The following is the Profit and Loss Account of Yamuna Limited: i) Revenue from Operations Rs. 10,00,000; ii) Expenses: Cost of Materials Consumed Rs. 50,000, Purchases of Stock-in-trade Rs. 5,00,000, Other Expenses Rs. 3,00,000; Total Expenses Rs. 8,50,000; iii) Profit before tax Rs. 1,50,000. Additional information: (i) Trade receivables decrease by Rs. 30,000 during the year. (ii) Prepaid expenses increase by Rs. 5,000 during the year. (iii) Trade payables increase by Rs. 15,000 during the year. (iv) Outstanding expenses payable increased by Rs. 3,000 during the year. (v) Other expenses included depreciation of Rs. 25,000. Compute net cash from operations for the year ended March 31, 2017 by the indirect method.
Net Cash from Operations: Rs. 2,18,000
Explanation
The indirect method starts with Profit Before Tax and adjusts for non-cash items (like depreciation) and changes in working capital. Depreciation is added back as it's a non-cash expense. Decrease in current assets (Trade Receivables) and increase in current liabilities (Trade Payables, Outstanding Expenses) are added as they represent cash inflows. Increase in current assets (Prepaid Expenses) is deducted as it represents cash outflow.
Solution Steps
Step 1: Start with Profit Before Tax = Rs. 1,50,000
Step 2: Add Depreciation (Non-cash expense) = Rs. 1,50,000 + Rs. 25,000 = Rs. 1,75,000
Step 3: Add Decrease in Trade Receivables (Current Asset decreases → Inflow) = Rs. 1,75,000 + Rs. 30,000 = Rs. 2,05,000
Step 4: Deduct Increase in Prepaid Expenses (Current Asset increases → Outflow) = Rs. 2,05,000 - Rs. 5,000 = Rs. 2,00,000
Step 5: Add Increase in Trade Payables (Current Liability increases → Inflow) = Rs. 2,00,000 + Rs. 15,000 = Rs. 2,15,000
Step 6: Add Increase in Outstanding Expenses (Current Liability increases → Inflow) = Rs. 2,15,000 + Rs. 3,000 = Rs. 2,18,000
Step 7: Net Cash from Operations = Rs. 2,18,000