Compute cash from operations from the following figures: (i) Profit for the year 2016-17 is a sum of Rs. 10,000 after providing for depreciation of Rs. 2,000. (ii) The current assets and current liabilities of the business for the year ended March 31, 2016 and 2015 are as follows: Trade Receivables (2016: 14,000, 2017: 15,000); Provision for Doubtful Debts (2016: 1,000, 2017: 1,200); Trade Payables (2016: 13,000, 2017: 15,000); Inventories (2016: 5,000, 2017: 8,000); Other Current Assets (2016: 10,000, 2017: 12,000); Expenses payable (2016: 1,000, 2017: 1,500); Prepaid Expenses (2016: 2,000, 2017: 1,000); Accrued Income (2016: 3,000, 2017: 4,000); Income received in advance (2016: 2,000, 2017: 1,000).
Cash Flow from Operating Activities for the year ended March 31, 2017
| Particulars | Amount (Rs.) | Amount (Rs.) |
|---|---|---|
| Net Profit (Given) | 10,000 | |
| Adjustments for Non-Cash Items: | ||
| Add: Depreciation | 2,000 | |
| Add: Increase in Provision for Doubtful Debts (1,200 - 1,000) | 200 | 2,200 |
| Operating Profit before Working Capital Changes | 12,200 | |
| Changes in Working Capital: | ||
| Add: Increase in Trade Payables (15,000 - 13,000) | 2,000 | |
| Add: Increase in Expenses Payable (1,500 - 1,000) | 500 | |
| Add: Decrease in Prepaid Expenses (2,000 - 1,000) | 1,000 | |
| Less: Increase in Trade Receivables (15,000 - 14,000) | (1,000) | |
| Less: Increase in Inventories (8,000 - 5,000) | (3,000) | |
| Less: Increase in Other Current Assets (12,000 - 10,000) | (2,000) | |
| Less: Increase in Accrued Income (4,000 - 3,000) | (1,000) | |
| Less: Decrease in Income Received in Advance (2,000 - 1,000) | (1,000) | (6,500) |
| Cash Flow from Operating Activities | 5,700 |
(Note: Calculation yields Rs. 5,700 based on strict interpretation of figures provided in the prompt. If figures were intended to be different, the answer would vary.)
Explanation
The calculation starts with the Net Profit of Rs. 10,000. Depreciation (Rs. 2,000) and the increase in Provision for Doubtful Debts (Rs. 200) are added back as they are non-cash expenses/adjustments. Working capital changes are then applied: increases in current assets (Trade Receivables, Inventories, Other Current Assets, Accrued Income) and decreases in current liabilities (Income Received in Advance) are deducted, while decreases in current assets (Prepaid Expenses) and increases in current liabilities (Trade Payables, Expenses Payable) are added. The resulting Cash Flow from Operations is Rs. 5,700.
Solution Steps
Step 1: Start with Net Profit of Rs. 10,000.
Step 2: Add back non-cash items: Depreciation (Rs. 2,000) and Increase in Provision for Doubtful Debts (Rs. 200). Total adjustments = Rs. 2,200.
Step 3: Calculate changes in Working Capital for the year 2016-17 (Closing 2017 vs Opening 2016).
Step 4: Add increases in Current Liabilities (Trade Payables +2,000; Expenses Payable +500) and decreases in Current Assets (Prepaid Expenses -1,000).
Step 5: Deduct increases in Current Assets (Trade Receivables +1,000; Inventories +3,000; Other Current Assets +2,000; Accrued Income +1,000) and decreases in Current Liabilities (Income Received in Advance -1,000).
Step 6: Sum the adjustments: 10,000 + 2,200 + 2,000 + 500 + 1,000 - 1,000 - 3,000 - 2,000 - 1,000 - 1,000 = Rs. 5,700.