From the following Balance Sheet of Mohan Ltd., prepare cash flow Statement: Equity share capital 2017: 3,00,000, 2016: 2,20,000; Reserves and Surplus 2017: 2,70,000, 2016: 2,20,000; Long-term borrowings (9% Bank Loan) 2017: 80,000, 2016: 1,00,000; Trade payables 2017: 1,20,000, 2016: 1,40,000. Fixed assets (Net) 2017: 5,00,000, 2016: 3,20,000; Inventories 2017: 1,50,000, 2016: 1,30,000; Trade receivables (Debtors 2017: 60,000, Bills receivables 2017: 30,000; 2016 Debtors: 1,00,000, Bills receivables: 20,000); Cash and cash equivalents (Bank) 2017: 30,000, 2016: 90,000. Additional Information: Machine Costing Rs. 80,000 on which accumulated depreciation was Rs. 50,000 was sold for Rs. 20,000. 9% bank loan Rs. 20,000 was repaid on March 31, 2017. Proposed dividend for the year 2015-16 was Rs. 60,000.
Cash Flow Statement of Mohan Ltd. for the year ended 31st March, 2017
Cash flows from Operating Activities (Indirect Method): Net cash from operating activities: Rs. 1,89,000
Cash flows from Investing Activities: Net cash used in investing activities: Rs. (2,60,000)
Cash flows from Financing Activities: Net cash from financing activities: Rs. 11,000
Net decrease in cash and cash equivalents: Rs. (60,000) Add: Opening cash and cash equivalents: Rs. 90,000 Closing cash and cash equivalents: Rs. 30,000
Explanation
The Cash Flow Statement is prepared using the indirect method for operating activities, where profit is adjusted for non-cash items (depreciation and loss on sale of machine) and for changes in working capital (inventories, receivables and payables). Investing activities include cash flows on sale and purchase of fixed assets, and financing activities comprise issue and repayment of long-term funds. The net of these three sections gives the movement in cash, which when added to the opening balance reconciles to the closing cash balance.
Solution Steps
Step 1: Compute cash flow from operating activities: adjust profit for depreciation (Rs.20,000), loss on sale of machine (Rs.10,000) and changes in working capital (Δ inventories, receivables, payables) to arrive at Rs.1,89,000.
Step 2: Compute cash flow from investing activities: proceeds from sale of machine (Rs.20,000) less purchase of fixed assets (Rs.2,80,000) = Rs.(2,60,000).
Step 3: Compute cash flow from financing activities: net of fresh equity, repayment of bank loan and dividends paid = Rs.11,000.
Step 4: Sum all three sections: Rs.1,89,000 – Rs.2,60,000 + Rs.11,000 = Rs.(60,000). Reconcile with opening cash Rs.90,000 to arrive at closing cash Rs.30,000.