjust Operating Profit before Working Capital Changes for chahges in Working provl

Capital. lncor

,
Changes in Working Capital means changes in current assets and current liabilities
except Cash and Cash Equivalents.
r!
Current Assets include trade receivables (debtors, bills receivables), prepaid
-;sg
expenses, inventory, etc., but does not include cnsft nnd cnsh equiunlents because
opening Cash and Cash Equivalents is added to the net cash flow from all the 1,."
activities to reach the closing Cash and Cash Ecluivalents. It should be kept ur Net f

mind th.at Ctrrett lnuesfutents r;nd Msrkettltle Securit* are included. in Cash a.nd \< 6,7
Cash Equivalents. Add:

Current Liabilities include trade palables (creditors, bills payable), outstanding

expenses but does not include ltnnk ttuerdrnlt ttntl cnsh credif hthnce because it is
part oi Cash and Cash Equivalents.
Dccrease in cr-trrent assets (excluding Cash and Cash Equivalents) ancl increase
in current liabilities (excluding bank overclraft and cash credit) zire adc.led to leJJl
Operating Profit before Working Capital changes.'fhey are added because they
increase Cash Inflow from Operating Activities. Iir other words, decrease in
inventories or trade receivables c'r prepaid expcllses will increase Cash Inflow
v
from Operating Activities. Similarly, an incrr-ase in trade payables or outstanding lllus
expenses will effect;vely increase cash available b Lhe enterprise. P;ftirr
Increase in current assets (except Cash and Cash Equivalents) and decrease in current
i,penir
Iiabilities (except bar k overdraft and cash credit, it being shown as Cash and Cash
Closinr
E"uivalents) are deducted because they decrease Cash Inflow froin Operating
Achvities. In other words, an increase in inventories or debtors or prepaid expenses Propo:

will decrease the Cash Inflorv from Operating Achvities. Similarly, decrease in trade rr tlertn
payables reduce cash. Transfe

The amount after above adjustment is Cnsh Cenerated from Operaliotrs, if inflow of Provisi
cash is more Liran its outfloiv and is Cash Used in Operations, if outflow of cash
is more than its inflow. Solul
Step 4: Deduct or add Income Tax paid (net of refund of income tax) from Cash Generated Particui
from Operations.
Net Pr
It should be kept in mind that if Income Tax relates to lnvesting Activity or
/t 5,40
Financing Activity, it is not dedr,rctccl to reach Cash Flow from Operating Activity.
It is deducted from the related activitv, i.e , Investing Activity or Financing Aciivitl'. Ptll:

The amount after nboae adjustment is Ctsh FIou t'rom or Crch Userl in Operating
Actittitll.

Piease note that adjustments relating to Extraordinary items are not in Syllabus. Net Pr(
Hence, they are not discussed.
xlt Cash Flou Statement-Based on Accounting Stanilard-J lReaised)
3.13

ose Illustratio From the following information, calculate Net profit before Tax:
ise. Particulars
:nd
Opening Surplus, ie, Balance in Statement of profit and Loss
2,00,000
Closing 5urplus, r.e., Balance in statement of profit and Loss
use 6,72,000
Transfer to Debenture Redemption Reserve ! '- ..
2,00,000
Proposed Dividend for the Current Year
fl8 1,80,000
Interim Dividend paid during the year
1,44,000
Provision for Tax made during the Cunent Year _-
lng - 2,00,000
Income Tax Paid
2,16,000
Refund of Tax
CS
- 6,000

aid Solution: Calculation of Net Profit before Tax

use Particulars
the
Net Profit as per Surplus, i.e., Balance in Statement of profit and Loss
tln 4,72,000
(I 6,72,0A0 -{ 2,00,000)
rnd
Add: Transfer to Debenture Rede;i.rption Reserve
2,00,000
Proposed Dividend for the Current year
rng i,80,000
tls Interim Dividend piid during the year r,44,000
Provision for Tax made during the Current yeOr
2,00,000 7 ,24,000
ase 1 1,96,000
ilO Less: Refund of Tax
6,000
hey Net Pfofit before Tax
r 1,90,000
IIn
ow
ln8 Illustraiion 14. From the following information, calculate Net profit betbre Tax:
Particulars

'ent
0pening Surplus, ie., Balance in Statement of profit and Loss (2,00,000).
ash
Closing Surplus, ie., Balance in Statement of profit and Loss
i.g 5,40,000
Proposed Dividend for the Current Year
tSes 2,10,000
ade Interim Dividend paid during the year
1,60,000
Transfer to Workmen Compensation Reserve
r,50,000
r'of Provision for Tax made during the Cunent year
2,30,000
asn
Solution: Calculation of Net Profit before Tax
rte-d Paniculars
I
Net Profit as per Surplus, i.e., Balance in Statement of profit and [oj5
'or ({
7,40,000
5,40,000 + t 2,00.000)
ity
'ity
Add: Proposed Dividend for the Current year
2r 0,000
ting Interm Dividend paid during the year
1,60,000
Transfer to Workmen Compensation Reserve
1,50,000
Provision for Iax rnade during the Current year
2,30,000 7,50,000
Net Profit before Tax
I4,90,000
 3.t4 Management Accounting (Section Bl -ISC Xll
Cs

Efl
Particulars Note No. 3l st March, 3l st March, Nc
20r5 (t) 2014 (t)
for
I. EQUITYANDLIAEITITIES
the
l. Shareholders'Funds
(o) Share Capiral
No
I 8,00,000 8,00,000
(b) Reserves and Surplus b,I,
2 6,95,000 5,20,000
2. Non-CunentLiabilities be'(-
Long-term Bonowings Thr
5,00,000 5,00,000
3. Current Liabilities
Cur.
(a) Trade Payables
60,000 s0000
(b) 0ther Current Iiabilities Eff,
1,00,000 75,000
(c) Shortterm Provisions
3 3,10,000 1,80,000 No
Total ult (
24,65,000 21,2s,000
il. ASsETs
thc:
l. Non-Current Assets
Act
{d) Fixed Assets
18,40000 15,5s,0c0
{b) Non-Current Investments Nor
3,C0,0G0
2, CurrentAisets
3,25,0C0
ot1
Total lz0,0s0_ tror
24,65,000 21,25,M
Act
Notesto Accounts
Illu
Particulars
llst March, 31st March, ._- |
201s ({) 20r 4 {{)
l. ShareCapital *|i(
Equity Share Capital
5,00,000 5,00,000 Ner P
Preference Share Capital
3,00,000 3,00,000 Depft
8,00,000 8,00,000 |)ter€
Share
Reserves and Surplus
General Reserve Good
.2,75,000 2,10,000
Workmen Compensation Reserve Loss <
2,50,000 2,00,000
Surplus, ie., Balance in Stateme"t of profit and Loss lntere
1,70,000 1,10,000
Profit
6,95,000 5,20,000
Short-term Provisions
Proposed Dividend
1,60,000
Solu
80,000
Provision forTax
1,50,000 1,00,000

3,10,000 r,80,000
l,rt!
Net P

Solution: Calculation of Net profit before Tax Add:

Net Profit for the year (Drfference between crosing and opening surprus,
i.e., Barance in statement of
I
Profit and Loss) ({ 1,70,000 - 1,10,000)
60,000
Add: Transfer to General Reserve (t 2,i5,000 - { 2,10,000)
6s,000
Transfer to Workmen Compensation Reserve ({ 2,50,000 -{ 2,00,000) 50,000
Proposed Dividend (Cunent year) Less:
1,60,000
Provison for Tax (Current year)
1,50,00c
Net Profit before Tax
Opera
 :w Cash FIow Statement-Based on
Accouniing Standard-3 (Reaisedl
sof 3.15
Effect cr Non-Cash Expenses and tncomes
.lt Non-cash expenses such as
bad.debts, provision for doubtful
c 1?r::iariof,
for expenses, etc., are added debts, provision
to amount of Net profiriefore
these expenses do not result in outflow "^"
;a;i. "' Tax. They are added because

Non-cash incomes such as riab'ities

written dff, excess
-pr"rr, provision for expenses written
)0 back' etc' are deducted from the
t0
amount of rv.a before Tax. They are deducted
because these incomes do not resurt
in inflow of.uri^t.o* operating Activities.
at after above adjustmenrs is 'operating profir
Il;;T:il[:l-ed before working
r0
Effect of Non-operating Expenses
r0 and Incomes
r0

r0

=:
r0

r0

0
:--
U
:::::
Illustration 1d' From the fo'owing i.formation,
CapitalChanges: -.i-'""'carculate \-'PrrdtrlrB
operating profit
rrollt before
Detore worL;-^
Wort<rng
:h,
)
Particulars

r0 Net Profit before Tax

l0 Depreciation 3,72,500
r0 lnterest on Debentures 70,000
Share lssue Expenses l//o 14,000

Goodwill A"-rortised 5,500

0 Loss on Sale of Machinery 15,000
i0
hterest an-: Dividend received on lnvestments 15,000
r0
Profit on Sale of Investments 23,000
0
10,000

Solution: Calculation of Operating profii

,0 before Working Capital Changes
0 Particulars
0
N^t Profit before Tax (Given)
- Add: Non-cash ond Non-opercting Expenses: 3,72,s00
Depreciation
Interest on Debentures 70,000

Share lssue Expenses tUlo 14,000

Goodwill Amortised 5,500

',000
toss on Sale of Machinery 15,000
,000 15,000 1,19,500
,000
Less: Ncn-operctinglncones: 4,92,000
,000
Interest and Dividend received
,000 on Investments
Profit on Sale of Investments
@ 0perating Profit before [Jorking 33,000
Capital Chances
4,59,000
 3.15
Managiment Accounting (Sectian B _
) ISC XIl

Particulars
3l st March,
2014 (t)
I. EQUflYANDLIABILITIES
1. Shareholders,Funds
(d) Share Capital
(b) Reserves and Surplus . 7,50,000 5,00,000
2. Current Liebilities 8,30,000 7,20,000
(a) Trade payables
(b) 0rtrcr Current Liabilties 60,000 50,000
(r) Short-term provisions 2s,090 15,000
r,85,000 1 ,7 5,000
Total
[. ASSETS 1460,000 .

l. Non-Cuftent Assets
Fixed Asets-Tangible
2. CurfentAssets I 1,60,000
3,00,000
Total

Notes to Accounts No

Particulars Par
Jlst March, 31sr March,
201s (t) 20r4({)
t. Reservesand Surplus 1.

GeneralReserve
Surplus, ie, Balance in Statement 6,50,000 6,o0ooo
ofprofit and Loss
1,80,000 1,20,000

OtherCurrent Liabilities 8,30,000 ' 7,20,000

0utstanding Expenses
5hort-term Provisions 25,000
_uIa I

Proposed Dividend
Provision for fax /5,000 75,000 3. (
1,10,000 1,00,000 (
1,85,000 i,75,000 4.5
Additionnl Infonnatiott: Depreciation F
for the year ended 31st March, 2015
Solution: Calculation of Operating profit
Was t 1,10,000. .;
before Working Capital Changes tltltl
Particulars I

Profit before Tax (Notel { :

Add: Non-cash Expenses_Depreciation 2,95,000 3.
Operating Profit before Working Capital 1,10,000
Sol r
Changes
4,05,000
Note: Partic
Profit before Tax Net I
Add:
losing and Opening Surplus, r.e., galance
in {
1,20,000)
60,000
00 _ t 6,00,000)
50,000
Provrsion fnr Tax (Curient year) /5.000 leJJ:
-.
Net Profit before 1,10,000
Tax
2,95,000 0per
:ilI Cash Flow Statement-Based on Accounting Standard-3 (Reoised)
3.17

the Illushation 18. Calculate operating profit before working Capitai Chan$es from the following
,ded information and Balance Sheets as at 31st Marcfu 20f5 ind 3tst March,2014:
Particulars' Note No. 3lst March, 3l st March,
'.la 2015 (t) 20r 4 (i)
EQUITY AND LIABITITIES
1. Shareholders'Funds
(o) Share Capital
i0,50,000 7.00,000
(b) Reserves and Surplus
2,50,000 1,20,000
t0- 2. Current Iiabilities
)0 (o) Trade Payrbles
2 95,000 70,000
(b) Other Current Liabilities
3 30,000 15,000
)0 (c) Shon-term Provisions
4 1,50,000 1,00,000
)0
Total
)0 15,/5,000 r0,05,000
ASSETS
)0
===
l. l'lon-CurrentAssets
Fixed Assets-Tangible Assets
12,00,000 7,30,000
2. CurrentAssets 3,75,000 2,75,000
)0
Total 15,75,000
)0 1005,000

)0
Notes to Ac(ounts
:
Partkulars
ll st March, 3l st March,
'ch, 201s ({) (t)
2014
1. ReservesandSurplus.
Surplus, ie., Balance in Statement of profit and Loss
2,00,000 1, t0,000
Workmen Compensation Reserve
)0 s0,000 10,000
)0 2,50,000 1,20,000
2. Trade Payables
)0
Trade Creditors
80,000 60,000

!_ Bills Payable
15,000 | 0,000

95,000 70,000
)0 3. OtherCurrentLiabilities
)0 Outstanding Expenses
30,000
)0
4, Short-termProvisions
:= Provision forTax
1,50,000 r,00,000
100.
Ad.ditionnl lnt'ormation:
1. Depreciation on tangible fixed assets for the year 2074_15 lvas { 70,000.
2. Bad Debts written off were { 10,000.
3. Income included liability written back of { 5,000.
',000
4q solution: calculation of operating profit before working Capital Changes
;,000
Particulars

Net Profit before Tax (Note)

2,80,000
Add: Non-coshExpenses:

t (d) Depreciation
70,000
),000
(b) Bad Debts
10,000 80,000
),000 1,60,000
;,000 Ndn-cosh lncome:

),000 Liabilrty wntten back - IywP, (5,000)

,,!q Operating Profit before Working Capital Changes
3,55.000
 3.18 Management Accounting (Section Bl
- ISC ilI
Cas
Note:
Adt
Calculation of Net Profit before Tax
1.
Net Profit for the year (Difference between Closing and Opening Surplus, r.e., Balance in
2.
Statement of Profit and Loss) ({ 2,00,000 - { 1,10,000) 90,000
J.
Add: Transfer to Workmen Compensation Reserve ({ 50,000 -t 10,000) 40,000
4.
Provision for Tax (Current Year) 1,50,000
Net Profit before Tax Soi-
2,80,000

Illustration 19. Calculate operating Profit before working Capital Changes from the Parti

following information and Balance sheets as at 31st March, 2015 and 31st March. 2014 of Net
-

Grand Marketing Ltd.: 'Add:

Particulars Note No. 3l st March, 3lst March,

20i s (0 2014 (l)
I. EQUITYANDTIABITITIES Less

1. Shareholders'Funds
{d) Share Capital I 20,00,000 1 1,50,000
(b) Reserves and Surplus 2 4,90,000 2,05,000
less.

2. Cunent Iiabilities op"

la) Trade Payables 1,20,000
't,10,000
(b) 0ther Current Liabiliries l ' 15,000 20,000
Not
(c) Shouerm Provisions Net
4 4,00,000 2,95,000
t\et
Total 30,25,000 17,80,000 Bal
il. ASSETS
Add
l. Non-Current Assets
(d) Fixed Assets-Tangible 19,00,000 9,80,000
(b) Non-Current Investments 5,00,000 5,00.000
2. CurrentAssetJ 6,25,000 3,00,000 Net
Total 30,25,000 l7
Ilh
Notes to Accounts 'foll
Particulars
.1ts
3l st Marcl, 3l st March,
2015 (0 2Ci4 ({) *
l. Share Capital
Equity Share Caoital 10,00,000 7,s0000 t.l
Preference Share Capital 10,00,000 400,000
20,00,000 I1.50,000
2. Reserves and 5urplus
General Reserve 1,50,000 75,000
Investments Fluctuation Reserve r,00,000 40,000
5urplus, ie., Balance in Statement ofProfit and Loss 2,40,000 90,000
4,90,000 2,05,000
3. Other Cunent Liabilities
Outstanding Expenses r5,000 20,000
llr
4, 5hort-term Provisions
Proposed Dividend 1,50,000 95,000
Provision for Tax
2,50,000 2,00,000
4,00,000 2,95,W0
,NI
Cash FIow Statement-Based on Accounting Standard4 r,Reaised) 3.19

Additional lnt'or ma tion:

l..Depreciation for the year was T 1,10,000.
7
2. Bad Debts written off amounted to t 15,000.
,000
3. Income included excess provision written back { 5,C00.
,000
4. Dividend received on investments was { 5.000.
,000
Solution: Calculation of Operating Profit before Working Capital Changes
gry
Particulars
the
of l{et Profit before Tax (Note) 6,85,000
Add: Non-cashExpenses:
(d) Depreciation 1,10,000
(b) Bad Debts 15,000 1,25,000
8,10,000
Less: Non-cosh lncome:
Excess Provision written back (5,000)
8,05,000
teJJi Non-operating Income(Dividend) (5,000)
Operating Profit before Working Capital Changes 8,00,000

Note:
Net Profit before Tax
Net Profit for the year (Difference between Clcising and Opening Surplus, ie.,
Balance in Statement of Profit and Lo,t (t 2,40,000 - t 90,000)
t
1,50,000
Add: t
Transfer to General Reserve (t 1,50,000 - 25,000) 75,000
Investments Fluctuation Reserve ({ j,00,000 - t 40,000) 60,000
Proposed Dividend (Currrent year) 1,50,000
Provision for Tax (Current Year) 2,50,000
Net Profit before Tax 6,85,000

Illustration 20. Calculate operating frofit before working Capital changes from the
following information of Everon Ltd. and Balance sheets as at 31st Marih, 2015 and
31st March,2014:

Particulars Note No- l'lst March, 3l st March,

20r s {{) 20r4 (t)
I. EQUITYANDTIAEILITIES
l. Shareholders'Funds
(o) Share Capital l1,00,000 7,50,000
(b) Reserves and Surplus i6,50,000 13,10,000
2. Current Iiabilities
(a) Trade Payables 1,00,000 80,000
(b) Other Current Liabiliries 2 60,000 50,000
{c) Short-term Provisions 3 6,20,000 4,50,000
Total 35,30,000 26,40,000
il. ASSETS
1. Non-Curent Assetr
(o) Fixed Asers-Tangible 4 20,20,000 12,30,000
(b) Non-Current Investments 7,00,000 10,00,000
2. Current Assets 9,10,000 4,10,000
Total 35,30,000 26,40,000
 3.20 Management Accounting (Section Bl-lSC ill
Notes to Accounts At
Particulars s(pr
3l st March, 31fi March,
20ls {t) 2014 (t) Pro

1. Reservesand Surplus Let

GeneralReserve 10,00,000 8,00,000
(
5urplus, i.ei, Balance in Statement of Profit and Loss 6,50,000 5,r 0,000

16,50,000 r 3,10,000
Other Current Liabilities
0utstanding Expenses 60,000 '
Short-term Provisions
Proposed Dividend 2,20,000 r,50,000
Provision for Tax 1,00,000 3,00,000

6,20,000 4,s0000
Fixed Assets-Tangible (Cost) 25,00,000 r 5,00,000
less: Provision for Depreciation 4,80,000 2,70,000

20,20,000 r 2,30,000

Add itional I nfu r nat iot t:

1. Bad Debts written off amounted bt 10,000.
2. Income includes t 1.00,000 receiveci as dividend.
3. Income includes t
profit on sale of investments.
50,000 being
Solution: Calculation of Operating Profit before Working Capital Changes
Crr
l!nt
Net Profit before Tax lNote) 9,60,000 | )l
Add: Non-coshExpenses:
(d) Depreciation (l 4,80,000 - t 2,70,000) 2,10,000
,,1i
{b) Bad Debts written off 10,000
1r,80,000 siir
Less: Non-operutinglncomes:
(1,00,000)
l-t'.
(b) Profit on Sale of Investments (s0,000) (1,s0,000)

Operating Profit before Working Capital Changes r0,30,000

Note:
Net Profit before Tax
Net Profit for the year (Difference between Closing and Opening Surplus, i.e., ,{
Ealance in Statement of Profrt and Loss) ({ 6,50,000 - t 5,10,000) 1,40.000
Add: fransfer to General Reserve {{ 10,00,000 - { 8,00,000) 2,00,000
Proposed Dividend (Currrent Year) 2,20,000
Provision for Tax (Current Year) 4,00,000
(
Net Profit before Tax 9,60,000

Effect of Change in Current Assets 't

t
Curtent Assets: lrtcrensc irt current nssets :lt'nns nore cnsh is ttsed or itntestcd in utrrent nssets
nnd. therefore, is an outJlottt of Cnsh md Cosh Equiunlents. On the other hnnd, decrense in urrent I

csscfs rrrearrs cash is genernted by reducing tlre current nssets nnd, theret'ore, is an inflou of Cash 2
ntd Cnsh Etlu ionletts.
l
Caslt outfloru is deducted frotn Cperating Prliit btjive Working Cnpitnl Chatrycs. On thc othcr +
hnnd, Cnsh inflott, is nddetl to Opernting Profit btfnre Working Cnpital Chnngts.
 Cash Flow Statement-Based on Accounting Standard-3 (Retlisedl 3.27
}XII
At the time of preparing cash flow t'rom operntittg actiaities, each item of current assets is shttwn
separately, i.e., increase or decreuse in each item of current assets is deducted or arlded to Operdtittg
rch,
Profit bet'ore Working Capital Changes.
t)
Let us discuss some itnportant items of cirrent assets:
00 (i) Inuentory (Sfock); Change in inventory or stock means either decrease or increase in
00
stock. Decrease in inventory or stock increases Cash from Operating Activities because
00
inventory as a result of sale is converted into Cash and Cash Equivalents. On the
other hand, an increase in inventory or stock decreases Cash from Operating Activities
00
because Cash and Cash Equivalents are used for purchasing inventory.
00 (ii) and Bills Receivable, like
Trnde Receiaables (i.e., Debtors and Bills Receiaable): Debtors
00
inventory, may decrease or increase. Decrease in debtors or bills receivable increases
00 Cash from Operating Activities because debtors and bills receivable as a result of
00 realisation are converted into Cash and Cash Equivalents. On the other hand, incrcase
00 in debtors or bills receivable decreases Cash from Operating Activities because Cash
00 and Cash Equivalents are used in increasing debtors and bills receivable.
(iii) Prepaid Expenses: Decrease in prepaid expenses like stock and debtors, increascs .Jash
from Operating Activities because less cash is used. On the other hand, an increase
in the prepaid expenses decreases Cash from Operating Activities because more cash
is used.

Crrrent Liabilities: lncrease iri ctLrrentiiabilities tLeans inllotu of cash nrld t]ecrease itt current
littlrilities neans cnsh used in current liabilities.'I'hus, incrense in current tiahilities ts ntldet! to
n nnn Operating Prot'it bet'ore Working Cnpital Chonges. On the other hand, decrense itr current litbilitits
is tleductetl from Opernting Prot'it before Working Capitnl Changes
c,000
At the tinre of preparing cash flozo t'rom opernting actiaities, ench itettr oJ current linbilitits is
c,000
shown separately, i.e., increase or decrease in each item of current Iiabilities is odded to or deducted
c.000
iron Operating Profit bet'ore Working Capital Chunges.

Lt:t tLs discttss some important items of uLrrent Iinbilities:

,000)

t,000
(i) Trade Paynbles (Creditors and Bills Pnyalile): Decrease in creditors and bills payable
means more cash is used for payment of creditors and bills payable. Thus, it is an
outflow of cash. On the other hand, increase in creditorsiand bills payab)e increases
cash available to the enterprise as less cash is paid to creditors and on bills pavable.
t
r,000 (ii) Outstnnding Expenses: Decrease in outstanding expenses like salary pa)'able and Rent
r,000 Payable, etc., means more outflow of cash. On the other hand, increase in outstanding
r,000 expenses increases cash inflow.
r,000
(iii) in Adaance: It is a current liability and is treatcd in the same manner
Irrconrc Receited
r,000
as Trade Payables, i.e., credltors and bills payable.
The general rules that develop from the above are:
jsels

rettt
1. Increase in current assets leads to decrease in Cash and Cash Equivalents.
)nsh 2. Decrease in current assets leads to increase in Cash and Cash Equivalents.
3. Increase in culrent liabilities leads to increase in Cash and Cash Equivalenis.
iher
4. Decrcase in current liabilrties leads to decrease in Cash ancl Cash Equivalenls.
 3.22 Mafiagement Accounting lsection B)_ISC XII Cas,

Illustration 21. Calculate Cash Flow from Activities from the followine information: Not(
'1. N
Particulars
3l st March,
c
20r4 (t)
t,
Trade Receivobles:
N
Debtors
40,000
Bills Receivable
12,500
s0000
2.t
t0,000
Trode Payobles: a

Creditors
20,000 25,000 Illg
Bills Payable
25,000 40,000
0utstanding Expenses r,000
Parti-
800
lccrued Income
7,000 6,000
Surplus, ie., Balance in Statement of profit and Loss r,80,000 50,000 Surp-
Solution: Trad
CASH FLOW,FROM OPERATING ACTIVITIES
Prov
Particulars ( t 0uts
Prep
Profit before Tax for the year ended 31st [4arch, 2015 (Note)
1,30,000 Goor
Add: lncreoie in Current Liabilities ondDecrease in Current Assets:
Inve
0utstanding Expenses
200
Debtors
10,000 10,200 S"l
1,40,200 :---:
Less: lnueose in Cutrcnt Assets ond Decrcase in Cwrcnt Liobilities: Partl

Bills Receivable
Atcrued Income
2,500
1,000
t;
Add:
Creditors
5,000
Bills Payable
15,000 ' (23,500)
Cash Flow from Operating Activities Prbf
1,16,700
Add.
Note:
Calculation of Profit before Tax 7
Closing Surplus, ie., Ealance in Statement of profit and Loss
1,80,000 L€55
lerir Opening Surplus, i.e., Balance in Statement of profit and Loss 50,000
Net Profit for the year ended 3lst March, 2015
liqg00
Illustration 22. Compute Cash Flow from Activities from the information:
Parliculars
31st March, 3l n March,
201s (t) 2014 ({)
Surplus, ie., Ealance in Statement of profit and Loss
r 2,00,000
Trade Receivables (Debtors)
6,20,000
0utstanding Rent Ilh
42,000
Goodwill
76,000 (,
Prepaid Insurance
4,000
Trade Payables (Creditors) Paii
3,80,000
DeF
Solution: CASH FLOW FROM OPERA]ING ACTIVITIES Am,
Trar
Particulars
Prol
Net Loss for the year ended 31st March,20l5 before Tax (Note t) {r,00,000)
Add: Detreose in Current Assets: lt
Trade Receivables (Debtors) P-,

Less: Increose in Current Assets and Deoe1se in Curent Licbitities:

Prepaid Insurance Irar
4,000
Outstanding Rent
18,000
Trade Payables (Creditors) (r,42,000)
1,20,000
Tra
Cash Used in Operating Activities (1,22.000)
Pre
ilI Cash Flow Statement-BaseL on Accounting Stanilard-3 (Reaisedl 3.23

on: Notes:
1. Net Profit (Loss) for the year ended 31st March, 2015: {
:h, 't
Closing Surplus, i.e., Balance in Statement of Profit and Loss 1,00,000
less: Opening Surplus, i.e., Ealance in Statement of Profit and Loss 12,00,000
Net Loss for the Year (r,00,000)
0 2. t4,000 have been paid for purchase of a fixed asset, i.e., goodwill. lt is not an Operating Activity. lt is
0
an Investing Activity, therefore, it does not affect Cash Flow from Operating Activities.

0 Illustration 23. Calculate Cash Flow from Operating Activities from the following information:
0
Particulars 31st March, 3l st March,
c- 2o1s (t) 20r 4 ({)
l
l Surplus, r.e,, Balance in Statement of Profit and Loss 3,00,000 2,00,000
Trade Receivables (Bills Receivable) 1,80,000 1,40,000
Provision for Depreciation 3,20,000 3,00,000
0utstanding Bent 40,000 i 6,000
Prepaid Insurance 12,000 14,000
m0 Goodwill 1,60,000 2,00,000
Inventories (Stock) 1,80,000 1,40,000

100 Solution: CASH FLOW FROI\4 OPERATING ACTIVITIES

t00 Particulars

Profit for the year ended 31st March,2015 (Note)

Add: Non-coshExpenses:
Provision for Depreciation
)0) Goodwill Amortised
Profit before Working Capital Changes
g Add: lncreose in Cuntent Lilbilities ond Decrc7se n Current Assets:
Outstanding Rent
Prepaid lnsurance

)0 Less: lncreose in Cuftent Assets:

)0 Trade Receivables (8ills Receivable)
p lnventories (5tock) {80,000)

:l: Cash Flow from Operating Activities 1,06,000

Note: Profit for the year ended 3lst March, 2015: t

Closing Surplus, i,e., Balance in Statement of Profit and Lois 3,00,000
Leiij Opening Surplus, i.e., Balance in Statement of Profit and Loss 2,00,000
Profit for the year r,00,000
Illustration 24. Calculate Cash Flow from Operating Activities from tlie following:
(i) Profit earned during the year is { 2,50,000 after consl the following items:
Partlculars

Depreciation on Fixed Assets. 10,000

Amortisation of Goodwill 5,000
Transfer to General Reserve 7,000
Profit on Sale of.Land 3,000
r)
(li) Following is the position of current assets and current liabilities:
l) Particulars Opening
.J Balances (l)

Trade Receivables:
Debtors 12,000
Eills Receivable 10,000
Trade Payables (Creditors) r5,000
Prepaid Fxpenses 6,000
- 3.24 Management AccountinS (Section B) -ISC XII Crr s

Solution: CASH FLOW FROM OPERATING ACTIVITIES Notr

Particulars
{ t Calc
Clos
2,57,000 Less;
Net Profit before Tax (Note) I
Add: Non-cashExpenses:
Depreciation on Fixed Assets r0,000 Add:
5,000 15,000
Amortisation of Goodwill
2,72,000

Less: Non-opentinglncome: Net'

. Profit on Sale ofLand
(1,000)

Opercting Profit before Working Capital Changes

2,69,000 Illu
Add: Decrease in Cwrcnt Assets: I lol
Bills Receivable 2,000
2,000 . 4,000
t*
Prepaid Expenses
2,73,000
t.E
Less: Decreose in Cuttent Liobilities ond lncreose in Curcnt Assets: 1.
Creditors s,000
3,000 (8,000)
Debtors
Adivities 2,65,000
Cash Flow from Operrting

7
Note: Net Profit before Tax:
Profit for the year (Given) 2,50,000
7,000
Add: Transfer to General Reserve I

Net Profit before Tax 2,57,000

A

Illustration 25. From the following informatiory calculate Cash Flow frorn Activities: 1.

31st March,
Particulars
2014 (t)
L
65,000 60,000
Surplus, i.e., Balance in Statement of Profit and Loss
Trcde Receivables:
40,000 87,000
Debtors
1,03,000 62,000
Bills Receivable
2,37,000 2,02,000
General Reserve
1,00,000 78,000
Debenture Redemption Reserve T
12,000 30,000
Salary Outstanding _ ___i
7,000 5,000
Wages Prepaid Note:
70,000 80,000
Goodwill
Partic

Solution: CASH FLOW FROM OPERATING ACTIVITIES

1.s
Pariiculars -E
62,000
Net Profit before Tax (Note) 1

Adiustments
I0,000
Add: Non-cosh.Expenses: Goodwill Amortised 2.R
72,000
Opercting Ptofit bef ore Wotking Clpltol Changes G

Add: Decreose in Cwrent Astets: 5

47,000
Decrease in Debtors
r,19,000 3,7
C
Less: Increose in Current Assets ond Decreose in Cutrent Liobilities:
lncrease in Bills Receivable 41,000 B

Increase in Prepaid Wages. 2,000

Sala'ries 0utstanding 18,000 (61,000) 4.0

c
Cash Flow from Operaiing Activities
:Xil Cash FIow gtatement-Based on Accounting
Siandard_j (Reaiseil)
3.25
Note:
T
Calculation of Net profit for the year:
Closing Surplus, r.e., Balance in Statement of profit
and Loss
rB* tess; Opening Surplus, r.e., Balance in Statement of profit 65,000
and Loss 60,000
5,000
Add: Appropriotions:
;,000
General Reserve (t 2,37,000, t 2,02,000)
r,000 35,000
Debenture Redemption Reserve (t 1,00,000 _ t 73,000)
22,000
000) Net Profit before Tax
62,000
!,000
Illustration 2d . From the following Balance Sheets of Bhushan
Steel Ltd., .ul.ulrt.turh-_-
Flow from :rating Activities:
Particulars
,000
3lst March,
Poo 2014 (0
I. EQUITYANDLIAEITITIES
1. Shareholderi,Funds
100) {a) Share Caoital
(b) Reserves and Surolus
9,00,000
000
2. Current Liabilities 1,40,000

{r} Trade payables

r, r 0,000
{b) 0ther Current Liabilities
100 (c) Short-term Provisions 40,000
)00 1,64,000
Tbtal
4q ASSETS
13,54,000

es: l. Non-Current Asset5

fixed Assets:
(l) TangibleAssets
{ll } Intangible Assets 5,60,000

2. CurrentAssetj 2,30,000

{d) Current Investment

-Marketable Securities
(b) Inventories 30,000
(c) Trade Recetvables |,94,C10
(d) Cash and Cash Equivalents 3,20,000
20,000
Total

Notes to Accounts

Particulars
3'lst March, 31st March,
20ls ({) 20l4 (t)
1. Share Capital
00 Equity Share tapital
8,00,000 6,00,000
l2% Preference Share Capital
2,00,000 3,00,000
l0 r0,00,c00
2. Reservesand Surplus 9
)0
GeneralReserve
1,40,000 80,000
5urplus, ie., Balance in Statement of profit and
,! Loss
96,000 60,000
)0 2,36,000
3. Trade Payables 1,40,000

Creditors
1,00,000 80,000
Bills Payable
66,000 30,000
1,66,000 't,10,000
4. Other Current l_iabilities '
4.
Outstanding Expenses
32,000 40,000
 3.26 Management Accountirrg (Section B)
-ISC ilI Cas
5. Short-termProvisions
Proposed Dividend 84,000 (r
Provision for Tax 80,000
1,64,000
Tangible Assets
Land and Euilding 4,00,000
Plant I
5,60,000
Intangible Assets-
Goodwill 2,30,000

Solution: CASH FLOW FROM OPERATING ACTVITIES Trei

Particulars Net
Net Profit before Tax (Note t) asse
Add: Non-coshExpenses: fixe,
Depreciation on Land and Building ({ 4,00,000 - { 3,40,000)
6oodwill amortised
orL
Operating Profi t before Working Capital Changes Purt
Add: Decreose in Current Assets ond lncreose in Cu ent Liobilities: paid
Increase in Creditors
Loss
inciease iii Eills Payable
belbr
Decrease in lnventories
Illur
Less: Increase in Cwrent Assets ond Deueose in Cuftent Liobilities:
infor
Increase in Trade Receivables
Decrease in Outstanding Expenses
:-l
Partlc
Cash Generated from 0perating Activities 90,000
[ess: IncomeTax paid (Note 2)
Cash Flow from Operating A(tivities t;'ot,
2,10,000
Gener

Notes:
1. Profit for the year (( 96,000 - { 60,000)
t Provis
0utst;
36,000
Addr Transfer to General Reserve 60,000 Goodi
Proposed dividend during the year (On Equity and preference Shares) 1,00,000 Trade
Provision for Tax (Note 3) 1,00,000
Net Profit before Tax 2,96,000 Apu
cJurir
2- 'Provision for Tax' appearing on the Iiabilities side of the previous year's Balance
Sheet is presumeo to
have been paid during the year. Hence, it is deducted while calculating the Cash Flow from Operating Solu
Activities.
3 'Provision for Tax' appearing on the liabilities side of the current year's Ealance Sheet is added to Particr

current year's profit to calculate'profit before Tax'. Net Pr(

Treatment of Depreciation A0d:

Profit or loss for the period is tletermined after debiting dcpreciation to Statement of Profit
and Loss. It does not involve cash but is an allocation of cost of fixed assets over its useful
life. It is, therefore, an entry not involving cash. Therefore, depreciation is addetl to net prllit
before tax to calcultrte Cnsh Flou on Operating Actittities. Less: l
I
Determining Depreciation by Preparing Fixed Asset Account
0perat
(i) Fixed Asset Account (on Written Down Vslue Basis): When Balance Sheet does nor
Add: I
have an item of Provision for Depreciation or Accumulated Depreciatiory it means that
I
the fixeti assets are shown in the Balance Sheet at their book value, i.e., cost ler^s depreciation
and hence Fixed Assets Account is prepared on written down value basii. in this
le;s: I
case, the amount of current year's depreciation is credited to the Asset Account. (
Note: For Fixed A:sct Account (At written down value)-f?efer to paqe 3.35. Cash Fl
 xll Cnsh Fiow Statement_Baseil
on Accounting Statdard_3 (Reoised) j.Z7
0
0

l
l
t*"' (At cost) and Accumulated
l ;il.:'::orlT!.l;:"'"t Depreciation Account-Refer
ro

Tfeatment of profit or Loss on

Sale of Fixed Asset

000
000

000
000
Operating Activities from the
following
)00) Paniculars
000 Closing Ealance
)00)
Surplus, Le., Ealance in Statement
t
000 of protit and Loss
General Reserve 3,00,000 3,50,000
Provision for Depreciation on plant 1,00,000 i,50,000
0utstanding Expenses 3,00,000 3,50,000
t00
Goodwill 50,000 30,000
)00
Trade Receivables (Sundry 2,00,000 1,00,000
100 Debtors)
)00 4,00,000

4
to
Solution: CASH FLOW FROM OPERATING
Ing ACTIVITIES
Particulars
t0
Net Profit before Tax {Note l)
Add: Non-cash Expenses:
Depreciatjon on plant (Note 3)
fit Goodwill Amortised 1,10,000
ul 1,00,000 2,10,000
,fit 3,10,000
Less: Non-operottng lncomes:
.
Profit on Sale of plant (Note
2)
Operating profit before Working {40,000)
Capital Changes
ot Add: Decrcose in Cwrcnt 2,70,000
Assets:
at Trade Recervables (Sundry Debtors)
)n 50,000
,lS Less: Decre1se in Cuftent Liobilities: 3,20,000
0utstanding Expenses
Cash Flow from Operating Activities (20,000)

3,00,000
 G

3.28 Management Accounting (Section Bl-lSC ill

Cas

Notes:
Sol
1. Calculotion of Net Profit belore Tax:
3,s0,000 Pa rt
Closing Surplus, i.e., Balance in Statement of Profit and Loss
less: Opening Surplus, i.e., Balance in Statement of Profit and Loss 3,00,000 Net:
50,000 Adjr
Net Profit for the year
Add
to General Reserve . 50,000
Add: Iransfer
1,00,000
Net Profit before Tax
UTE.
Add:
PLANT ACCOUNT Cr'
2.Dr.

Particulars t Particulars t
o Balance b/d 2,00,000 By Bank A/c-Sale r,80,000

o Statement of Profit and Loss (Profit on Sale) 40,000 By Provision for Depletiation A/c (Note 4) 60,000
leJt
(8a1. Fig.) (Depreciation on Plant Sold, ie.,
{2,00,000-{1,40,000)
Casl
2,40,000 2,40,000
Les,r

Casi

PROVISION FOR DEPRECIAiION ON PLANI ACCOUNT Cr.

3.0r. Not

Particulars t Particulars { Calt

Cios
To Plant A/c (Note 4) 60,000 By Balance bld 3,00,000
Lesl
To Balance c/d 3,50,000 By Statement of Profit and Loss (Depreciation 1,10,000
provided during the year) {Bal. Fig.)
qJ 0p00
Add
4,10,000

Net
4. Accumulated depreciation on the pla nt sold is adjusted by debiting to Provision for Depreciation
Del
Account and trediting it to Plant Account. 'fa'
Illustration 28. From the following information, calculate Cash FIow from Operating Activities: c\,r
()Fl
Particulars
Shc
Surplus, Le., Balance in Statement of Profit and Loss on 1n April, 2014
3,50,000 ['rc
9,00,000 Cl'Cr
Surplus, i.e., Ealance in Statement of Profit and Loss on 31st March, 2015
1,25,000 deL
Depreciation
Llei
80,000
Amortisation of Goodwill
Sla
2,00,000
Loss on 5ale of Machine
anli
1,50,000
Provision for Tax
Dt.
3,00,000
Transfer to General Reserve
2,28,000 Pa(
Decrease in Debtors (Trade Receivables)
47,000
Decrease in Eills Payable (Trade Payables) To
50,000
Outstanding Expenses on lst April,2014 To
65,000
out!;tandrng Expenses on 3lst March,2015
Prepaid Expenses on ln APril,20l4 40,000

20,000 Let
Prepaid Expenses on 3'lst March, 201 5

Evi
Adtlitional Itfornntion: hrcome Tax ireid r-iurirlg the year was { 2,50,000' \ l.r
Iiitr
:xil Cnsh Flow St ement -Bnsed on Accounting Stendnrd-3 (ileaisedl 3.29

Soluiion: CASH FLOW FROM OPERATING ACTIVITIES

),000 Particulars

),000 Net Profit before Tax (Note) r0,00,000

),000 Adjustments for Non-cash and Non-operating ltems

Add: Deoreciation 1,25,000
),000
Amortisation of Goodwill 80,000

400 Loss on 5ale of Machine 2,00,000 4,05,000

0perating Profit before Working Capital Changes r4,05,000
Add: Decreose in Cuftent Assets \nd lncreose in Cutrent Liabilities:
Cr.
Decrease in Debtors 2,28,000
Decrease in Prepaidtxpenses ({40,000 -t 20,000) 20,000
- Increase in outstanding Expenses ({ 65,000 - { 50,000) 15,000 2,63,000
0,000
16,68,000
0,000
Less: Decreose in Current Liobilities:
Decrease in Bills Payable (47,000)

Cash Generated from Ooeratinq Activities before Tax 16,21,000

0p00
less; Tax Paid (2.s0,000)

Cash Flor,', from Operating Activities 13,7r.000

Cr.
Note:
Calculation of Net Profit before fox: ,t
Closing Surplus, i.e., Balance in Statement of Profit and Loss 9,00,000
0,000
less: Opening Surplus, i.e., Balance in Statemen{ of Profit and Loss 3,50,000
),000
5,50,000
Add: Transfer to General Reserve 3,00,000
c,099
Provision for Tax 1,50,000
Net Profit before Tax r 0,00,000
rtio n
Determining Tax Paid by Preparing Provision for Tax Account
Tai paid during the accounting year may have to be computed from the amounts given. For
ties: example, amount for provision made is given in the Statement of Profit and Loss and the
opening and clclsing balances of Provision for Tax Account are giverr either in the Balance
Sheet or as additional information. In such a case, tax paid is determined by preparing
1,000 Provision for Tax Account. Opening balance of Provision for Tax Account is placed on the
1,000 credit side of the account by writing'By Balance bld' and closing balance is placed on the
5,000 debit side by writing'To Balance c/d'. Provision for Tax made during the year, i.e., amount
debited in the Statement of Profit and Loss is placed on the credit side by writing'By
t,000
Statement of. Profit and Loss'. The account is balanced and the balancing amour-rt is the
1,000
amount o[ tax paid. The Prclvision for Tax Account will appear as follows:
1,000
Dr PROVISION FOR TAX ACCOUNT Cr.
1,000

1,000 Partrculars t Particulars t

/,000
o Bank Aic (Tax Paid) (Balancing Figure) By Ealance b/d
1,000 o Balance r/d 8y Statement of Profit and Loss (Provision made)
;,000

),000

),000 Let us take an erample for better rrnderstanding.

Evian Ltd. has balance in Provision for Tax Account of { 50,000 and t 75,000 as on 31st
iV{arch, 2014 and 2015 respectively. It madc a provision for' tax rluring thc vear of { 65,000.
Frnd orL[ the arnount of tax paicl dunng the vear.
 --FI:

3.30 Management Accouflting (Section Bl ISC XII Cas

-
Solution: Sol
Parti
By preparing Provision for Tax Account, tax paid can be determined as follows:
Net f
Dt. PROVISION FOR TAX ACCOUNT LI Add:

Particulars Particulars {
6oeJ

To Eank A/c (Tax Paid) (Ealancing Figure) 40,000 By Ealance b/d 50,000 Add:
To Ealance c/d 75,000 8y Statement of Profit and Loss 65,000
{Provision made)

r,r5,000 r,15,000
less;

Illustration 29 (Calculation of Tax paid by Prepnring Prouision t'or Tat Account). From the
following information, calculate Cash Flow from Operating Activities:

STATEMENT OF PROFIT AND LOSS

Cash
for the yeor ended 3lst Morch,20l5
teJJl
Particulars Casl

l. ln(ome
Revenue from Operations/Net Sales 1 1,00,0c0 Not,

ll. Expenses
Cost of Materials Consumed 6,00,000
Entployees 8enefit Expenses 1,50,000
Depreciation and Amortisation Expenses 1,00,000
0ther Expenses 90,000
2Dr
Total 9,40,000
,Parti
lll. Net Profit (l- ll) 1,60,000
To
Note to Accounts
To

l. Other Expenses t
General Expenses . 40,000
Provision for Tax 50,000
90,000 Pr
dt
Additional lnt'ormation:
Illu
Particulars 1st April, 2014 2t)1

Trade Receivobles: ut)

Debtors 1,50,000 1,25,000
(b)
Eills Receivable 30,000 40,000
Trade Payables (Creditors) 75,000 85,000
(c)
Inventories (Stock) r,35,000 1,10,000 (,1)
Salaries 0utstanding 15,000 10,000
(r)
Prepaid Insurance 21 ,500 25,000
Provision for Tax 10,000 r 5,000
 Cash Flow Statement-Based on Accounting Standard-3 (Reaised)
]XII 3.31

Solution: CASH FLOW FROM OPERATING ACTIVITIES

Particulars

Net Profit before Tax (Note l)

2,10,000
Lf. Add: Non-cosh ltem:
Depreciation and Amortisation Expenses
1,00,000
0perating Profit before Working Capital Changes
r,10,000
),000
Add: Decrease in Cwrent Assets and Inuease in Current Liabilities:
;,0J0 Decrease in Bills Receivable (Trade Receivables)
10,000
Increase in outstanding Salaries
5,000 15,000
;,000
3,25,000
Less: Incrcose in Currcnt Assets and Decrease in Current Liabilities:
Increase in Sundry Debtoru (Irede Receivablet
the 25,000
Increase in Inventories (Stock)
25,000
Increase in Prepaid Insurance
2,500
Decrease in Sundry Creditors {Trade payables)
r0,000 (62,500)
Cash Generated from Operations before Tax
2,62,500
less: Income Tax Paid (Note 2l
(55,000)
Cash Flow fiom Operating Activities
2,07

000 Notes:

1. Net Profit after Tax 1,60,000

000
Add: Provision for Tax (provided) 50,000
000
Net Profit before Tax 2,10,000
000

000
2. Dr. PROVISION FOR TAX ACCOUNT
Cr
000
Particulars t ,Particulars {
t00
To Bank A/c ffax Paid) (Bal. Fig.) 55,000 8y Balance b/d 15,000
0 Ealance c/d I0,000 8y Statement of Profit and Loss (provision made) 50,000
65,000 65,000

lf the amount of tax paid is not given,

it can be calculated by preparing the
Provision for Tax Account. This account gives information about the
tax paid
during the. cu(ent year as well as provision for tax made for the current year.
Illustration 30. Arthur Ltd. reported a profit of t 90,000 for the year ended 3ist March,
4 2072, after considering the following:
(
(a) Tax provided during the year
3,000
(b) Amortisation of goodwill
12,000
(c) Profit on sale of larid
5,000
(d) Writing off prcliminary expenses 2,000
(e) Machinery costing { 40,000 (accumulated depreciation thereon
being t 18,000) r.vas sold during the year at a loss of { i7,000.
 r--
3.32 Management Accountitrg (Section BI-ISC XII Cas,

Extracts of its Balance Sheets in the and at the end of the ven below:
3. Di
Particulars 3l st March,
2012 ({) Parti(

16,000 20,000 ToB

Accounts Rec€ivable
15,000 12,000
Stock
10,000 8,000
Cash at Bank ToE
I t,000 9,000
Accounts Payable
5,000 6,000
Expenses Payable
6,000 4,000
Provision for Taxation
2,000 5,000
Investments (Short-term)
r,30,000 94,000
Plant and Machinery (Net value)
10,000 12,000
Proposed Dividend

You are required to calculate Cash Flow from Operating Activities as per Accounting lttut
(tsc 20t31
Standard-3 (Show your workings clearly). ittt,t
Solution: Arthur Ltd. tof
CASH FLOW FROM OPERATING ACTIVITIES for the yeor ended 3lst Motch' 2012
loar
Particulars Act
1,05,000
Net Profit before Tax (Note l)
Add: Non-cash ond Non-operoting Expenses:
Loss on Sale ofMachiriery (Note 2) 17,000

Preliminary Expenses Written off 2,000

Cn:"
Goodwill Amortised 12,000

Depreciation (Note 2) t4 /o r r,r

1,50,000
Tre
Less: Non-operutinglncome:
Profit on Sale of Land
1,45,000
Openting Ptofit before Working Copitol Chonges
Add: Deqdase in Cunent Assets lnd In(eose in Cuftent Liabilities: t. :
Declease in Invenlories (
Increase in Expenses PaYable 4,000
1,49,000 11
Less: lncreose in Current Assets ond Decrease in Cuftent Liobilities: I
lncrease in Accounts Receivable 4,000 LI
2,000
Decrease in Accounts Pavable
i,43,000
t. l

Cash Flowfrom Operating Adivities beforeTax

(s,000)
lerr: Tax Paid {Note 3)
1,38,000
Cosh Flow fron 1perating Activities Cal
Notes: Pr'1i

1. Net Profit before Tox:

{ t.
Net Profit for the year 90,000
Add: Tax Provided (for the Year) 3,000
'I
Proposed Dividend 2,000
Net Profit before Tax r,05,000
PLANT AND MACHINERY ACCOUNT Cr.
2. Dr.

Particulars t Particulars t
.

e b/d r,30,000 By Bank A/c (Sale)* 5,000

By Loss on Sale of Machinery r 7,000
'14,000
By Depreciation A/c (Ealancing Figure)
By Ealance c/d
' 94,000

r,30,000 1,30,000 t.

*Book value of Machinery { 40,000 -

= t 18,000 = { 22,000 il
L4s5j Loss on Sale of MachinerY t
t
17,000
t:
Sa le s,000
Li
ilI Cash flow Statement-Based on Accounting Standard-3 (Reaisedl
J.JJ
)lV:
3. Dr, PROViSION FOR TAX ACCOUNT

Particulars
{ Particulars
t
To Bank A/r-Tax Poid 5,000 By Ealance b/d 6,000
{Ealancing Figure) By Statement of Profit and Loss (provision) 3,000
To Balance cld 4,000

9,000
9,000

2. CASH FLOW FROM INVESTING ACTIVITIES

ng lnuesting Actiaities 0f an enterprise are acquisiti,, and
disposar of rong-term assets and other
inoestments not included in cas.h equiuarenfs. Accordingry,
cash infrow and outfrow relating
to fixed assets, shares and debentures, etc., of other
interests in joint ventures,
"ni".p.is"s,
loans and advances to third parties and also their repayments
are shown under Investing
Activities in Cash Flow Statement.
00

Please Note tha/Cunenr ff short-tern ;!nuuatrantruffi

Cnsh Flow from Inaesting Actittities is nscertnineti by annlysitLg the chnnges in
4 Iong-term inaestmerts irt the begirmitry trrtd nt thc
fixetl ttssets and
entl of'the yenr.
l0
Treatment of Important Items while Computing Cash
Flow from Investing Activities
E
)0
Treatment
1. Sale of Fixed Assets or Non-Current Investments
Cash Inflow from lnvesting Activiries
r0 {Non-Current/Long-rerm)
0 2. Rent from Property or Interest or Oividend from
Cash Inflow from Investing Activities
Investment
Purcha.e of Fixed Assets/Long-term Investment
rl
Cash 0udlow in Investing Activities
0 lncrease in Accrued lnterest
Subtract from total interest to get net amount of interest
t1 recetved.
I Calculalion of Cash Flow from Inv Activities
Particulars

l. Cash Inflow from Investing A(tivities

Proceeds from Sale of Tangible Fixed Assets (e.9.,
Machinery)
Proceeds from Sale of Intangii_rle Fixed Assers
re.9., goodw;ilj
Proceeds from Sale of Non-Cunent/Long term Invesiments
lncome from Investment
Dividend/lnteresr/Rent received

ll, Cash Used in Investing Activities:

Payment for Purchase of Iangible Fiied As)er\ {e.q.,
Machinervl
Payment lor Purchase of lnrangible Assers
{e.9.. Goodwilli parents)
Haymenl tor pur(hase ol Non-Current/Long term
Investments

Cash Inflow (if | > ) from or Used (if ll > l) in Investing Activities

Please Note that as per Guidelines issued by ISC

Council, Current lnvestnrenis are to
be included in Cash and Cash Equ iva lents.
 3.34 Management Accounting (Section B)_ISC ru : Css

Illushation 31. From the following particulars, calculate Cash Flow from Investing Activities: lloi
Dr.
Purchases (l) Sales (t) Parti
Investments 1,80,000 1,00,000
To
Goodwill 2,00,000 to
Machinery 4,40,000 1,50,000'
Patents 1,00,000
Interest received on Debentures held as an investment t 16,000.
Dividend received on Shares held as investment { 20,000.
;
A plot of land was purchased for investment purposes and was let out for commercial use tr, I
and rent received was t 80,000. Ine
Solution: As,
CASH FLOW FROM INVESTING ACTIVITIEs (Pr
Particulars Fix
of
Prcceeds from 5a!e cf !nvestments 1,00,000
Proceeds from Sale of Machinery De
1,50,000
Proceeds from Sale of Patents clp
r,00,000
Interest Received 't6,000 ot
Divrdend Received 1\Ci
20,000
Rent Received dnt
80,000 4,66,000
less: r'l\
Purchase of Investments (1,80,000) i.
Goodwill Purchased (2,00,000) 2
Machineri Purchased (4,40.000) (8,20,000)
Cash Used in Investing Activities (3,54,000) Let
1.
Note: Amounts in brackets show outflow of cash, 1.e., amounts that are to be dbducted.

Illustration 32. A company had the following balances:

Dr.
Particulars
-?a rt
Investments in rhe beginning ofthe period -
34,000
Investments at the end ofthe period To
28,000
To
To
During the ygar, the company sold 40% of its investments held in the beginning of the period
at a profit of t 8,400. Calcdlate Cash Flow from Investing Activities.

Solution:
CASH FLOW FROM INVESTING ACTIVITIES
Not
Particulars l

Inflow from Sole of lnvestments: ).

Cost of Investments sold (40% of t j4,000)
Add: Profit on Sale 3
22,000
0utflow on Purchase of Invenments (WN) (7,600)

Cash Flow from Investing A(tivities 14,400

:XII Cash Flow Statement-Based on Accounting Standard-3 (Reoised) J.J5

ties: Working Note:

Dr. INVESTMENTS ACCOUNT Cr.

Particulars t Particulars {
To Balance b/d 34,000 By Eank A"/c 22,000
To Statement of Profit and Loss 8,400 (Sale of Investments) (( 13,600 + t 8,400)
(Profit on Sale of Investments) (40% oft 34,000 = t 13,600)
To Bank A/c (Purchases) (Bal. Fig.) 7,600 By Balance c/d 28,000

50,000 50,000

A better way to calculate the amount of Cash FIow under Cnsh Flou
t'rom Inaesting Actiaities is
use to prepare Ledger Account tttith auailqble int'ormation. The required amlunts will be known
from
the Ledger Account.

Ascertaining Missing Amounts Regarding Fixed Asset [e.g., Sale, purchase, Gain
(Profit)/Loss on Sale or Depreciationl by Preparing Fixed Asset Account
Fixed Asset Account shows purchase and sale of fixed asset, gain(profit) or loss on sale
of fixed asset and depreciation charged during the year.
Depreciation and Loss on salc of fixed asseis is added io-compute Cash Flow from
operating Activities being non-cash and non-operating items while gain (profit) on sale
of fixed assets is deducted. sale of fixed assets is shown as Cash Flow from Investins
Activities at the amount received against sale. Purchase of fixed asset is shown at the
amount paid for it.
000
Fixed Asset Account mav be prepared when:
1. Fixed asset is shown at Written Down Value; and
2. Fixed asset is shown at original crrst and accumulated depreciation or Provision for
)00) Depreciation Account is separately maintained.
!q Let us discuss them in detail.
1. when Fixed Asset is shown at written Down value: Fixed Asset Account appears as
follows when they are shown at Written Down Value:
FIXED A55ET ACCOUNI
Dr. (At Written Down Value), ie.; after Depreciation Cr.

Particulars I Particulars t
00

r00
To Ealance b/d By Bank A/c (5ale of Fixed Asset)
To Bank fuc {Purchases) By Statement of Profit and Loss
To Statement of Profit and Loss (Loss on 5ale of Fixed Asset)
'd (Proflt on Sale ol Eixed Asset) By Depreciation A/c
By Ealance r/d

Notes:
1. Purchasb of a fixed asset is the balancing amount on the debit side of the account and der-,reciation
or sale of a fixed asset on the credit side of the account.
2. lnformation regarding depreciation is generally given in the question. Students are required to find out
only the sole or pwchose of osset.
3. lf both sale and depreciation are not given. then assume rt is either sale or depreciation and give your
assumption. .-W}-
In the case of land' it should be treated as sale because depreciation is not charged on land. In the
case of patents, goodwiil and trademarks, it should be assumed that the amount is written off.
3.36 Manegemenl Accounting (Section Bl-lSC XII --- Cssl

Illustration 33. Sky Ltd. has Plant and Machinery, the written down value of which on
Accl
1st April, 2014 was { 8,60,000 and on 31st March, 2015 was t 9,50,000. Depreciation for'
the year was t 40,000. In the beginning of the year, a piece of plant was sold for t 25,000 Dr.

which had a written down value of T 20,000. ; Partir

Calculate Cash Flow from Investing Activities. To t-

(
Solution: CASH FLOW FRoM INVESTING ACIlVlTlES
Tol

Cash Payment to acquire Plant and l\4achinery {WN) Notr

Cash Receipts from Sale of Plant and Machinery
Cash Used in Investing Activities
Illu
Wo*ing Note: Act
Dr. PLANT AND MACHINERY ACCOUNI Cr.
Parti

Date Particulars { Date Particulars {

, Mac
2014 2014 1 AtCt
April 1 Io Balance b/d 8,60,000 April 1 By Bank A/c (lnflow) 25,000 pate
April I To Statement of Profit and Loss 5,000 lu t5
8y Depreciation A/c i,,11
lGain (Profit) on Sale of Plantl March 31 40,000
April 1 To Eank A/c (Purchase) {8al.Fig.) 1,50,000 March 31 By Ealance c/d 9,50,000 L
10,1 5,000 r0,r 5,000
1

2. When the Fixed Assets are shown at Original Cost and Accumul"ted Depreciation
Account (provision for depreciation) is separately maintained: Whut this nethod is 5ol
follou,ed, deprecintiott is not delttted to the Asse.t Accouttt. The depreciation for the period
Pa 11

is debited to Depreciation Account (transferred to Statement of Profit and Loss) and

Pror
credited to AcuLnulated Depreciation Accourrt or Prottision t'or Depreciotion Account. In
0ut
the Balance Sheet, asset appears at its original cost and the Accumulated Depreciation lnflt
or Prouisiott for Depreciation Accotutt rs shorvn eithcr by deducting it from Fixed Assel
Account (shown at cost) or is sholvn on the liabilities side of Balance Sheel. In such.
cases, separate accounts for fixed asset and accumulated depreciation or ;ror,'ision for *
deprecration is maintained. Depreciation for the year can be ascertained from Provisior. t.D

for Depreciation Account. Thus, in additioh to Fixed Asset Account, Accumulated Par

Depreciation Account or Provision for Depreciation Account is also prepared to fo

determine purchase or sale of fixed asset. To

Fixetl Asset Account appears as follows: .ic

Dr. FIXED ASSET ACCOUNT (At Cost) Cr.

Particulars t Particulars t
o Balance b/d By Eank Aic (5ale ofFixed Asset) )L
o Statement of Profit and Loss By Accumulated Depreciation A/c
lGarn (Profit) on Sale of Plantl (Accumulated Dep. on Fixed Asset Sold)
o Bank A/c (Purchase of Fixed Asset) 8y Statement of Profit and Loss l,l
(Loss cn Sale of Fixed Asset)
I-c
By Ealance r/d

.C
Note: Purchase of fixed asset is thp balancing amount on the debit side of the account and the sale of
fixed asset on the credit side of the account.
 Yil
Cash Flow Statenent-Bnsed on Accounting Standard-3 (Rez.tisedl
J.J /
on
br Accumulated Depreciation Account or prcvision for Depreciation
Account appears as follows:
00 Dr. ACCUMULATTD DEPREC|AT|ON ACCOUNT Ct.
Particulars t Particulars
{
To Fixed Asset A/c
By Balance b/d
(Acc. Dep: on Fixed Asset Sold)
By Depreciation A/c
To Balance c/d (Depreciation for the year)

Note: Accumurated depreciation on the fixed asset sord or depreciation

q accounttng
charged for the current
year may not be given, which shall be the balan;inq
r0) amount.
Illustration 34. From the following information, calculate Cash
Flow from Investrng
Activities:
Paniculars
Closing (t)
Machinery (At cost)
4,ooooo 4,20,000
Accumulated Depreciation
1,00,000 1,10,000
Patents
2,80,000 j,60,000
0' ndd ii iou al Iuiorma t ion :
0
1. During.the year, a machine costing { 40,000 with its _accumulated
depreciation of
c t 24,000 was sold for t 20,000.
- 2. Patents were written off to the extent of T 40,000 and sonre
I patc'nts were solc{ at a
profit of { 20,000.
Solution: CASH FLOW FROI/ INVESIING ACTIVITIES
I

I
Particulars

L Proceeds from Sale of Machinery

Outflow on Pur(hase of Machinery {WN 20,000
I I)
(60,000)
Inflow from Sale of patents (WN 3)
r,00,000
Cash Flow fiom Investing Adivities
60,000

Working Notes:
1. Dt.
fulAL:lINERY ACCOUNT
Cl
Particulars
{ Particulars
{
To. Balance b/d 4,00,000 8y Bank A/c (lnflow-Sale of Machinery)
. 20,000
To Statement ofProfit and Loss 4,00c 8y Accumulated Depreciation A/c 24,000
{Gain (Profit) on Sale of Machinery) (Depreciation on Machinery Sold)
To Bank A/c (Purchase) (Bal. Fig.) 60,000 By Balance c/d 4,20,000
4,64,000
4,64,000

2. Dt. ACCUMULATED DEPRECIAIION ACCOUNT

Cr
Particulars
I Particulars
{
To Machinery A/c 24,000 By Balance b/d 1,00,000
(Depreciation on Machinery 5old)
By Depreciation A/c (Bal. Fig ) 34,000
To Eaiance c/d 1,10,000 (Depreciation for the year)
1,34,000
1,34p00
*Gain (Profi0
on Sale = Sale Price Eook Va lue of Machinery
=t20,000*t r6,000 (T 40,000 _ { 24,000) = { a,s93.
 3.38
Management Accounting (Section Bl- ISC XII
Cus
3. Dr.
PATENTS ACCOUNT

Particulars ( Sol
Particulars
t
To Balance b/d Pa(i
2,80,000 By Eank A/c (lnflow-Sale) (Bal. Fiq.)
To Statement of profit and Los (profi0
20.000
r,00,000 Proc
8y Statement of Profit and Los (Viritten
(Given) off) 40,000
Purc
By Salance /d 1,60,000
Purc
3,00,000
3,00,000 lnter
Illustration 35. From the following information, UIV(
calculate Cash Flow from Investrng
Activities: Rent

Liabilities Casl
3l st March, 3'lst March, Assets
3tn March, 31st March,
20rs (t) 2014(t)
2015 ({) 2014 (t)
Provision for Depreciation
Wol
30,000 t0,000 Goodwill
on Furniture I Patents 1,00,000 1,20,000
1.Dr
I Land r,20,000 r,00;000
:-
r,80,000 2,00,000 Part'
Plant and Machinery (Net)
3,20,000 3,60,000 To
Furniture (Gross) 2,55,000 25,000
10% Investments Io
1,80,000 2,00,000
Acci'ued inierest on 1096 investments] To
10,000

Solution: CASH FLOW FROM INVESTING ACTIVITIES

Paniculars

)Dt
(20,000)
20,000
:-
Pa rt

(2,30,000)
io-
20,000
I()
10,000
(2,00,000I
Notes:
t j;":';:r* thar the sare of rand was at book varue and as
a resurt there is neirher gain (profit) nor
ross
lllr
2. lt is assumed that investments have
been sold at the end of current accounting year. 3ls
3 lncrease/Decrease in Accrued Interest
on lnvestments affects Cash Flow from Investing
Non-operating Activities. Activities and I:io
4 lt is assumed that decrease in plant and Machinery
is because of depreciation. Depreciation, -
lra rt
part of operatrng Activities, does berng
not affect cash iro* frorn inuerting Activities,
,n. following information, calculate Cash Flow from rnvesring
iln,r#:"lrrr:.rlj:* t.

Partrculars
3lst March,2015
{
1. Investments @ 1 0Zo
2. Fixed Assets 5,00,000
I 1,90,000 .

4dtli t ionol
Int'ortntion:
1. Half of the investments held in ,h._g.gi11,lq
of the year were sold at 10% profit.
2. Depreciation on Flxed Assets was t
1,00,000 7or the year.
l. lnterest recetved on investments_{ 35,000.
L Divitlend received on investments_( 'l5.000.
r. Rent rccciveri
-t 10,000.
ruI Cash FIow Statenent-Based on Accounting Standard-3 (Reaisedl
3.39

Solution: CASH FLOW FROM INVTSTING ACTIVITIES

Particulars
100 Proceeds from 5ale of Investments
100
1,37,500
Purchase of Investments (WN l) (3,75,000)
)00
Purchase of Fixed Assets (WN 2)
(4,r 5,000)
)00 Interest Received
35,000
=
10
'4,
Dividend Received
15,000
Rent Received
10,000

t
t_
Cash Used in Investing Activities

Working Notes:
(s,92,s00)

c0
1.Dr. INVESTMENTS ACCOUNT
l0 Cr
t0 Particulars t Paniculars t
)0 To Ealanceb/d(0pening) 2,50,000 By Eank A/c (Sale)
)0 1,37,500
To Statement of Profit and Loss (Gain on sale) 12,500 (t2,50,000x %= t t,25,000)
r0
To Eank A/c (Purchase oflnvestmentt (Profit l0% oft 1,25,000 = ( 12,500)
(Bal. Fig,)
3,75,000 By Eal.jnce c/d 5,00,000
6,37,500
6,37,500

2. Dr. FIXED ASSETS ACCOUNT

Cr
Particulars { Parr':ulars t
0 Balance b/d (Opening) 8,75,000 8y Depreciation A/c 1,00,000
To Eank A/c (Purchases) 8y Balance c/d 11,90,000
(Bal. Fig.)
4,15,000
12,90,000
12,r0p00

Illustration 37. From the follcwing ;f G & S Ltd. for the years ended
Balance Sheets
31st March, 2015 and 31st March, 20i4 and the additional information,
calculate Cash
Flow from Investing Activitres:
Particulars
Note No. I lst March, 31st March,
20r s (t) 2014 (t)
EQUITY AND tIAEILiTIES
l. Shareholderc'Funds
(o) Share Capital
6,00,000 5,00,000
(b) Reserves and Surplus
8,50,000 7,00,000
2, Current Liabilities
4,10,000 3,55,000
Total
r8,60,000 15,55,000
ASSETS

1, Non-Current Assets
(r) Fixed Assets-langible Assets
r 5,00,000 13,00,000
(b) Non-Cunent Investments
1,00,000 50,000
2. CurentAssets
(o) Trade Receivables
2,00,000 1,80,000
(b) Cash and Cash Equivalents
60,000 25,000
Total
18,60,000 r5,55,000
 3.40
Management Accout ting
$ection B)_rcC Xn Casl
Note to Accounts

Particulars
Add
3lst March,
(t) Divi
l. Fixed Assets-Iangible
Assets
2014

Plantand Machinery(Ne0 year

Land and Euilding (Net)
600,000
Solt
7,m,w
13,00,000 Parttc
Additional lnt'ormation:
Proce
During the year the company
sord machinery at book varue
Solution:
for t 2,00,000. Receil

CASH FLOW FROM INVESTING Cashi

ACTIVIIIES
Particulars

t
(400,000)
2,00,000 Finn
Cash Used in Investing Activities (50,000)
LjTI) tI (
(2,50,000)
Working Note: shar
ut. shor
PLANT AND MACHINERY
ACCOUNT
Pafticulars ----.---....- of E,
--__-- I
Io Balance b/d
lrantcutars
-;-- -. --- - -- - -- -
t 'rr .lr
To
600,000 by 6ank A/c (Sale) ,j^f-q
(
Eank A/c (purchase) 2,00,c00
(Ealancing Figure)
400,000 By Balance c/d il a
8,00,000
- l-'rc
i0,00,000 r\ cc (i
10,00,000
Illustration
rlustration 38. Sta le
39. Following
F are the
Information. Calcu late ,Balance of Elegance Ltd. and also additional
Sheets
Divir
-- Cash Flow rrom lnvesting Activities:
cn let'
EALANCE SHEETS
os at... li is i
Panicrrlar<
lr
31st March, 3l st March,
I. 201s (t) 2014 (0
EQUIWANDiIAEItITIES
L Shareholders,Funds ( ii)
Share Capital
2. Non.CurrentIiabilities 2,00,000 .
Long-term Borrowinqs
2,00,000
(iil
3. Current Liabilities 400,000 5,00,000
Other Current Liabilities
{rr')
Total 5,00,000 400,000
il. ASSETS r 1,00,000 r r,00,000
L Non-Cuffent Assets
(o) Fixed Assets
Crs/r I
(b) Non-Current Investments 3,00,000 3,00,000
2. CurfentAssets 2,00,000
Sltrrrt
4,W,000
(o) Shon-term Loans
and Advances

Total
(b) Cash and Cash Equivalents 4,00,00c
2,00,000
3,00.000

-10!400
r--
I'l'k'r
I
11,00,000 1 1.00.000 It__
( ,,.,
 Cash FIow Statement-Baseil on Accounting
Stanilard_J (Revisedl
3.41

Additional lnformat ion:

Dividend received on investments and credited to
statement of profit and Loss for the
year ended 31st March, 2015 is { 5,0C0.

Solution: CAsH FLOW FROM INVESTING ACTIVITIES

Proceeds from Sale of Investments

Receipt of Dividend

Cash Flow from Investing Activities

3. CASH FLOW FROM FINANCING ACTIVITIES

)
0 Financing Actirities are those actiaities that
resurt in change
owners' capital and bortowings of the enterp.rise.
irQ)*a@fiiii;Lti
the
1 It includ'es pfi.".d, ffi.,u or
t)
' shares (both equity and preference share
capitar), isrue of debentures, roans, othe.
edemption of preference Shares, buy_back
es and repayments of amounts borrowetl.
;* are not included in Financing Activity as
luivalenty' If shares or debentures .era ic",,^r
at a premium, total cash received from the issue
(i., face value .rf shares or
+ premium) is shown as Cash Flow
from Financing Activities in Cash Flow
Accordingly, receipts and payments on account
of the above are shown in Cash Flow
Statement as Cash Flow from Financing
Activities.
Dividends paid (in case of all the enterprises)
and interest paid (in case of non_financial
errterprises) .are classified or shown as
Financing Activity. _
VV^t
It is important to note that
(i) shares issued as bonus shares are not shown
in Cash Flow staterr -,nt as it does not
rnvolve cash. It is caprtalisation of reserves
._ J.fut
(il) when shares or debentures are issued at a premiu , securities premium is
rlrccifi^,{ or arso
classified ^L.....- as.Financing
^. shown ^^ Y
Activity.
(lli) wherL shares or debentures are issued
at a discount, net proceeds (r.e., face varue-
discount) is shown. as,Financing Activity.
(iu) when equity shares are boug
it is classified or.shown as F
of shares or dehentures is a
Cash Flow Financing Actiuit.i,es is.ascertnirred
fron tty nnarysitrg the chartge in Equity and pret'eretice
share Capital, Dehentures nnt! otrrcr borrouirtgs
lrrrrpt"srnf oorrdrnft antr Cash Credit) trurittg
the period.

*Please
note that the Councir reouires that Current
lnvestments, Bank overclraft and Cash
Credit is k) be taken as Cash::nd Cash Etluivalents.
 3.42 Management Accounting (Section Bl_ lSC ilI
Treatment of some iterns while Computing Cash Flow from Financing Activities
Soh
T.eatment :-:
Pant(
1. Increase in Equity or Preference Share Cash lnflow C.rh
2. Increase in Debentures/Loans Cash Inflow lnIeft
3. Increase in Securities Premium Reserve Cash lnflow Rede
Note: lt shows lssue of Shares/Debentures at Dremium. Cash
4. lncrease in Discount on lssue of Shares/Debentures Subtractfrom the increase in the amount ofShare Caoital/
Debentures to ascertain Cash flow from issue. Illu
5. lnterest on Debentures or Loans Cash Outflow Fin;
6. Commission Cash 0utflow Parti(
7. Proposed Dividend (Previous year)
Cash 0udlow
8. 0n
Cash 0utflow
9. Interim Dividend
Cash 0utflow
ttrt
100/o I

1Vo D
Calculation of Cash Flow from Financing Activities
Bank

Add
l. Cash Inflcw from Financing Adivities L
Proceeds from lssue oi Equity or preference share capital (including premium
but excluding discount)
Proceeds from lssue of Debentures {including premium but excluding Solt
discount)
Loans received (both Short-term or Long-terrn but excluding Bank overdraft
and cash credit)
:-:
YafIll

Proc(
ll. Cash Used in Financing Activities
Proc(
-Redemption of Preference Shares
for Cash (including premium) Rede
Redemption of Debentures for Cash (including premium) interl
Interest paid on Borrowings (Debentures and Loans) Divid
R:pa
-y'tnterim Dividend paid on Equity Shares
- Jprp (ash
Final Dividend paid on Equity Shares
Final Dividend paid on Preference Shares
Illu
Buy back of Equity Shares (including premium)
calc
:--
Partr(
lll. Cash Flow from (if | > ll) or Used (if ll > l) in Financing Acrivities

t.E
Illustration 39. From the following information, calculate Cash Flow from Financing 1

Activities:

31st March, 2015

{
Equity Share Capital Not€
5,00,000
l0% Debentures"
r,00,000 Partlr
Securities Premium Reserve
50,000

Ad d it n t nl Info r tnatio tt:'

lnterest paicl on Debentures { 10,000. Debentures rvere redeemed on 1st April, 2014 at a
premium of 10%.
;CXII Cash Flow Statement_Baseil on Accounting Stand_ard_3 (Reaiseitl
3.43
i
Solution: CASH FLOW FROM FINANCING
ACIIVIIIES
Particulars

fr:l ,he tssue of Equity shu,.,

1tn.trdinlfiffi
5_1!-11"....9r
hterest paid on Debentures
Redemption of Debentures [{ 50,000 + {
5,000 (premium on Redemption)]
m. Cash Flow from Financing Activities
45,000
Ltd provides,the following informariory
i'/:'j|#Xl,r[:trix carcutare Cash Frow from

Particulars
Ilst March,20l5
(
Equity Share Capital
1070 Debentures
10,00,000 r 5,00,000
8% Debentures 1,00,000

Eank Loan 2,00.000

1,40,000
Addit ional lnfonnat ion:
i. Interest paid on Debentures a 10,000. 2. Dividend paid t 50,000.
Solution: CASH FLOW FR.M FINANCING ACTIVITIES

Particulars

Proceeds from the lssue of Shares ({

i 5,00,000 _ t 10,00000)
Proceeds from the lssue of golo 5,00,000
Debentures
Redemption of I 0olo Debentures 2,00,000
Interest paid on Debentures (1.00,000)
Dividend paid (r 0,000)

Repayment of Bank Loan (s0,000)

Cash Flow (1,40,000)

from Financing Activities
4,f!,000
Illustration 41. From the following extract
taken from the Balance Sheet of
calculate Cash Flow from Financing Cloud 9 l.td.,
Activities:
Particulars
3l st March,
20r 4 (t)
I, EQUITYANDLIAEILITIES
1. Shareholders, Funds
(a) Share Capital
(b) Reserves and Surplus
10,00,000 10,00,000
2. Non-CurrentLiabilities 1,30,000 1,00,000
Long-term Eorrowings
3,00,000 2,00000
Notes to Accounts

Particulars
3l st March,
2014 (0
l. Share Capital
Equity Share Capital
l0% Preference Share Capital 6,00,000

400,000
 3.44 Management Accounting lsection 8,,_|.sC XII
Casl
2, Reserves and Surplus
Securitres Premium Reserves
Note
leJii Share lssue Expenses Written off

Surplus, r.e., Balance in Statement of profit and Loss

0pening 1. n

Profit for the Year

7s,000
25,000
i
L
r,00,000
Total (i + ri) 5
1,00,000
L

nal Int'onnar io n :
Add it io
1. Preference dividend and interim dividend @ 15% were paid on Equity
Shares on
31st March, 2015. Calc
2 Preference shares were redeemed on 31st March,2015 at a premium
of 5%. 3ist
3. Debentures were issued on 31st March, 2015.
4. Equity Shares '.vere issued on 31st March, 2015 at a premium of 15%. Solr
5. Interest on 12% Debentures { 4,800 is still pavable.
Solution: CI5H FLOW FROM FINANCING ACTIVITIES

Particulars
Proce
Proceeds from lssue of Equity 5hares [{ 2,00,0001 t 30.000 prem,unr neseruerr Proce
6e.,r'ties 2,30,000
5hare lssue Expenses Paym
(5,000)
Proceeds from lssue of 12otr Debenture:
1,00,000 Cash
Redemption of 1070 Preference shares [t 2,00,000 + { 10,000 (premium
on Redemption o{ preference shares)] (2,10,000)
Interest paid on t2% Debentures [t 24,000 - { 4,800-
iUnpaid)l (19,200)
Intenm Dividend paid on Equity Shares (15/100 x { 6,00,000) Illu:
(90,000)
Dividend paid on Preferense Shares (10/100 x t 4,00,000) cxis t
(40,000)
Cash Used in Financing Activities
(34,200)
of{
AIL I

The
fl ,.lrr
2 ShareJssue Expcnses (t 5,000) are written off from Securities Premium Reserve. Hencc,
prclcetc{s
from Issue of shares is not affected. Solu
Illustration 42. Hanging Gardens Ltd. commenced its business on 1st April,
2014. Its Bala.ce
Sheet as at 31st March,2015 was as follows:
Partirr
Particulars
3l st March,
2015 (t) ;;
EQUIW AND LIABILITIES Procer

1. Shareholders' Funds
{d) Equity Share Capital
10,00,000
lssue I

(6) Reserves and Surplus

50,000 Cash I
2. Current Liabilities
2,00,000
Total
12,50,000 Note
lt. ASSETS
L Non-Current AssetJ Illus
{o) Fixed Assets
9,50000
(b) Non-Currentlnvestments
1,75,000
2. Current Assets Eq ity
Cash and Cash Equivalents 12q6P
1.25,000
Total Securi
i 2,50,000
120,0 D
CXII Cash EIow SWtement -Based an Accounting Standaril-3 lReaisedl 3.45

llote to A(counts

3'lst March,20l5 {{)

1. Reservesand Surplus
r00 Securities Premium Reserve r,00,000
00 less: 5hare lssue Expenses r,00,000
00 Surplus, ie., Balance in Statement of Profit and Loss r,50,000
less: Share lssue Exoenses 1,00000 50,000

50,000

ion
Calculate Cash Flow from Financing Activities of the company for the year ended
31st March, 2015.

Solution:
CASH FIOW FROM FINANCING ACTIVITIES

Particulars

,
( Proceeds from lssue of Equity Shares 10,00,000
Proceeds of Securities Premium Reserve r,00,000
),000
Payment towards Share lssue Expenses (2,00,000)
,000)
),000 Cash Flow from Financing Activities 9,00,000
,000)
.200) Illustration 43. sainath Enterprises Ltd. issued 1,00,000 Equity shares of { 10 each tt} its
000)
exi;ting shareholders on the condition that they shall also subscribe 10,000; 10% Debentures
000)
of { 100 each a[ a premium of 10%.
,00)
All the shares and debentures were subscribed and amount was received.
ash
lwn The company incurred issue expenses of t 1,00,000. You are required to calculate Cash Flow
from Financing Activities for the period.
eds
Solution:
CASH FLOW FRolvl FINANCING ACTIVIIIES
nce
Particulars
h
Proceeds from lssue of€quity Shares I0,00,000
Proceeds from lssue of 100/o Debentures 10,00,000
Receipts of Securities Premium on 10% Debentures 1,00,000
lssue Expenses on Equity Shares and Debentures
l 1Oyo {1,00,000)

l Cash Flow from Financing Activities 20,00,000

l
; Note: lssue expenses on Equity Shares should be written off through Securities Prenrium Reserve

Illus.tration 44. Following is the extract of Balance Sheets of a company:

Curreitt Yeot lI) PreviousYeor (lJ
Equity Share Capital 9,00,000 7,00,000
! 2?o Preference Share Capital 3,00,000 s,00,000
I

I
Securities Premiurn Reserve 1,25,000 1,00,000
12% Debentures 400,000 3,00,000
3.46 Management Accounting (Section Bl - ISC Xll Cssh

Atld i tionql Information: Illus

l..lnterim dividend on Equity Shares at the end of current year was paid @ 15%. Acti'
2. Dividend on Preference Shares was paid. Panrc

3. Preference Shares were redeemed at a Premium of 5% at the last date of current year. .
-
Premium was charged Irom profit.
Equir)
4. New shares and debentures were issued on the last date of current year. Prefer
5ecur"
5. Share Issue Expenses amounting to { 15,000 were debited to Securities Premium Reserve.
1 070 [
Calculate Cash Flow from Financing Activities. Propc
r0pc
Solution:
P
CASH FLOW FRoM FINANCING AOlVlTlES

Particulars Sok
Proceeds from lssue of Equity Shares [{ 2,00,000 + { 40,000 (Securities Premium)] 2,40,000
Parti.
Shzrre lssue Expenses (r 5,000)

Redemption of Preference Shares (12,00,000 + t 10,000) (2,r0,000) Proce

Proceeds from lssue of Debentures 1,00,000 Reder
lnterest on Debentures Proce
Interim drvidend on Equity Shares (1,05,000) Inte(
Dividend on Preference Shares (60,000) Drvid
€ash Used in Financing Adivities (86,000) Divid
Cash

Note: S;rare lssue Expenses are written off from Securities Premium Reserve.
Not(
Treatment of lmportant ltems in Cash Flow Statement
1. lnterest and Dividends Received
Interest and Dividends Received are classified or shown as Investing Activity because they
4. 1

are received on the investments made.

(i
2. lnterest and Dividends Paid
Interest and laividends Paid are cla'ssified or shown as Financing Activity because they are
(lr
paid on the tunds raised to finance the business operations.
(li t
3. Proposed Diviciend
(i) Proposed Dividend means dividend proposed by the Board of Directors to be (rt
'approved by the shareholders. On being approved by the shareholders in the Annual
'eneral lvleeting, it becomes due for pavnrent. Till the time it is not aPproved at the Illu
Annual General Meeting, it is not a liability-
Liabi
(li) Proposed Dividend for the current year becomes due and is paid in the next year
because Annual Ceneral Meeting of Shareholders is held after the financial year. It Equi

means, it is an outflow of Cash ancl Cash Equivalents in the next year. 10%
5urp
(lli) Proposed Dividend of the previou,s year becomes due and is paid in the current
Proc
year. It means, it is an outflow ol cash and cash eqr.rivalent in the current year.
(lo) Proposed Dividend of current year is atitlecl back to current year's plofit to calculate ,1dL
the Cns/r frcm Opernting Actii,tfics.
Flozu
Fin
(z') Proposec{ Dividerrd of previous year paid during the vear (r.e., Proposed Dividerrd
of previous yehr Dividend nor vet paid) is shown as cash outflow under Financrng
Shr
Activitv.
 Cash Flow Statement-Based on Accounting Standard_3
lReaisedl 3.47

tl:f::** 45. Frorn the following information, calculare Cash Flow

from Financrng
Actit,ities:

3l st March,20l4
{
Equity Share Capital
6,00,000 4,50,000
Preference Share Caprtal
1,50,000 2,25,000
trve. Securities Premium Reserve
22,500 7,500
I 070 Debentures
6,00,000 4,s0,000
Proposed Dividend on Equity Shares
52,500 45,000
Proposed Dividend on Preference Shares
22,500 22,500

t Solution: Calculation of Cash Flow from Financing Activities

0,000
Particulars
;,000)
r,000) Proceeds from lssue of Equity Share Capital
t{ 6,00,000 - { 4,50,000 + { 15,000 (premium)l 1,65,000
t,000 Redemption of Preference 5hares ({ 2,25,000 - { 1,50,000) (7s,000)
,,000)
Proceeds from lssue of Debenlures { t 6,00,000 _ { 4,50,000) l,sq0oo
,000) Interest pard on Debentures
(45,000)
,000) Dividend paid on Equity Shares
(45,000)
,000) Dividend paid on Preference Shares
{22,s00)
Cash Inflow from Finan(ing Activities
1,27,500

Notes: I lt is assumed that the fresh Debentures have been issued at the end of
current accounting year.
2 lt has been lssumed that Preference Shares have been redeemed at the end
of the current
accounting year.
ney
4. Interim Dividend
(r) Interim Dividend is a dividend that is declared by the Board of Directors
wiihin the
financial year.itself and it does not require approval of the shareholders.
are
(il) Therefore, it becomes due and is also paid during the year itself.
(lil) Interim Dividend is added to current year's profit to calculate Cash Flow
fr.m
Operatrng Activities.
be
(iz') Interim Dividend is shown as cash outflow under Financiug
ual Activity.
tne Illustration 45. Follor,"'ing is the extract of the Balance sheets of puma Ltd.:

lat Liabilitres
3lst March, 2014 (t) 31stMarch,20l5 ({)
.lt Equity Share Capiral
5,00,000 5,00,000
1070 Preference 5hare Capital 5,00,000 5,00,000
Surplus, ie., Ealance in Statement of profit and Loss
]nt 2,50,0cc 4,50,000
Proposed Dividend on Equity Shares
r,50000 r,80,000

rte
Adtl it io na I Int'or mation:

Final Dividend on Preference Shares and an Interim dividend of T

nd 20,000 on Equiry Shares
were paid on 31st March,2015.
118

Show horv the related items wrll appear in Cash Flow Statement.
 3.48 Management Accountirg (Section B)-ISC ill Cash

Solution: ' CASH FLOW STATEMENI

(,,
for the year ended 3lst Morch,2015
Partic
Particulars
Proce,
Cash Flow from Opeiating Activities Recerl

Net Profit before Tax (Note) 4,50,000 Receil

Cash Flow fiom Financing Activities Paynl,

(1,s0,000) urvro(.
Final Dividend paid on Equity Shares,(Previous Year)
lnterir
Final Dividend paid on Preference Shares (s0,000)
lntere
Interim Dividend paid (20,000)
Cash
Cash Used in Financing Activities {2,20,000)

Note:
Notet Calculdtion of Net Profit before Tax: {
Closing Surplus, ie., Balance in Statement of Profit and Loss 4,50,0.00
[ess: Opening Surplus, ie, Balance in Statement of Profit and Loss 2,50,000

2,00,000
Add; Proposed Dividend (Current Year) r,80000
Dividend on Preference Shares 50,000
lnterim Divrdend paid during the Year 20,000

Net Profit befor; Tax 4,50,000

Illur
Illustration following extract taken from the Balance Sheets of Khanduja Ltd.
47. From the
Equ rI
at 31st March and the additional inlormation provided, you are required to calculate: -
(l) Cash Flow from Operating Activities; (il) Cash FIow from Financing Activities.
Equit'
100k t
Liabilities 2015 (t)
Surpl'

Equity 5hare Capital 20,00,000 30,00,000 Propt

"

l07o Preference Share Capital Divid'

2,CC,000 1;00,000

Securities Prernium Reserve 1,00,000

Add
Surplus, Le., Balance in Statement of Profit and I oss 4,00,000 8,00,000
't0,00,000 Fina
l0o/o Debentures 10,00,000
[: qu
Public Deposits 1,00,000
Flor'

Additional Infor mation: Soh

Preference Shares were to be redeemed at par but were redeemed at a premium of 5olo on
31st March, 2015. Interim Dividend on Equity Shares was paid @'8%. Fresh issue of Equity Parti(

Shares was done on 1st April,2014. Public Deposit rvas accepted on 3ist March,2015.
Cash

Solution: Net P

Cash
(4 CASH FLOW FROM OPERATING ACTIVITIES
Cash
Final
Particulars
hlraI
Net Profit before Tax {Note) 7,65.000 lnteri
Cash Flow from Operating Activities 7,65,000 (ash
cxlt Cash Flow Statement-Based on Accounting Stanilard_J (Reaised)
3.49

(r') CASH FLOW FROM FINANCING ACTIVITIES

Particulars

:_ Proceeds from lssue of Equity Shares

i0,00,000
Receipt on Securities Premium
1,00,000
Receipt of Public Deposit
;0,000 1,00,000
Payment for Redemption of preference Shares (including premium)
(r,05,000)
Dividend paid on Preference Shares
1,000) (20,000)
Interim Dividend paid on Equity Shares
),000) (2,40,000)
Interest paid on Debentures
1,000) (r,00,000)
I
Cash Flow from Financing A(tivities
7,35,000
),000)

=- Note: Calculotron o f Net profit before lax:

( Closing Surplus, ie., Balance in Statement of profit and Loss
8,00,000
0,000 leirr Opening Surplus, ie., galance in Statbment of profit and Loss
4,00,000
0,000

ffi Add Dividend on preference Shares

Interrm Dividend on Equity Shares
20,000
4,00,000

0,000 2,40,000
1,000 Premium on Redemption of preference Shares
5,000
1,000
Interest on Debentures
1,00,000 3,65,000
Net Profit before Tax
1,000 7,65,000

Illustration 48. Following is the extract from the Balance

Sheets irt Z Tea
,rd.
Equity and Liabilities
e: 31st March, 2015

{
Equity Share Capital
5,00,000 5,00,000
10%o Redeemable Preference Share Capital

L Surplus, ie., Balance in Statement of profit and Loss

Proposed Dividend on Equity Shares
5,00,000
2,50,000
5,00,000
4,50,000
r,000 1,50,000 r,80,000
Dividend Payable
r,C00
20,000
/,000
Additional Int'ornatiort :
,,000
Final Dividend on Preference Shares of t 50,000 and an
,000 Inierim Dividend of t 50,000 on
Equity Shares were paid on 31st Ma rch, 2015. Show how
,000
these iterns w.ill appear in Cash
Flow Statement.
Solution: CASH FLOW STATEMENT
for the year ended 3tst March, 20ls
on
uty Particulars

5.
Cash Flow from Operating Activities
Net Profit before Tax (Nore)
Cash Flow from Operating Adivities
4,8C,000
Cash Flow from Finan(ing Activities
Final Dividend paid on Equity Shares 1,50,000 _ {
{{ 20.000) (r,30,000)
Final Dividend paid on preference Shares
(50,000)
000 lnterim Dividend paid on Equity Shares
(50,000)
Cash Used in Financing Adivities
(2,30,u0u1
3.50 Management A^ccourting (Sectiott Bl-lSC Xll Casl

Coiculotion of Net Profia betote Tax: { WorA

'
Closing Surplus, ie., Balance in Statement of Profit and Loss 4,50,000 l. tti
less: Opening Surplus, i.e, Balance in Statement of Profit and Loss 2,50 000 M;
2,00,000 efl
Add: Proposed Dividend (For the Year) r,80,000 2. Dr
Dividend on Preference Shares 50,000
Parti(
Interim Dividend on Equity Shares 50,000 2,80,000
Net Profit before Tax 4,80,000 Tot
To t-
Illustration 49. From the fofowing extracts of a company's Balance Sheets, calculate for
the year ending 31st March, 2013:
(l) Cash from Investing Activities.
(il) Cash from Financing Activities.
;
(Note: Current year's figures appear in the first column and the previous year's figures are in the
Partir
second column.)
Tol
Paniculars 2012-13 (t) 20r1-r2({) To(
Equity Share Capital
Tol
13,00,000 12,00,000
Long-term Borrowing (109/o Bank Loan) 60,000 1,00,000
Proposed Dividend ' 20,000 21,000
Fixed Assets:
5. lr

Plant and Machinery 1,70,000 1,40,000

Irrct
Less: Accunu I ote d Dept eci oti on (24,000) (40,500) ttler
r,46,000 , 99,500 clas
Non-Current lnvestments
Iilx
1,00,000 20,000
Land (At cost) 5,00,000 7,00,000
if is
Goodwill 30,000 40,000 '.-(l1I
as (
Addi tionnl Informat ion :
6. I'
1. The loan instalment and interest on loan was paid at the end of the financial year. )ior
2. During the year 2072*73: tlre
t'il-s,
(n) Dividend of T 17,000 was proposed.
(b) The company provrded depreciation o., Plant and Machinery amounting to t 13,500. 7. t
[-rra
(c) The company sold 70% of its Non-Current Investments which it held in ihe beginning
arrd
of the year, at a profit of 20% on its b.ook value. u'c 2ot4)
Solution: i)r-r

(i) Cash FIow frorn Inztestittg Actiuifies: ,( 8.!

Proceeds from Sale of Investmer,.s 16,800 Sha
Payment for Purchase of Investments Issr-
(94,000)
Proceeds from Sale of Land 2,00,000
afc
Payment for Purchase of Plant and Machinery (Note 3) (30,000) 9. 1

Cash Florv from Investing Activities 92,800 Issr

rts r
(il) Cash Flow t'rom Finnncing Actit,ities:
ra.
' Proceeds from Issue of Share Capital 1,00,000
(

I-os
Repayment of Bank Loan (40,000)
ilisc
Payment of Interest on Bank Loan (10,000) .pny
Payment of Dividend (Note 2) 01000) Act
Cash Flow from Financing Activities 32,000 rrtl
a t1t
,XII Cash Fiow Statement-Based bn Accounting Standard-3 (Reoised) 3.51

{ Wo*ing Notes:
t,000
'l ltis assumed that the company has written back excess depreciation during the year because
it has not sold plant and
),000 Machinery. Since, depreciation is considered while preparing Cash Flow from Operating Adivities ir will
not have any
),000 effect on Cash Flow from Investing Activity and Cash Flow from Financinq Activiry.

2. DL PROPOSED DIVIDEND ACCOUNT

Cr
Particulars t Particulars t
1000
),000
To Eank A/c-(Payment of Dividend) r8,000 By Ealance b/d 2r,000
To Balance c/d 20,000 By Surplus, i.e,,8alance in Statement ofprofit
for and Loss (Provision made) 17,000
38,000 38,000

3. Dr. INVESTMENT ACCOUNI

Cr
the
Particulars { Particulan
To Balance b/d 20,000 By Eank A/c (Sale) l6f*
To Gain on Sale oflnvestment A/c 2,800 ({ 14,000 + 20% of{ 14,000)
To Bank A/c (Purchase)(Bal. Fig.) 94,000' By Balance cld 1,00,0,00

1,16,800 1,16f00

5. lncome Tax
Income Tax paid, net of tax refund, is shown as an operating activity. But, if the tax is
identified with investing or._financing activities, then cash flow of tixes is accordingly
classified, Le., shown as cash flow from financing or investing activities. For instance, incqme
tax on the capital gain on sale of land is idehtified with the inuesting actiz,ities, and thcrefore,
it rs shown as Cash Flow from Investing Activities in cash Flonl statement. Similarlv. a
company has to pay Dividend Distributron Tax on Drvidend paid. 'fhe rax so paid is shown
as Cash FIow from Financing Activity.
6. Non-cash Transactions
Non-cash rransactions such as issue of shares for consideration other than cash, i e., ior
the purchase of buildings, etc., conversion of debentures into shares, etc., are rnt slLottm ut
Crsh Floi,' statement because inflow or outflorv of cash has not taken place.

00.
7. Loan from Bank
Loan fro..r Bank means borrowing bv the enrerprise other than by way of Bank overdraft
and Casl, Credit. Loan fror.r bank is pari of trorrowing and is shown under Financing Activity.
t4)
On the other hand, Bank Overdrafl ancl Cash Credit are taken as Cash and Cash Equivalents.
8. Share lssue Expenses
00 share Issue Expenses being re_lated to share capital, are shown as Financing Activity. sharc
)0) isu'te Expenses are written off in the year in which they are incurrecl. Shari issue E*penses
00 are shorvn as outflow of cash in the vear of payment under Financing Activity.
)0) 9. lssue of Debentures at Discount or Loss on lssue of Debentures
00 Issue of Debentures at Discotrnt means that the company has receivecl less amount inal
its nominal (face) value. Therc'forel proceeds of issue of debentures is shown at its norninal
(face) value less discount. It is shown undcr Cash Florv from Financing Activities.
00
Loss on Issue of Debenhrres is a wider term than Discount orr Issue of Debentures. lt includcs
0)
iliscount on issue of debentures antl premium payable on redemption of debentures. premiurn
0)
payable on redemption of debentures is shown as outflow under Cash Flow frorn Financins
9l ActiVities in the year of reclemption. Discount or Loss on issue of debentures is rvrirren
')0 off the year in which thr'y are i.curre'd. It being rclated to Financing Activity, it is
_in
adried to Net Profit before I ax artd dcclucted uncit i Financing Actit,itv.
 3.52 Mtnagement Accounting (Section Bl-ISC Xil
10. Purchase/Sale of Shares or Debentures
Con
Purchase/Sale of Shares or Debentures of other companies means investment. It is classifiecl
or shown as Investment Activity. Purchase (outflow) and sale (inflow) is shown in Cash
Flow Statement at the amount paid or received.
Partic
Purchase of shares or Debentures is an outflow of Cash and Cash Equivalents. whereas
sale of shares or Debentures is an inflow. l. Ci
(r
Gain or loss incurred on sale of shares or debentures is credited (in case of gain) or debited
(in case of loss) to the statement of Profit and Loss- It is deducted or added to calculate
(t
'Net Profit before Tax' under Cash Flow from Operating Activities.
11. Purchase/Sale of Current InvestmenUMarketable Securities
Current Investment/Marketable Securities are part.of Cash and Cash Equivalents. Gain pr
loss is deducted or added to net profit to calculate 'Net profit before Tax'. Il does not
recluire furthe'r treatmcnt, since marketable securities are part of Cash and Cash Equivalents.

lsc council prescribes that current Investments is part of cash and cash Equivalents.
Therefore, purchase and saie of current Investments will not be shown as cash Flow
trom Investing Acttvities.

12. Loan Given to Other Companies

l-oan Civen to Other Compaitir's is an Investing Activity, il being investment of surplus funds.

13. Loan Taken from Other Companies

I.oan Taken From other Companies meafls borrowings of the company. [t is, therefore,
classified or sholvn as Financing Activity.

14. Bank Overdraft and Cash Credit

Bank overc{raft and Cash Credit are components of Cash and Cash Equivalents. Hence,
credit (negative) balance (it will appear as Current Liability (Short-term Borrowings) orr
the liabilities part of the Balance Sheet) in Bank Overdraft Account or Cash Credit ACcor"rnt
is deductecl from the balance of Cash arrd Cash Equivalents.

ISC Council has prescribed'Bank Overdraft'and'Cash Credrt'to be taken as Cash and

Cash Equ iva lents.

PREPARATION OF CASH FLOW STATEMENT

rlaving discussed cash flows from each activity, let u. discuss the preparation of Cash
Flou'Statement as a complete statement. The steps involved are:
1 cornpute cash Flow from operating Activities, which may be positive or negati,,,r.
2. Compute Cash Flow from Investing Activities, which may be positive or negative. (
3. Compr.rle Cash Flow from Financing Activities, n,hich mav be positir.e or negatrve.
'l Cash Flows rtnder each activily (Operating/lnvestingi Financing) arr. shorvn in ihe Cash
Flow Statement. Aggregate of these three activities will be either an increase or c'lecrease
in Cash and Cash Equivalents.
5. Adcl opening Balance of Cash and Cash Equivalents to the net increase or decrease
in Cash and Casli Equivalents as arrived in Step 4.
6 Resulting.lmoLirlt will be Cash and Cash Equivalents at the end.
].XII Cash FIow Statement
-Baseil on Accounting Standad_3 (Reaiseill 3.53

Complete format of Cash Flow Statement is as foilows:

fie,i
FORMAT OF CASH FLOY/ STATEMENT
lash
for the yeor ended
Particulars
reas t
L Lasn How trom Operating Activities
(A) Net Profit before Tax (Note 2)
ited
Adjustment for Non-rash and Non_operatinq
ltems
late (B) Add ltems to be Added

-Depreciation
patents and Trademarks Amonised
-6ood$/ill,
-lnterest on Borrowings and Debentures
off Discount on lssue of Shares/Debentures
-Writing
-Writing off Underwriting Commission/Shares lssue [xpenses
premium on
-Writing off Redemption of preference Shares/Debenrures
. -Loss on Sale of Fixed Assets
(C) less; ltems to be Deducted

-lnterest Income
-Dividend Income
-Rental Income
-Profit on Sale of Fixed Assets
(D) OperatinoProfilbeforcWnrtrinar,hirrr.r.---^-,. .
^,,
(E) Add: Deciease in curr.nt nrr"ir"ril"rn.r*r.
il i i"*? i,liu,,",
-Decrease in Inventory (Stock)
Decrease jn Trade Receivables (Debtors and
Bills Receivable)
Decrease in Accrued Incomes

-Decrease in prepaid Expenses

Increase in Trade payables (Creditors and Bills paVable)
lncrease in 0utstanding Expenses

-lncrease in Advance Incomes

provision for
)11 -lncrease in Doubtfui Debrs
IF\ I ot. t^..^--^:- . rurIFrruusers
a------- .
nt ano ue(fease tn Cuffert Liabilities
in Inventory (StocKl
-lncrease
Increase in Trade Receivables (Debtors and gills
Receivable)
Increase in Acc, ued Incomes
pr,paid
-lncrease in Expenses
Decrease in Trade payables (Creditors and
Bjlh pavable)
Decrease in Outstanding Expenses

-Decrease in Advance Incomes

rh in provision for Doubtful Debts
-Decrease
(G) Cash Genera: 'd from ona"ri^h< rn r E rr
()
(H) [ess: Income Tax paid
{N nd received)
(..)
(l) Cash Flow from {or Used Acrivities
-.'
I. Cash Flow from Investing Activities

-Proceeds from Sale of Fixed Assets

h -Proceeds from 5ale of Investments
e -Proceeds from 5ale of Intangible Assets
-lnterest and Dividend recetved

-Rent lncome
-Purchase of Fixed Assets
-Purchase of Investments /l
-Purchase of Intangible Assets like Goodwill /l
Cash Flow from (or Used in) In\€stino Activities
-
3.54 Manngement Accounting (Section B\-ISC XII C

lll. Cash Flow from tinancing Activities S

from lssue of Shares and Debentures
-Proceeds
from Oth€r Long-term Borrowings
-Proceeds
Dividend paid t.l
-Final (..)
Dividend paid
-lnterim (...)
on Debentures and Loans paid
-lnterest (...) N(
of Loans
-Repayment (.)
of Debentures/Preference Shares AI
-Redemption
lssue Exoenses
-5hare
on lssue of 5hares/Debentures
-Discount
payable on redemption (to the extent not written off)
-Premium C(
Cash Flow from (or Used in) Financing Activities
tv. Net Increase/De(reaso in Cash and Cash Equivalenti (l+ ll + lll)
the beginning ofthe year Pr
v. Add: Cash and Cash Equivalents in
on Hand Ct
-Cash
at Eank {lesJr Bank Overdraft)
-Cash
DeDosits
-5hort-term
Securities
-l\ilarketable Ct
Vl, Cash and Cash Equivalents atthe end ofthe year
t\r
on Hand
-Cash At
at Bank (less: Eank Overdraft)
-Cash
DePosits
-5hort-term
Securities
-Marketable
Notes: tl
.1.
Amounts in brackets indicate negative amounts, i.e., amounts that are to be oeducted. :
2. Net Profit as per Statement of Profit and Loss or Difference between closing Balance and
Opening Ealance of Surplus, i.e., Balance in Statement of Profit and Loss
Add; Transfer to Other Reserves
t.
Proposed Dividend for current year
. Interim Dividend paid during the year
Provision for Tax made during the current year
tess: Refund of Tax credited to Statement of Profit and Loss
Net Profit before Tax

Treatment of Miscellaneous Expenditure

As per Council's lnstructions, Miscellaneous Expenditure such as Loss on lssue of
tl
Debentures, Discount on lssue of Debentures, lJnderwriting commission, Prgliminary
Expenses are written off in the year in which theY are incuned from Securities
Premium Reserve (if it existsl or from General Reserve lif it ex,:sts)or from Surplus, i'e',
Balance in Statement of Profit and Loss'

Preparation ol Cash Flow Statement wilhout Adiustments

Illustration 50. From the following information, prepare cash Flow statement for the year
ended 31st March, 2015:
Particulars
10,000 N
Opening Cash Balance
r 2,000
Closing Cash Ealance
5,000
Decrease in Trade Receivables {Debtors)
7,000
Increase in Irade Payables {Creditors)
20,000
Sale of Fixed Assets
50,000
Redemption of Deb€ntures
20,000
Net Profit for the year
cxlt Cash Flow Statement-Based on Accounting
Standard_3 (Reoised\
J.JJ
Solution:
CASH FLOW STATEMENT fot theyeat ended ltst Morch,20t5

Cash Flow from Operating Activities

Net Profit before Tax
20,000
Add: Decrease in Cwrcnt Assets ond lnueose in Cwrcnt Liobilities:
Defrease in Trade Receivables (Debton)
5,000
lntiease in Trade payables (Credrtors)
7,000 12,000
i Cash Flow fron Operoting Activities
Cash Flow fiom Investing Activities
Proceeds from Sale of Fixed Assets

Cash Flow from lnvesting Adivities

Cash FIow from Financing Activities
Redemption of Debentures
Cosh Used in Financing Activiries
(50,000)
Net Increase in Cash and Cash Equivalelrts (A
+ B + Cl
Add: 2,000
Cash and Cash Equivalents in the beginning
r0,000
Cash and Cash Equivalents at the end
12,000

Illustration 51. Folrowing are the Balanct sheets

of X Ltcr. prepare Cash Frow statemenr.

31st March, ll it March,

20ls (t) 2014 (l)
I. EQUITYANDI-IABITITITS
1, Shareholders,Funds
(d) Share Capital
25,00,000 20,00,000
(b) Reserves and Surplus
2;30,000 't,00,000
2. CurrentLiiibilities
Trade Payables
450,000 7,00,000
Total
28,00,000
ASSETS
1. Non-Cunent Assets
Fixed Asets-Tangible Assers (Land)
6,60,000
2. CurrentAJsets
(o) Inventories
9,00,000 8,00,000
(b) Trade Receivables
11,50,000 12,00.000
(c) Cash and Cash Equivalents
4,70,W 3,00,000
Total
28,00,000

110 Note to A((ounts

l)0
,ji)
frC 3l st Mdrch,
ii0 2014 (O
1i0 l. Reservesand Surplus
i:i) 5urplus, ie., Balance in Statement ofprofit
and Loss
1,00,000
 3.56 Management Accounting (Sectiott B) _lSC ill Cas,

Solution: x t_td.
Nqte
CASH FLOW STATEMENT
for the yeor ended 3tst Motd,20ts Partir

Particulars
1
Cash Flow from 0perating Activities
Profit before Tax (Note)
r,30,000
Add: Decreose in Cuffent Assets:
Decrease in Trade Receivables
50,000 3

Less: lncrease in Current Assets lnd Dectelse in Cwent Liabilities:

Increase in Inventories (1,00,000)
Decrease in Trade payables (2,50,000) (3,s0,000) 4.(
Cosh Used in Operoting Activities (

Cash Flow from Investing Activities J.

Payment for Purchase of Land
(r,60,000) I

Cash Used in lnvesting Activities

(r,60,000) 6. 1

Cash Flow from Financing Activities (

Proceeds from lssue of Shares

Cash FIow from finoncing A ivities
5,00,000 Sol
Net Increase in Cash and Cash Equivalents (A + B + C)
1,70,000
Add Cash and Cash Equivalents in the Beginning
Cash and Cash Equivalents at the End
3,00,000 t*l
4,70,000
LC
Note: Calculation of Prclit befote lax:
Closing Surplus, r.e., Balance jn Statement of profit and Loss
t
2,30
tess; Opening Surplus, ie., Balance in Statement of profit or Loss ^00
1,00,000
Profit before Tax
_!149
Illustration 52. Prepare Cash Flow statement on the basis of the information given
in the
Balance Sheets of P.S, Ltd. as at 31st March,2015 and 31st March,2014:
Particulars
Note No, 3i st March, 3lst March,
2015 {t) 2014 {{}

EQUITY AND LIAEITITIES

'1. Shareholders'Funds
(a) Share Capital (
2,50,C10 2,00,000
(b) Reserves and Surplus I 70,000 50,000 .(
2. Non-CurrentIiabilities t
Long-term Eorrowings 2 80,000 1,00,000 L
3, Current Iiabilities (
(d) Trade Payables l .(
3 1,60,000 60,000
(b) Other Current Liabilities 4 20,000 25,000 F

Total t
4,35,000
ASSETS I

1. Non-Current Assets (
(o) Fixed Asets: tv. I
(i) Tangible Assets v.(
5 2,80,000 2,00,000
{ll) Intangible Assets 6 2,000 10,000
vt. (
(b) Long-term Loans and Advances
1,00,000
2. Cufient Assets Not,
{d) Inventories 70,000
l(
(
{b) Trade Receivables 40,000
(r) Cash and Cash Equivalents L

r 5,000
I
Total
4,35,000 2l
 cm Cash Flow Stntement_Based
on Accouttting Standaril_3 (Reaiseitl
J.J/
Notes to A((ounts

Particulars
31st March, 31st March,
20ls (t) (t)
l. Reserves and Surplus 2014

Surplus, ie, Balance in Statement

0,000 - Long-termBor.owings
2.
ofprofit and loss
70.000
l2% Debentures
0,000 3. Tradepayables 80,000 1,00,000
tooo Creditors
Bills Payable 60,000 40000
1,00,000 20,000
r,000) 4. Other Current [iabilities 1,60,000 ;0ooo
1000) 0utstanding Expenses
5. Tangible Fixed Assets 20,000 25,000
Land and Buildinq

,000) 6. IntangibleFixedissets 2,80,000

Goodwill
2,000
r,000 Solution: --------- 10,000

P.S. ttd.
,,000 CASH FLOW STATEMENT for
rhe.ve ar ended ll st Mvrch, 20!5
r,000
Particulars
,.000

Activities
' f,}ii,|,:;:t!# i*eratine
,000
Add: I'lon-cosh ond Non.operuting
Expenses: 20,000
,000
b0odwtll Amortis€d

boo ^
uperating
lnrelesr-
Profi
(Nore 2)
pitalChdnges 20,000
lhe - Add: lncreose 40,000
Increase in Creditors
Increase in Eills payable
t,
less: 1,40,000
an d D e c r e a s e in c u u e n t Li 0 b i Ii r i e s :

fl :x* ff,:ff :# (5,0001

Increase in Trade Receivables (20,000)
(20,000)
..
ll.
Activities
g A(tivitres
otng

(r,10,000)

50,000
{20,000)
Cosh lnflow from Finoncing
Activities (i 2,000)
lV. Net Increase.in Cash and r 8,000
Cash Equivalents (l + ll + lll)

,X.
Vl. llll
Cash
itu,9rl
a nd Cash
in the beginnins of the period
lquivatents
Equivalents at the end of the period (lV
3,000
15,000
+ V)
18,000
Notes:

{
70,000
(s0,000)_
2. Debenture interest @ l2% on { 1,00,000. 20,000_
 3.58 Management Accounting (Section BI-ISC Xll Casl

Preparation of Cash Flow Statement with Adjustments ^

Soh
Illustration 53. The Balance Sheets of Rajneesh Ltd. for the years 31st March, 2015 and 31st
March, 2014 were as follows:
Partir
Particulars Note No. 3lst March, 31st March,
20rs (t) 20r4 (T) t.

EQUITY AND LIABILITIES

1. Shareholders'Funds
(a) Share Capital 1,25,000 1,00,000
(b) Reserves and Surplus 1 33,800 30,250
2. Non-CurrentLiabilities
Long-term Borrowings (Debentures) 7,500 r0,000
3. Cunent Iiabilities
(a) Short-term Bonowings 2 3s,000
(b) Trade Payables 72,600 75,000
(c) Short-term Provisions 3 16,500 15,000
[.
Total 2,55,400 2,65,250

ASSETS

1. Non-Cuftent Assets
Flxed Assetsr Tangible Assets 1,82,000 1,75,000
ilt.
2. Current Assets
(d) lnventories 37,000 50,c00
(b) Trade Receivables 32,100 40,000
(c) Ca;h and Cash Equivalents 4,300 250

Total 2,55,400 tv.

v.

Notes to A((ounts

Particulars 3l st March,
2014 ({)
I
No
l. Reiervesand Surolus
1.
Surplus, r,e, Ealance in Statement of Proflt and Loss 30,250
2. Short-term Borrowings
Bank Overdraft 15,000
Short-term Provisions
Proposed Dividend 15,000
Fixed Assets (Tangible)
Land and Building 1,00,000 2.

Plant and Machinery 75,000

Pat
1,75,000
To
To
,4d d it io nal I nfo r nn tio tr:

1. Depreciation written off on Building during the year ended 31st March, 2015 was
t 6,000

2. Land was purchased for t 19,000 during the year 31st March, 2075. 3.

4.
l'repare Cash FIow Siatement of Rajneesh Ltd. (lSC 2006, Modifiedt
:nr I
Cash Flow Statement-Based on Accounting Standard_J (Reaiseill
3.59

Solution: Rajn€esh Ltd.

31st CASH FLOW STATEMENT
for the year ended 3tst Morch,20t s

Particulars
ch, t t
l l. Cash Flow fiom 0perating Activities
Net Profit before Tax (Note l)
20,050
Add: Non-coshExpenses:
Depreciation on Land and Building
)0 6,000
Operating Profit before Working Capital Changes
j0 26050
Add: Decrease in Cunent Assets:
Decrease in Inventories
13,000
Decrease in Trade Receivables
7,900 20,900
46,950
0 Less: Decreose in Cunent Liabilities:
0 Decrease in Trade payables
(2,400) (2,400)
t Cosh Flow from Operoting Activities

- ll. Cash Flow from Investing Activities

44,550

Sale of Land and Building (Note 2)

18,000
Purchase of Land and Building
(r9,000)
Purchase of Plant and Machinery
(12,000)
Cosh Used in lnvesting Activities
lll. Cash Flow from Financing Activities
(13,000)

lssue of Shares
25,000
Redemption of Debentures
{2,500)
Payment of Proposed Dividend for Last year
(r 5,000)
Cosh Flowfrom Financing Activities
7,500
tv. Net Increase in Cash and Cash Equivalents (l + ll +
llu .
v. Cash and Cash Equivaleirts in the beginning ofthe period 39,050

Bank Overdraft
(35,000)
Cash
250 (34,750)
Cash and Cash Equivalents atthe end ofthe period
4,300

Notes:

1. Calculation of Net profit before Tax:

Surplus, ie., Balance in Statement of profit and Losi (Closing)
33,800
less: Surplus, ie., Balance in Statement of profit and
Loss (6penin9) 30,250

Add: Proposed Dividend (Current year) .3,550

16,500
Net Profit before Tax
20,050
2 Dr. LAND AND EUILDING ACCOUNT

Particulars
Particulars
{
To Balance b/d r,00,000 By Depreciation A/c
To 6,000
Bank A/c (Purchase)
19,000 By Bank A/c (5ale) (Ealancing Figure)
| 8,000
By Ealance c/d
95,000
1,19,000
1,r 9,000

3. Bank overdraft is a negative item. lt is deducted from Cash and Cash Equivalents.
4 lnterest on debenrures is not considered whire
computing operatrng profit before working caprrar
Changes because rate of interest ts not qtven.
 TF_-
I
,
3.50 Management Accounting (Section BI_ISC Xil
Illustraiion 54. Given belor^.' are the Balance sheets of lvf/s. victor Limited:
3l st March, 31st March,
20l s (t) 20r4 (0 f-
I. EQUITYANDLIABILITIES ' partic

1. Shareholders' Funds
t. l
(d) Share Capital
i,60,000 1,60,000 .l
(b) Reserves and Surplus
1 1,60,000 60,000
2. Non-CurrentLiabilities
Long-term Borrowings
2 r,50000
3. Curi'entLiabilities
(d) Short-term Borrowings
3 50,000 74pM
{b) Trade Payables 1,80,000 92,000
(c) Short.term Provisions
4 90,000 64,000
Total

II. ASSETS

1. Non-Cuirent Assets
Fixed [Tangibler
1,80,000 3,0c,0c0 it.
2, CurrentAssets
(d) Inventories
2,40,000 1,00,000
(b) Trade Receivables
1,94,000 1,90,000
(c) Cash and Cash Equivalents t.
26,000 10,000
Total

Notes to A(counts
Net I

Particulars Iash
Slst March, 3lst March,
Cash
2015 (t) 2014 (()
1. Reseives and Surplus Not€
Surplus, ie ,,Balance in Statement of profit and Loss
1,60,000 60,000 .L
2. Long-termBorrowings C
Long,term Loans Ir
1,50,000
3. Short-term Borrowings
Sank Overdraft A

4. Short-term Provisions
50,000
449
N
Provision for Tax
30,000 24,000
Proposed Dividend
60,000 40,000

90,000 64,000 (
5. Trade Receivables
L
Sundry Debtors
1,72,000 1,60,000
Bills Receivable
22,000 30,000
). L
1,94,000 1,90,000
Date

Ad tl il io n n I I n.io r mnt iort : ni

1. Loarr was paid in the beginning of the year Z0I4_75. Apfl l

2. Depreciation provided on plant during the year was { 20,000.

Prepare Cash Floiv Statement.
USC 20t 0, Modifie\
 xil Cash Flout Statement-Based on Accounting Standnrd-J (Reaised) 3.61

Solution: M/s. Victor Limited

h CASH FLOW STATEMENT

for the year ended 3lst Motch, 20ls

Particulars
{ {
l. Cash Flow from 0perating Activities
0 Net Profit before Tax {Note i ) 1,90,000
0 Add: Non-cosh Expenseii Depreciation 20,000
Operating Profit before Working Capital Changes
2,10,000
Add: Decreose in Current Assets lnd lncrclse in Cwent Liobilities:
Decrease in Trade Receivables (Bills Reieivable) 8,000
) Increase in Trade Payables (Creditors) gg,000 96,000
) 3,06,000
Less: Increlse in Cuffent Assets and Decreose in Cunent Lilbilities:
)
Inventories
Increase in 1,40,000
I Increase in Trade Receivales (Debtors) 12,000 (r,52,000)
Cash Generated fiom Operations before Tax
1.54,000
less: Tax paid (24,000)
Cash Flow fron Operoting Activities - 1,30,000
ll, Cash Flowfrom Investing Activities
Proceeds from Sale of Plant (Note 3)
1,00,000
Cosh Flow fron lnvesting Activities 1,00,000
lll. Cash Flow from Financing Activities
Repayment of Loan (Note 4) (r,s0,000)
, Payment of Dividend (40,000)
Cash Used in Finoncing Activities
{1,90,000)
Net Increase in Cash and Cash Equivalents (l + ll + lll)
40,000
Cash and Cash Equivalents in the begtnning of the year (Note.2) (64,000)
Cash and Cash Equivalents at the end of the year (Note 2) (r-4!00)

Notes:
1. Colculation of Net Profit before Tax:
Closing Surplus, r.e., Balance in Statemenr of profit and Loss
,t
1,60,000
less: 0pening Surplus, r.e., Balance in Statement of profit and Loss 61 000
1,0n,000
/dd: Provision for Tax
30,000
Proposed Dividend 60,000 90,000
Net Profit before Tax
1,90,000
2 Cash and Cash Equivolents Opening Closing
t t
Cash in Hand 10,000 26,000
[ess: Bank Overdraft 14,000 50,000
(64,000) (24,000)

3 PLANT ACCOUNT Cr.

Date Paniculars t Date Particulars

2014 2015
April 1 To Balance b/o 3,00,000 Mar. 3l 8y Depreciation A/c 20,000
Mar. 31 By Bank A/c (8a1. Fig.) (5ale) 1,00,000
Mar. il 8y Balance c/d i,80,000
1,00,000 3,00,000
 3.62
-lSC Xll
Management Accounting (Section B)
Casl
4' Rate of interest on long-term loan is not given hence, interest
is ignored. Also, it ;s given that loan is
repaid in the beginning of the year. Solr

Illustration 55. From the following Balance sheets of ALtd.,prepare cash Flow
statement Parti(
as per AS-3 (Revised) for the year ended 31st March, 2015:

BALANCE SHEFTs
as ot...

Particulars
Note No. 3l st March, 3l st March,
201s (t) 2014 ({)
EQUIW AND LIABILITIES
l. Shareholders' Funds
{o) Equity Share Capital
2,00,000 2,00,000
(b) Reserves and Surplus
I 90,000 50000
2. Current Iiabilities
(d) Short-term Borrcwings (Loans)
10,000
{b) Trade Payables
20,000 15,000
(r) 0ther Current Liabilities
2 5,000 5,000
(,1) Short ierm Provisions
3 25,000 20,000 [.
Total
3,40,000 3,00,000
ASSETS

1. Non-Current Assets t.
Fixed Assets-Tangrble Assets
2,55,000 2,35,000
2. CurrentAssets '
(d) Short term Investments
20,000
(b) Net
Inventories
15,000 25,000 h'J0
{c) Trade Receivables
20,000 10,000
(d) Cas
Cash arrd Cash Equivalents
4 30,000 30000
Total
3,40,000 3,00,000 No
I
Notes to Accounts

Particulars
31st March, 31st March,
201s ({) 2014 (t)
1. Rcserves and Surplus
Surplus, r.e., Ealance in Statement of profir and Logs
90,000 50,000
2. 0ther Currenr Liabilities
2. t
Outstanding Expenses " 1,000 5,000
Par
Unclaimed Dividend
4,000
.fo
5,000 5,000
3, Short-termProvisions To
Provision for Tax
25,000 20,000
4. Cash and Cash Equivalents
Cash in Hand
10,000 8,000
Cash at Eank ).
20,000 22,000
D.
30,000

To
Ad ditional Infor n mt io tt:
i0
Net profit f.r the year after pr.r'iding { 20,000 for depreciation was { g0,000.
During the year,
the company paicl i'terim equity divide.d co 107. ancl pait{ t 15,000
as inc.me iax.
 :xil Cash Flow Statement-Based on Accountiag Standqrd_3 (Reaisedl
3.63
an is
Solution: A Ltd.
CASH FLOW SIATEMENT for the yeor ended 3tst
Motch,20t5
rent Particulars
t
l. Cash Flow from Operating Activities
Net Profit before Tax (Note l). 80,000
Add: Non.coshExpenses:
Depreciation
.h 20,000
Operating Profit before CapitalChanges . 1,00,000
I Add: Increose in Curren s ond Decreaie in Current Assets:
Increase in Trade
5,000
Decrease in lnventories
10,000 15,000

0 1,15,000
Less: lncrease in Cwrent Assets and Deuelse in Cunent
Liobilities:
0 Increase in Trade Receivables
(10,000)
Decrease in Outstanding Expenses
(4,000J (r4,000)
l Cash Generated from Operations before Tax
1,01,000
0 lessr Income Tax paid (Given)
(15,000)
l Cosh Flow fron Operoting Adivities
86,000
l ll. Cash Flow from Investing Activities
Outflow on Purchasi of Fixed Assets (Note 3)
-:== Cash Used in lnvesting Activities
(40,000)
(40,000)
lll. Cash Flow from Financing Activities
Repayment of Loan
(r0,000)
Payment of Dividend [t 20,000 _ t 4000 (Unclaimed)]
,
(i 6,000)
Cosh Used in Finoncing Adtviries
(26,000)
Net Increase (De(rease) in Cash and Cash Equivalents
fl + ll + lll) 20,000
,4dd; Opening Balance ofCash and Banx
30,000
cash and cash Equivalents at the end (short-term Investments
+ cash and fash Equivalents) 50,000

N otes:
1. Calculotion of Net profit before Tox:
t
90,000
50,000
40,000
Add: Provision for Tax (Note 2) 20,000
lnterim Dividend
20,000 40,000
Net Profit before Tax
r9p00_-
2. Dr. PROVISION FOR TAX ACCOUNT
Cr.
Particulars t Particulars t
To Cash A/c {Tax paid) 15,000 8y Ealance b/d 20,000
To Balance c,/d 25,000 By Statement of Profit and Loss (provision made) 20,000
{Ealancing Figure)
40,000 40,000

Dr. FIXED ASSETS ACCOUNI

TIANGIBLE) Cr
Particulars t Particulars t
Io Balance b/d 2,35,000 By Depreciation A/c 20,000
To Cash Aic (Balancing Figure) 40,000 By Ealance c/d 2,55,000
(Fiyed Assets purchased)

2,75,000 2,7 5,00A

 3.64 Management Accounting (Section B)
-ISC Xll Cqsh

Illustration 56. Following are the summarised Balance Sheets of ABC Ltd. as at Solu
31st Marc[ 2015 and 31st March, 2014: . (( in Hundredsl

Particulars Note No. 31st March, 3l st March,

Partic
20rs (t) 20r4 (0

EQUIlY AND LIABILITIES

l.t
I
1. Shareholders'Funds
(d) Share Capital 90,000 80,000
(b) Reserves and Surplus 1 7,400 6,000
2. Non-CurrentIiabilities
Long-term Bonowings 2 23,000 12,000
3. Cunent Liabilities
(c) Short-term Bonowings (Bank 0verdraft) r 3,600 2s,000
(b) Trade Payables 22,000 24,000
(c) Short-termProvisions 3 20000 16,000
Total 1,76,000 1,63,000
ASSETS
1. Non-Cutrent Assets
Fixed Asets [angible) I

2. CurrentAssets
{d) Current Investments 1,000 400
(b) Trade Receivables 48,000 40,000
ilt.
(c) Inventories i0,000 60,000
(d) Cash and Cash Equivalents 6,000 2,000
(e) uther Current Assets r,000 600
Total 1,76,000 .1,63,000

Notes to Accounts Hundredl

l{ in
Net I
Particulars Slst March, 3l st March, Cash
201s (t) 2014 ({) Cast
1. Reserves and Surplus
Surplus, ie., Balance in Statement of profiiand Losj Not
2,000
Debenture RedF,nption Reserve 4,000
l. (
(
6,000 L
2, Long-termBorrowings
15% Debentures
Loan from Eank

12,000
3. Short--:rmProvisions I

Provision for Tax 6,000

Proposed Dividend 't0,000 2(
16,000

Adrlitional I nt'ormolion:
Ll
1- Interest paid on Debentures T 1,800.
2. Depreciaiiori charged during the year was t 8,000. 11!
To
3. 10,000 Equity Shaies of { 100 each were issued on 31st March, 2015; Share Issue
Expenses incurred t 1,00,000, which were written ciff from surplus, i.e., Balance in
Statement of Profit and Loss.
You are required to prepare Cash Flol". Statement_
AI
'ill Cash FIow Statement-Based on Accounting Standard_3 (Reaisedl
3.65

; at Solution: I8C ttd.

'eds) CASH FLOW STATEMENT
for the yeor ended 3lst Morch, 201s ({ in Hundredsl
-n
Particulars
I {
l. Cash FlowfromOp.r.,ingA.,-
Net Profit before Tax (Note l) 2i,400
Add: Non.cosh ond Non-opetlting Expensej;
r0
Depreciation
8,000
0 Interest on Debentures paid (To be shown also as Financing
Activnyt 1,800
Share lssue Expenses Written off r,000
Operating Profit before Working Capital Changes
32,200
Less: Inuease in Cwrent Assets and Decreose in Cuftent Liobilities:
0 increase in Trade Receivables (8,000)
l Increase in Inventories (r 0,000)
) lncrease in 0ther Current Ass€ts
{400)
Decrease in Trade payables (2,000)
) 20,400
Cash Generated from ODerations
I r,800
less: lncome Tax paid (Last year,s provision for Tax)
(6,000)
lash Flow from )perating Activities
5,800
ll. Cash Flow from Investing Activities
Proceetis from Sale of Fixed Arsets (Note l) 2,000
Cosk Flowfron lnvesting Activities
2,000
lll. Cash Flowfrom Financing Activities
Proceeds from lssue of Equity Shares
r0,000
Share lssue Expenses
(1,000)
Loan from Bank iNote 4)
10,000
Proceeds from lssue of l5% Debentures
r,000
Interest on Debentures
(r,800)
Dividends (Last year s proposed dividend)
{r 0,000)
Cosh Flow from Financing Activities
r) 8,200
Net Increase in Cash and Cash Equivalents (l + ll + llll
16,000
Cash and Cash Equivalents in the beginning of the year (Note
2)
{22,600)
Cash and Cash Equivalents at the end ofthe year (Note 2) (6,600)

Notes:
1. Calculation of Net profit before Tax:
Closing Surplus, r.e., Balance in Statement of profit and Loss
2,400
Less: Opening Surplus, l.e., Balance in Statement of profit and
Loss 2,000
400
Add; Transfer to Debentures Redemption Reserve
. 1,000
Provision for Tax (Current year)
8,400
Proposed Dividend (Current year) 't1,600 21,000
Net Profit before Tax
21 ,400
2. Cash and Cash Equivalents-Opening = Cash and Cash Equivalents
+ Current Investments
- Bank Overdraft (ie., { 2,000 + { 400 _ t 25,000), Le., (t 22,600).
-Closing = Cash and Cash Equivalents + Cunent Investments _ Bank Overdraft
(ie., { 6,000 + t 1,000 - t 1.3,600), i.e., (t 6,600).
Dr. FIXED ASSETS ACCOUNT
Cr
Particuiars t Particulars ,{
To Balance b/d 60,000 ByDep;eciation A/c 8,000
ByBank A/c {Sale) (Balancing Figure) 2,000
8y Balance c/d 50,000
60,000
60,000
4. Loan from Eank is a borrowing, t.e., parl of Financinq Activitv.
 3.66 Management Accounting (SectionB) _ISC XII Cas
Illustration 57. From the following Balance Sheets of ADC Ltd., prepare Cash Flow
Statement for the year ended 31st March 2015:
Particulars
Note No. 31st March, 3l n March,
2015 ({) 2014 ({)

EQUITY AND LIABILITIES

1. Shareholders' Funds
(o) Equity Share Capital
30,000
{b) Reserves and Surplus
l r6000
2. Non-CurrentLiabilities
Long-term Borrowings (10% Debentures)
r5,000
3. Current Liabilities
Trade Payables
2 8,500
Total
69,500
ASSETS
il.
1. Non-Curent Assets
lo) Fixed Assets:
(i) Tangible
41,000 32,000
(rl) Intangible (Goodwi ) 8,000 10,000
(b) Non-Current 10% Investments I nn^
2. CurrentAssets
(a) Current investments il.
3,000 2,500
(b) Inventorjes
5,s00 4;000
(c) Trade Receivables
r9,000 8,000
(d) Cash and Cash Eqtiivalents
10,000 i0,000
Total
69,500

Notes to Accounts
tv.
Paniculars
3'lst March, 3i n March,
20r5 ({) 20r4 (0 V.
1, Reserves and Surplus
General Reserve
. 15,000 10,000
Surplus, rie., Balance in Statement of profit and Loss
7,000 6,000 1
22,000 I
2. Trade Payables No
Sundry Cre.litors L
I 1,000 7,s00
Bills Payable
1,500 r,000
12,500 &500

Add itional Int'ormation:

1. Investments costin,; { 3,000 were sold for { 2.800 during the year 20t4-15.
2. A new machine wai purchased for t 13,000. Deprcciation of { 4,000 has been
chargeC
on Machinery. 2.
Solution: A8C ttd. l.
CASH FLOW STATEMENf for theyear ended jtst Mord,20t5
4.
Particulars
Pa
l. Net Profir before Tax (Note l)
Add: Non-cosh and Non-operoting Expenses: Tc
Depreciation on Machinery Tc
Goodwill Written off
Loss on Sale of Investments
Interest on loEo Debentures (Note 2)
1,700
13,700
ilI Cash Flow Statement-Baseil on Accounting Standaril-3 (Reaisedl 3.67
.

ow Less: Non-opent;ng lncone:

lnterest on Investments ({ 3,000 x l0/100) (Note 3) (300)

h,
. Operating nofit before Vlorking CapitalChonges 13,400
Add: lnueose in Current Liobilities:
lncrease in Creditors 3,500
Increase in Bills Payable ' 500 4,000
l 17,400
l Less: lncteose in Cunent Assets:
Increase in Inventoiies (r,s00)
) - lncrease in Trade Receivables (r r,000) (12,500)

Cosh FIow from 1peroting Activities 4,900

I

a= ll. Cash Flow fromlnvesting Adivities

Purchase of Machinery (13,000)

Purchase of 1070Investments (Note 4) {8,000}

Proceeds frorn Sale of l0% Investments 2,800
Interest on 10% Investments 300

Cash Used in lnvesting Activit:I 117 ,900)

lll. Cash Flow from tinancing Activities

Proceeds from lssue of Share Capital 5,000
Proceeds from lssue of l07o Debentures 10,000
'10% (1,s00)
lnterest on Debentures

Cash Flow fron Financing Activities r 3,500

lV. Net Increase in Cash and Cash Equivalen'ls (l+ ll + lll)

({4,900-T 17,900+{ 13,500) 500

V. Cash and Cash Equivalents in th€ beginning ofthe period

Cash and Cash Equivalents (t 2,500 + {'10,000) 12,500

Vl. Cash and Cash Equivalents at the end of the period {lV + V} (t 3,000 + t 10,000) 13,000

Notes:
1. Colculation of Net Prcfit before Tax: t
Closing Surplus, i.e., Balance in Statement of Profit and Loss 7.000
leJir Opening Surplus, i.e., Balance in Statement of Profit and Loss 6,000
1,000
Add: Transfer to General Reserve 5,000
Net Profit before Tax 6,000

2. lt is assumed that new Debentures have been issued at the end of the current accounting year,
3. lt has been assumed that new Investments have been purchased at the end of the current accounting year.
4. Dr. TNVESTMENTS ACCOUNT Cr.

Particulars t Particulars {
To Balance b/d 3,000 By Bank A/c 2,800
To Bank n/c (Purchase) 8,000 By Statement of Profit and Los 200

{Balancing Figure) (Loss on Sale of Investment)

8y Ealance c/d 8,000

r 1,000 't 1,000

 3.58 Managemerit Accounting (Section Bl
-ISC nI Casl

Illustiation 58. Given below are the Balance Sheets o{ Gurmeet and Companv Limited as Solr
at 31st March, 201.4 and 31st March, 2073:
Particulars Partir
Note No. 3ist March, 3lst March,
20r4 (t) 20i 3 (t) IJ
tr
EQUITY AND LIABTTITIES
1. Shareholders'Funds
(o) Equity Share Capital
(b) Reserves and Surplus
3,50,000 . 3,00,000
I 2,20,000 1,60,000
2. Non-CurrentLiabilities
Long-term Borrowings 2 2,50,000 1,50,000
3. Cunent tiabilities 'r
Trade Payables 3 1,25,000 85,000
Total 9,45,000 (
6,95,000
il. ASSETS
l. Non-Cufrent Assets
(o) Fixed Assets:
(l) Tangible A5sets (Machinery) 4,10,000 3,20,000
(ri) Intangible Asets (Goodwill) 80,000 1,00,000
(b) Non-Current Investments I qn nr,,l ?n nnn
2. Cqrrent Assets
(a) Trade Receivables 't,90,000
80.000
{b) Inventories 55,000 40000
. '

{c) Cash and Cash Equivalents 5 1,30,000 1,25,000

Total
9,4s,000 6,95,000

Notes to Accounts

Particulars llst t.
March, 3lst March,
2011{t) 2013 (t)
l. Reserves and Surplus
GeneralReserve 1,45,000 r.00,000
Surplus, ie., Balance in Statement of profrt and Loss
/5,000 60,000
2,20,000 1,60,000
2. Long-termEotrowings
1196 Debentures 2,50,000 r,50,000
3. Trade Payables Wot
Creditors r,t 0,000 75,000
1r
Bills Payable C
r5,000 10000
tl
1,25,000 85,000
4, Non-Currentlnvestments
A
12% investments
80,000 30,000 N
5. Cash and Cash Equivalents
Bank
2.i
1,30,000 1,20,000
Cash Pad
5.000
1,30,000 r,25,000 fo
To
Atld itionnl Int'ormntion:
1. Investments costing { 36,000 were sold for t 30,000 during the vear 201,1.
2. New debentures have been issued at the end of the clrrrent accounting year at a discount 3.

of .5%, rvhich was written off from Gcneral Reserve. P.

3. New investments have been purchased at rhe end.f the current accounting year. fo
'1 Depreciation charged on Machinery during the currerli accou.ti.g year *u, {t'o,ooo. To

From the above informaiion, prepare Cash Flow Statement as per Acco'-urting Standard-3
(Revised). l0l l, Modifiedl
USC
XII Cash Ilozo Statement-Based on Accounting Standail-J lReaiseitl 3.59

Solution: CASH FLOW STATEMENT AS PER ACCOUNTING STANDARD-3 {REVI5EDI

for theyear ended 3lst Morch,2014

Particulars
h

Net Profit before Tax (WN 't)

Add: Non-cosh ond Non-operuting Expenses:
Depreciation on Machinery
Goodwill Amortised
Loss on Sale of Investments
Debenture Interest ({ 1,50,000 x 11/100)
)
Less: Non-opentinglncomes:
l__ lnterest on Investment ({ 30,000 x 12l100)
) Operuting Prcfit before Working CapitalChanges
Add: lncreose in Current Liobilities:
Increase in Creditors 35,000
lncrease in Bilh Payable 5,000
1,53,900
Less: Decreose ln Cwrent Assets:
Increase in Stock 15,000
Increase in Debtors l,l
Cosh Flow from 1perating Activities
ll. Cash Flow from Investing Activities
Purchase of Machinery (WN 2)
Purchase of Investment (WN 3)
Sale of Investment
Interest on Investment ({ 30,000 x l2l100)
Cosh Used in lnvesting Activities (1,s2,400)
lll, Cash Flow from Financing Activities
Proceeds from lssue of Shares
Proceeds from lssue of Debentures [{ 1,00,000 { 5,000 (Drscount)]
Interest on Debentures
Cash Flow from Financing Activities
Net Increase in Cash and Cash Equivalents (l + ll + lll)
Add: Cash and Cash Equivalents in the beginning of the period 1,25,000
Cash and Cash Equivalents at the end of the period 1,30,000

Working N tes:
1. Colculonon of Net Profit beforeTox:
t
Closing >urplus, ie., Balance in Statement of Profit and Loss 75,000
less: Opening Surplus, ie., Balance in Statement of Profit and Loss 60,000
15,000
,4dd: Transfer to General Reserve ({ 45,000 + { 5,000) 50,000
Net Profit before Tax 65,000
' 2. )r. IVACHINERY ACCOUNI Cr.

Particulars { Particulars {
To Balance b/d 3,20,000 8y Depreciation A/c 10,000
o Bank A/c (Balancing Fig ure: Purchase) 1,00,000 By Balance c/d 4,10,000
4,20,000 4,20,000

3. Dr. I 29lo INVESTMENT ACCOUNT Cr.

Particulars { Particulars t
To Balance b/d 30,000 By Bank A/c (SaleJ 30,000
To Bank A/c 86,000 By Statement of Profit and Loss (Loss on Sale) 6,000
(Ealancing Figure: Purchase) 8y Balance c/d 80,000
1,16,0cc r,15,000
3 .70 Management Accounting lsection Bl
- ISCXII Csslr

Illustration 59. The Balance Sheets of Copper and Comoan,rr Ltd. as at 31st March, 2013
Addi
and 31st March, 2012 are given below:
(,)
EALANCE SHEETS ds dr...
(,4
Particulars Note No. 3l st March, 3l st March, (iil
20r3 (t) 20r2 (O (iu) .
t. EQUITYANO LIABILITIES
Fron
l. Shareholders' Funds
for t
(o) Equity Share Capital 1,80,000 r,50,000
(b) Reserves and Surplus I 1,00,000 80,000
s"l}
2. Non-CurrentLiabilities
Particl
Long-te.m Borrowings 2 1,89,000 1,31,000
3. Cunent Iiabilities l. C;,
(a) Trade Payables 3 l4 N,
000 14,000
(b) Other Cunent Liabilities 4 1,000 AL
3,000
Total
484,000 3,78,000
ASSETS
l. Non-Current Assets
Fixed Assets:
(d) Tangible Assets 5 3,20,000 2,30,00c
(b) Intangible Assets (Goodwill) 5,000 10,000
2. CurreniAssets
{d) Inventories
(b) Trade Receivables
. 75,000 60,000
6 26,000 28,000
(c) Cosh and Cash Equivolents: Cash 50,000 40,000
(d) Other Current Assets
Total
7 ' &000 10,000
Lr
4,84,000 3,78,000

Notes to Accounts

3lst March,
2012 (t) C
l. Reservesand Surplus . C
General Reserve P
30,000
Surplus, i e., Balance in Statement of profit and Loss P

2. Long-t€rmBorrowings ilt. (
'1270
Debentures 51,000 P
1270 Public Deposits P

P
3. Trade Payables It
Creditors lr
Billi Payable (
I
4. OtherCurrent Liabilities (
Cash Credit (
5. Fixed Assets (Tangible)
Euilding Worl
Plant tL0
Clt
6. Trade Receivables Ier
Debtors N(
Eills Receivable 2.D
7. Other Cufrent Assets Parti

Accrued lncome
10,000
:'-
to t
Prepaid Expenses Tol
r0,000
:ilt Cash Elow Stfiement-Based oa Accounting Standard-3 lReoisedl 3.71

2013 Add tional lnfo r mation:

i

(i) Depreciation charged on Building { 10,000.

(ii) Depreciation charged on Plant { 5,000.
ch, (lii) Interest paid on Debentures I7,200 for the year.
:) (lu) Interest paid on Public Deposit t 9,600 for the year.
From the above information, prepare Cash Flow Statement as per Accounting Standard-3
for the year ended 31st March, 2013. USC 2012, Modifiedl
,0
Solution: CASH FLOW STATEMENT for the year ended 3lst Motch,2013
J0-
Particulars { T
)0
l. Cash Flow from 0perating Activities
l0 Net Profit before Tax {WN I ) 20,000
r0 Add: Non-cosh and Non-openting ltems:
Depreciation on Building 10,000
!0
: Depreciation on Plant 5,000
lnterest on Debentures 7,200
Goodrryill Amortised 5,000
Interest on Public Deposits 9,600
Operating Profit before Working Capital Changes 56,800
Add: Decrease in Cunent Assets cnd Inftose is Cinrent Liobilities:
Debtors 3,000
Accrued Income 4,000
Creditors 2,000
65,800
Less: lncreose in Current Assets ond Deueose in Curient Liobilities:
I

=:
lnventories 15,000
Bills Receivable 1,000
Prepaid Expenses 2,000
Bills Payable 2,000 (20,000)
Cash flow from Operoting Activities 45,800
ll. Cash Flowfrom Investing Activities
Purchase of Building (WN 2) (80,000)
Purchase of Plant (WN 3) (2s.000)
Cosh Used in lnvesting Activittes (1,05,000)
lll. Cash Flow from Finanring Activities
Proceeds from lssue of Equit; Share Capital 30,000
Proceeds from lssue of 12% uebentures 18,000
Proceeds from 1270 Public L,,eposit 40,000
Interest paid on Debentures 0,200)
Interest paid on Public Deposits (9,600)
Cosh tlow from Financing Activities 71 ,200
Net Increase in Cash and Cash Equivalents (l + ll + llll 12,000
Cash and Cash Equ;',alents in the beginning of period (WN 4) 37,000
Cash and Cash Equivalents atthe end ofthe period (WN 4) 49,000

Working Notes:
1. Colculotion of Net Prcfit belorc fax: t
Closing Surplus, i.e,, Balance in Statement of Profit and Loss 70,000
Less; Opening Surplus, i.e., Balance in Statement of Profit and Loss 50,000
Net Profit before Tax 20,000

2. Dr. BUILDING ACCOUNT Cr'

Particulars

To Balance b/d By Depreciation A/c 10,000

To Bank A/c {Balancing Figure: Pur(hase) By Balance c/d 2,20,000

2,30,000
 3.72 Maragement Accounting (Section Bl XII
- ISC
Crch Fl
Dr. PLANT ACCOUNT Cr.
0the
Particulars t Particula15 ( 0utst
Fixe(
To Balanceb/d 80,000 By Depreciation A,/c 5,000 Build
To Bank A/i(Balancing Figure: Purchase) 25,000 By Balance c/d 1,00,000
Plant
1,05,000 1,05,000
Trad
4. Cash and Cash Equivalents
Debt
Particulars Cash
3lst March, 31st March,
Lasn
2012 (t) 20r 3 ({)
Cash
50,000 Additio
Cash Credit (1,000)
(i) D
(ri) r\
Illustration 60. From the following Balance Sheets of Diamond
Limited as on 31st March, (ii4 D
2013 and 31st March, 7074, prepare a Cash Flow Statement (as per Accounting Standard-3):
BALANCE SHTETS di 0r... Soluti,
Particulars
3l st March,
20r 3 ({) Partirula
I. EQUITYANDIIABILITIES
1. Shareholders' Funds l. Lasl
(d) Share Capital
Net
400,000 3,40,000
(b) Reserves and Surplus r,60,000 1,20,000
Add:
2. Non-CurrentIiabilities
Long-term Borrowings 3 3,50,000 2,60,000
3, Current Liabilities -Pe
A(IG
{a) Trade Payables 4 55,000 30,000
(b) Other Current Liabiliries 5
Total
Ltr-r
il. ASSETS
L Non-Current Assets
Fixed Assets flangible) 480,000
2. Current Assets
(d) Inventories 50,000 Cas'
(b) Trade Receivables r,30,000 ll. Cas
{c) Cash and Cash Equivalents 95,000 Pi'or
Total
Pay
Cas
Notes to Accounts
llJ. Cas
Particulars 3l st March, 31st March, Prc
2014 (t) 2013 R) Pro
j
l. ShareCapital L{.-

Equity Share Capital Net lnfi

4,00,000 40,000
Add: a
2. Reservesand Surplus
Closin c
GeneralReserve 50,000 42,000
Statement of Profit and Loss 1,10,000 Notes

3. Long-tefmBorrowings
1,60,000 1,20,000 1 Cal
Clo-
570 Debentures 3,50,000 260,000 Les
4. Trade Payables
Creditors 45,000 18,000 Adl
Eilk Payable r 0,000 12.000
55,000 Ne
CXII Cnsh Flow Statement-Bnsed on Accountinx Standard-3 (Rcoisedl 3.73

Cr,
-._ 5. OtherCurrent Liabilities
( 0utstanding Expenses
6. Fixed Assets
5!00 Bui!ding
)0,000 Plant and Machinery
15,000
7, Trade Re(eivables
Debtors
8. Cash and Cash Equivalents
h,. Cash at Bank

Additional lnt'ormnt ion:

(l) Depreciation charged on Building 20,000. t
(ii) A machine with a book value of 10,000 was sold for { 8,000. t
rch,
(iil) Debentures were issued on ist April, 2013, at a discount of 10%. The discount was
l-3),
written off from General Reserve.
(lSC Somple Question Popet 2015]r

Solution: CASH FLOW STATEMENT

for the yeor ended 31st Morch,2014
ch,
1 Particuiars

l. Cash Flow from Operating Activities

Net Profit before Tax (Note 1) 49,000
JO
Add: Non-cosh and Non-oDerotine ltems:
l0 Depreciation (Building { 20,000 + Plant and Machinery { 20,000)
Loss on 5ale of Machine 42,000
)0 9r,000
0perating Profit before Working Capital Changes
Add: lncreose in Current Li0bilities:
)0 {
Creditors (t 45,000 - i8,000) 27,000
)0 1,18,000
)0 1
Less: Increose in Cunent Assets ond Decreose in Cuftent Liobilities:-
Inventories ({ 73,000 -t 50,000) (23,000)
Debtors (t 1,55,000 -( 1,30,000) (25,000)
Bills Payable ({ 12,000 -{ I0,000) (2,000)
Outstanding Expenses (t
5,000 - T 2,000)
r0
Cash Flow tron jperIting Adivities
0 Cash Flow from Investing Attivities
0 Proceeds from Sale of Frant and Machinery
Payment towards Building
Cosh Used in lnvestinq Activities (1,62,000)

= lll. Cash Flowfrom Financing Activities

'1, Proceeds from lssue of Share Capital
Proceeds from lssue of Debentures ({ q0,000 -{ 9,000)
tlow from Financing Activities
Cosh 1,41,000
Net Inflow of Cash and Cash Equivalents (l + ll + lll) ,000
l Add: Opening Cash and Cash Equlvalents
Closing Cash and €ash Equivalents 1,39,000
)
) Notes:
I
1. Calculation of Net Profit before Tax: t
= Closing Surplus, i.e., Balance in Statement of Profit and Loss 1,10.000
less: Opening Surplus, i.e., Balance in Statement of Profit and Loss 78,000
32,000
Add; Transfer to General Reserve ({ 50,000 t 42,000) 8,000
Discount on lssue of Debentures written off from General Reserve 9,000
Net Profit before Tax 49,000
 Management Accouflting (sectiott B)-ISC XII
3.74
Cr.
Dr PLANT AND MACHINERY ACCOUNT

Particulars
,
Particulars

To Balance b/d 1,90,000 By Bank A/c (Sale) rp*

By Loss on Sale of Machinery A/c 2,000

By Depreciation (Bal. Fig.) 20,000

By Balance c/d 1,60,000

1,90,000
r,90,000

Cr.
UI BUII.-DING ACCOUNT

T Particulars {
Particulars

Depreciation A/c 20,000

To Balance b/d 2,90,000 By

To Bank A/c-Purchase r,70,000 By Balance /d 4,40,000

{Bal. Fiq.)
4,60,000 4,60,000

At

a.
o Cash Flows are the inflows and outflows of Cash and Cash Equivalents'
a period'
. cash Flow statement is a statement that shows the flow of cash and cash Equivalents during
ThisstatementshovvsthenetIncreaseornetdecreaseofCashandCashEquiva|entsundereachactiv|ty
(operating/tnvesting/financing) and collectively a.
. When does the Flow of Cash Arise?
increase o( to decrease the amount of
cash Ffow arises when the net effect of tlansactions is either to
Cash or Cash Equ ivalents.
o Cash means Cash in Hand and Demand Deposits with Bank
readily convertible
o cash Equivalents: cash Equivalents are short-term, highly liquid investments that are
risk of change in value An
into known amount of cash and which are subject to an insrgnificant
investmentnormallyqualitiesascashequivalentonlywhenithasashortmaturityof'say'threemonths
or less from th€ date of acquisition.
(b) Treasury bills, (c) Commercial papers'
Examples of Cash Equivatents are: {d) Current Investments,
(d)moneymarketfundsand(e)|nvestmentinPreferenceSharesredeemablewithinthreemonthsan
utsouut.lenascashequivaIentsifthereisinsignificantriskofchangeinit:va|ue- a
CashEquivalentsaIsoinc|udeBank,Marketab|eSecurities,BankoverdraftandCashCredit'
producing activities of the enterprise
. o .operating Activities: operatrng Activities are the principal revenue
and other activities that are not investing or financing activities
r lnvesting Activities: Investing Activities are the acquisition and disposal of Iong-term assets and other
investments not included in cash equivalents
in the size and i].
o Financing Activities: Financing Activities are the activities that result in change
in the case of a company) and
compositln of the owners' capital (including Preference Share Capital
bonowings of the enterPrise-
. preparation of cash Flow Statement: cash Flow statement is prepared following the steps as under:
Step l: Compute Cash Flow from Operating Activities'
Step 2; Compute Cash Flow from Investing Activities'
Step 3: Compute Cash Flow from Financing Activities'
Step4:Thecashf|owsundereachactivity,l'e.,operatingACtivity,InvestingActivityandFinancing
Flow Statement and net fiow
Activity as conrputed under Steps 1, 2 and 3 are shown in Cash
is determineci. This will be Net lncrease or Decrease in Cash
and Cash Equivalents

step5:AddopeningcasharrdCashEquiv]lentsba|ancetocashf|owsasarrivedatunderStep4.
Step6:TheamountSodeterminedshou|dbeequa|toCashandCashEquivalentsbalanceattheend
of the Year.
 Cash Flow Statement-Based on Accounting Stdndani-3 (Reaised)
SCNI

Cr. Treatment of Miscellaneous Expenditure

( Miscellaneous Expenditure such as Loss on lssue of Debentures, Discount on lssue of
shares/Debentures, underwriting commission, preliminary Expenses are written off .in
8,000 the year in which thev are incurred from Securities pre,mium lif it existsl or from
2,000
General Reserve lif it exists) or from surplus, i.e., Balance in statenent of profit and
20000
Loss under the head'Reserves and Surolus'.
r,60,000

ry
-'Cr,
Higher Otder Thinking Skills (HOTS) euestions
Q. 1. GSC Infotech Pvt. Ltd. purchased a building for t 5,00,000 and paid the consideration bv issue of
Equity Shares. Anil, the accountant, has prepared Cash Flow Statement anij shown the trinsaction
as follows: (
Investing Activity :
Purchase of Building 5,00,000
Financing Activity :
lssue of Equity Shares 5,C0,000
ls it shown in accordance with the AS-3?
Ans. The manner in which it is shown is not correct because there is no inflow or outflow of cash rn
the transaction. In Cash Flow Statement only those transactions are shown in which the enterplse
has transacted cash.
Q. 2.
Prince Businesses Ltd. has shown interest earned under the Operating Activity. Do you rhink it is
appropriate? Give reasons to your reply.
reriod.
Ans. lt is not an Operating Activity because earning of interest is related to investments made. Therefore.
cUVrty
showing it as an Operating Activity is not correct. lt should be shown as Investinq Activitv.
Q. 3. uD Enterprises Ltd., a company engaged ii the business of importing and sellingiimber. it had
surplus funds and invested them in shares receiving dividends on them. The accouniant has souqht
.Jr'rt of your advice on how to show it in cash Flow statement. Give your advice with reasons.
Ans' The company is engaged in timber business. Any income arising from this activity should be shown as
Operating Activity. Receipt of income on account of investment should be shown as Investing Activities.
)rtible Q.4. Dolphin Commercial Ltd. is engaged in trading of commodities. lt had received incenrive for
e. An achieving higher sale. In Cash Flow Statement where should it be shown and whv?
ontns Ans. lncentive received should be shown as 'Operating Activity, because:
Operating Activity is defined by A5'3 (Revised) to be an activity which is the principal revenue
rpers/ producing activity and other activity that is not Investing or Financing Activity.
i5 Can Incentive received by the company is associated with the operating Activity, i.e., purchase and
sale of gouds. Therefore, it should be shown as Oper.ting Activity.
Q. 5. Statement of Profit and Loss of Abhirai Pvt. Ltd. sho$'s payment of income taxes as follows:
rpnse
(i) Income Tax
t
5,00,c00
(ii) Income Tax on Capital Gains (Arising on sale offixed dssets) 50,000
other (iii) Dividend Tax 25,000
it be classified or shown in Cash Flow Statement? Give your
How should reasons.
: and Ans, In Cash Flow Statement, each of the transaction will be shown as;
I ^n0
(i) Income Tax ({ 5,00,000)
It will be classified as Operating Activity because it cannot be classifred as any other activrty
nder:
unless it can be related to any other activity. Since, income tax cannot be related to any
other activity, it will be classified as'operating Activity'. lt will be shown as a separate item
under'Operatlng Activities' as required by AS-3 (Reviseot.
(ii) Income Tax on Capital Gains (t 50,000)
)c|ng It will be classified as Investing Activity to be depicted as a separate item because it rs
flow identified with the profit arising out of sale of fixed assets.
(iii) Dividend Tax ({ 25,000)
) 4. It will be classified as Financrng Activity to be depictedas a separate item because it is
end identified with the payment of dividend on shares. Dividend paid is always classified as
Financino Activiiv,
3.76 lvlanagement Accountitig (section B)-lSC ill
under more
Q. 6. Give an example of a single transaction which includes cash flows that are classified
than one activitY.
includes both interest
Ans. Instalment paid in respect of a fixed asset purchased on hire-purchase basis
loan element is
and loan, th" int.r.ri element is classified inder.Financing Activities and the
classified under lnvesting Activities
7. State with reason whether cash deposited into Bank would result
in Inflow, outflow or no Flow
Q.
of Cash and Cash Equivalents.
items of Cash and 't.
Ans. No F|ow' Reason: Cash deposited into Bank represents movement between
Cash Equivalents. 7.
8. State with reason whether old furniture written off would result in Inflow,
outflow or no Flow of t).
Q.
Cash and Cash Equivalents. 4.
Flow, Reason: old furniture written off would result in no flow of cash because
it does not
Ans. No
involve cash as it is a non-cash transaction
Q. 9. State with reason whether the following would result
in inflow, outflow or no flow of cash:
(i) Charging depreciation on furniture.
(ii) Cash withdrawn from bank for office use usc 20t4)

Ans. (i) No Flow because it is a non-cash transaction'

(ii) No Flow because both Cash and Bank are Cash and Cash Equivalent
Objective Type Questions.
i Reod the fttii)wirtg jidieinenti and select thc rciic(t cnswct:
!i) Cash Flow Statement is based on
(a) Accrual basis of accounting (b) Cash basis of accounting
(c) Accounting equation. (d) None of the above'
(ii) Inteiest received is shown in Cash Flow Statement under

' (a) Operating Activities. (b) Investing Activities'

7
(c) Financing Activitie5 (d) None of the above'
8
(iii) Interest paid is shown in Cash Flow Statement under
(a) Operating Activities. (b) lnvesting Activities'
(c) Financing Activities. (d) None of the above'
{iv) Dividend received is shown in Cash Flow Statement under
(a) Operating Activities. (b) lnvesting Activities'
t
(c) Financing Activities. (d) None of the above'
1t
(v)BankoverdraftorBankCashcreditisshowninCashF|owStatementUnder
11
(a) Operating Activities. ib) Investing Activities.
(d) l'lone of the above. 1i
(c) Financing Activities.
[Ans.: (i) (b); (ii) (b); (iii) (c); (iv) (b); (v) (d)]
2. State whethet the foltowing stotements are frue or False:
(i) Cash proceeds from issue of shares are shown in Cash Flow Statement
under Cash Flow from
Financing Activities.
(iil Cash Flow from Financing
PurchaseTsale of fixed assets is shown in Cash Flow Statement under
Activities.
(iii) cash payment to and on behalf of employees is shown in cash Flow statement under cash
Flow from OPerating Activities
under Cash Flow
(iv) Cash receipts from iale of investments are shown in Cash Flow Statement
from Investing Activities.
(v) Cash Flow Statement is based on accrual basis of accounting-
(vi) cash Flow statement is concerned with change in workinE capital position between the two
(v) False; (vi) Falsel
Balance Sheet dares. tnns.: (i) True;iii) False; (iii) True; (iv) True;
Fill in the blonks with opprcpriote words:
(i) Cash Flows are inflows and outflows of Cash and
(ii) Cash comprrses of Cash in Hand and with banks.
(iii) Taxes paid on income should be shown separately as Cash Flow from Actrvities.
(iv) Cash Flow from Operating Activities are derived from the activities of the
en te rp n se.
(v) Activities dre the activities that resutt in cilaltge in the size and composrtion
of the owners' capital and borrowings of the enterprise'
--
cxil Cash Flow Statement-Based on Accounting Stanilard_J (Repisedl
3.77
more
(vi) Activities are the acquisition and disposal of long-term
asset( and other
terest investments not included in cash equivalents.
(vii) Bank Overdraft is included in
ent is
lAns.: (i) Cash Equivalents; (ij) demand deposits; (iii) Operatrng;
(iv) principal revenue producing; (v) Financing; (ui)
Flow lnu"ir,ng,
(vii) cash and cash Equivalentil
) and
short Answer Type Questions
ctives?
)w of ctivities?
ng the Cash Flow Statement.
s not ses and limitations.
) Operating Activities, (b) Investing Activities and
ow Statement:
ii) lssue of Share Capital
20r41 v) payment of Dividend
i) Sale of Long-term Investments
ii) Dividend received
) Sale of Machine.
[Ans: Cash Flow from Oprcrating Activities: (iii); Cash Flow from Invest;ng
Activities:
(i), (vi), (vii), (viii), (x); Cash Ftow from
Financing Activiries:
fiif, n:"f, t"j, ii_ii
6. classify the following into cash Frow-from Investing Acrivities.
Financing A.ivities op"i.ii.q
Activities while preparing Cash Flow Statement. ""a
(i) Receipt of Dividend (ii) purchase of Goodwill
(iii) Deposits
Repayment of Pubric (iv) payment of rax (sc sampte popet 2015)
ty; (iii) Financing Activity; (iv) Operating Activiryl
7
ties and (iii) Financing Activities.
8
Cash Flow Statement if no information is qiven:

(ii) lncrease/Decrease in balance of plant and Machinerv?

(iii) Proposed Dividend for previous year and current
vear?
(iv) Provision for Tax for previous year and current year?
9. List any two types of financing activities.
10. What is meant by Cash Equivalents? usc 2008)
(lsc 2010)
t'1. Where is Short-term Investment shown in
Cash Flow Statement?
12. Where is Bank Overdraft or Bahk Cash Credit
(d)l
shown in Cash Flow Statement?
13. Give two differences between Net profit
and Cash from Ooerations.
usc 2012J

ng

rsh (iii) lnterest paid on Loans (iv) Dividend received

(v) Sellinq and Distribution Expenses (vi) purchase of Buitding
ow (vii) Wages and Salaries.
State which of the followinq transactions are classified
or shown as Investing Activity:
(i) Proceeds from sale oflnvestments (ii) Loan taken from Bank
v0 (iji) Purchase of Debentures (iv) Djvidend recerved on Investments
',el (v) Public Depo_sits given.
3. Sta.te.which of the following ,transactions
are classified or shown as Financing Activity:
(i) Loan taken from Bank
(iii) {ii) lssue of Debentures
lssue of Shares

1e 4.
(v) Buy-back of shares fil 3',ffIifi:;lDebentures
ldentify which of the foflowinq,tran sa-ctions are:.(a) operating
(c) Fin_ancing Activity Activity; (b) Investing Activity;
(d)
and Cash and Cash Equivalents:'
(i) Cash Sales
(iii) sarary and wases ,lil ::;ll":'n'j^i"
3.78 Management Accounting lSection Bl-ISC Xll

(v) Cash at Bank (vi) Income Tax Refund

(vii) Computer Maintehance Expenses (viii) Purchase of Investments
(ix) Dividend received (x) Dividend paid
(xi) lssue of Shares.
5. ldentify which of the following transactions is: (a) Operating Activity; (b) Investing Activity;
i
(c) Financing Activity and (d) Cash and Cash Equivalents: N

(i) Buy-back of Shares (ii) Purchase of Patents D,

(iii) Sellinq Expenses (iv) Sale of Goodwill ln

(v) Fixed Deposit with Bank (vi) Sale of Investments 5l
(vii) Cash paid to Creditors (viii) lssue of Shares PI
(ix) Loan taken (x) Salaries paid G(
(xi) Marketing Expenses (xii)
Marketable Securities Lo
(xiii) Redemption of Preference Shares. Prt

6. ldentify which of the following transactions are: (a) Operating Activity; (b) Investing Activity; lnt
(c) Financing Activity and (d) Cash and Cash Equivalents:
(
(i) Purchase of Investments (ii) Dividend paid
(iii) Dividend received (iv) Rent received by a Real Estate Company
(v) Rent received by a Trading Company (vi) Interest paid on Borrowings
Par
(vii) Proceeds irunr issue of Debeniures (viii) l,4arkctable Securities.

Calculation of Net Profit before Tax I

7. Calculrre f.iet Profir before Tax of Premier Sales Ltd, from its Balance Sheets as at 31st i\4arch, 2ili5
and :liit l\iarch, 2014:
Particuldis Slst Maich,
2014 {i)

I. EQUITY AND LIABILITIES

1. Shareholders' Funds
(a) 5hare Capital s,oo,ooo 5,00,000
(b) Reserves and Surplus 2,00,000 1,45,000 -

2. Current Liabilities tl
(a) Short term Bonowings 10,000 15,000
(b) Trade Payables . 80,000 35,000
(c) 0ther Current Liabilittes 20,000 10,000
(d) Short-term Provisions r,00,000 55,000

Total 7,60,000

il. ASSETS
1. Non-Current Assets Notes
. (a) Fixed Assets 4,00,000
(b) Investments 1,50,000 Particr,
2. Current Assets 2,10,000

Total 7,60,000
.
1, Rr

5r
Notes to Ac(ounts
ln
Particulars 3'l st March,
20r 4 ({)
Tt
l. Reserves and Surplus It
Surplus, i.e., Balance in Statement of Profit and Loss 1,45,000
Bi
2. 0ther Current Liabilities
0utstanding Expenses 10,000

3. Short-termProvisions 3.0
Provision for Tax 30,000 0
25,000
Proposed Dividend 4,s
P