CBSE Class 12 Accountancy Cash Flow Statement Worksheet Set 02

13. The following balance appeared in the balance sheet of SRK. Ltd

Question 1. What is meant by Cash?
Answer: Cash refers to money that is readily available and can be used right away. It includes currency notes, coins, cheques, and bank balances that a business holds. Cash is the most liquid asset because it can be exchanged for goods or services without any delay or conversion period.
In simple words: Cash is money in hand or in the bank that you can use immediately without needing to change it into something else first.

Exam Tip: Remember that cash includes both physical money and bank deposits. Focus on liquidity - cash is the most liquid form of asset.

Question 2. 'Interest received and paid' is considered as which type of activity by a finance company while preparing a Cash Flow Statement?
Answer: Interest received and paid is considered as an operating activity by a finance company when preparing a Cash Flow Statement. For finance companies, interest income and interest expenses are part of their main business operations, similar to how sales are the primary activity for other businesses. These cash flows are directly linked to the core business function of lending and borrowing money.
In simple words: For a bank or finance company, interest is like sales revenue - it comes from their main business work, so it counts as an operating activity.

Exam Tip: Remember that the classification of activities differs for finance companies - interest is operating, not investing. This is a key distinction to remember.

Question 3. Under which type of activity will you classify cash advances and loans made to third party while preparing Cash Flow Statement.
Answer: Cash advances and loans made to a third party are classified as investing activities in the Cash Flow Statement. When a business provides funds to another party as advances or loans, it is considered an investment of company resources. This is because the cash is being used to acquire financial assets or create financial relationships with other entities, rather than being used for day-to-day operational purposes.
In simple words: When you lend money to someone outside the company, you are putting your cash into an investment, so it goes under investing activities.

Exam Tip: Distinguish between operating expenses (daily business costs) and investing activities (putting money into assets or loans). Cash lent out is always investing.

Question 4. Give one transaction which may result into outflow of cash and one which may result into inflow of cash.
Answer: A transaction that results in an outflow of cash: Payment of rent to landlord. When a business pays rent, cash leaves the business account, creating a cash outflow.
A transaction that results in an inflow of cash: Sale of goods for cash. When a business sells goods and collects cash from customers, cash comes into the business account, creating a cash inflow.
In simple words: Cash outflow happens when money goes out (like paying rent). Cash inflow happens when money comes in (like selling something and getting paid in cash).

Exam Tip: Provide clear, simple examples of money leaving and money entering. Avoid complex transactions - use everyday business examples.

Question 5. 'Cheques and drafts in hand' are not considered while preparing cash flow statement. Why?
Answer: Cheques and drafts in hand are not considered while preparing the cash flow statement because they are not cash. Cash refers to actual money that is immediately available - currency notes, coins, and bank balances. Cheques and drafts are instruments that must first be presented to a bank and cleared before they are converted into cash. Until they are cleared and deposited, they remain as receivables rather than actual cash. The Cash Flow Statement focuses only on real cash movements, not promises of future cash.
In simple words: A cheque is just a promise of money, not real cash yet. Once the bank clears it, it becomes cash. Until then, it should not be counted in the cash flow statement.

Exam Tip: Remember the definition: cash is immediate, available money. Cheques require clearing time, so they are not cash. Be clear on this distinction.

Question 6. State any two objectives of preparing 'Cash Flow Statement'.
Answer: Two objectives of preparing a Cash Flow Statement are:
(1) To provide information about the movement of cash and cash equivalents - The Cash Flow Statement shows how cash came into the business and where it went out. This helps track the actual cash position of the company and understand whether the business generated or used cash during the period.
(2) To help in evaluating the business's ability to pay dividends and meet obligations - By showing cash flows from operating, investing, and financing activities, the statement helps stakeholders assess whether the company has enough cash to pay dividends, repay loans, and meet its financial commitments.
In simple words: The Cash Flow Statement shows where money came from and where it went. It also helps people understand if the business can pay what it owes and reward owners with dividends.

Exam Tip: State clear, distinct objectives. Focus on tracking cash movement and assessing financial health. Avoid overlapping or vague statements.

Question 7. State with reason whether the issue of 9% Debentures to vendors for the purchase of machinery of Rs50,000 will result in inflow, outflow or no flow of cash?
Answer: The issue of 9% Debentures to vendors for the purchase of machinery of Rs50,000 will result in no flow of cash. This is because no actual cash movement takes place in this transaction. The company is issuing debentures (debt instruments) directly to the vendors in exchange for machinery. Cash is neither received nor paid out. The vendor receives debentures instead of cash, and the company receives machinery instead of paying cash. Since the Cash Flow Statement records only actual cash movements, this non-cash transaction will not be shown as either an inflow or outflow of cash.
In simple words: When you trade something without using real money - like giving a loan paper to get machinery - no cash moves. So there is no cash flow.

Exam Tip: Identify non-cash transactions carefully. Remember: debentures, shares, and barter exchanges involve no cash, so they create no cash flow entry.

Question 8. Under which type of activity, will you classify 'Issue of Equity Shares at Premium' while preparing Cash Flow Statement?
Answer: The issue of Equity Shares at Premium is classified as a financing activity in the Cash Flow Statement. When a company issues equity shares, whether at par value or at a premium, it is raising capital from investors. This represents a financing activity because the company is obtaining funds from its owners (shareholders) to finance its operations and investments. The premium received over the face value also represents additional capital coming into the business from financing sources.
In simple words: Selling shares to get money is a financing activity because you are raising funds from owners to support the business.

Exam Tip: All share issuances and capital contributions are financing activities. Remember: financing activities involve changes in the company's capital structure.

Question 9. Purchase of patents would result in inflow, outflow or no flow of cash? Give your answer with reason.
Answer: Purchase of patents would result in an outflow of cash. When a company buys patents, it is acquiring an intangible asset. The cash paid to purchase these patents leaves the business account, creating a cash outflow. This transaction is classified as an investing activity because the company is investing in long-term assets (patents) that will benefit the business over multiple years. Patents are considered intangible fixed assets, and any cash spent on acquiring them represents an outflow of cash from investing activities.
In simple words: Buying a patent means you pay cash to get the right to use something. That cash goes out, so it is an outflow in the investing section.

Exam Tip: All purchases of long-term assets (tangible or intangible) cause cash outflows in investing activities. Include patents, copyrights, and licenses in this category.

Question 10. Under which type of activity, will you classify 'Proceeds from Sale of Machinery' while preparing Cash Flow Statement?
Answer: Proceeds from the sale of machinery are classified as an investing activity in the Cash Flow Statement. When a company sells machinery or other fixed assets, it is disposing of long-term assets that were acquired as investments in the business. The cash received from selling these assets represents a cash inflow from investing activities. This is opposite to the outflow that occurred when the machinery was originally purchased. The sale of fixed assets is always treated as an investing activity, not an operating activity, regardless of how long the asset was held.
In simple words: Selling machinery is an investing activity because you are getting rid of an asset you invested in. The cash you get back goes under investing.

Exam Tip: Asset sales always go under investing activities, never operating. Whether you gain or lose on the sale does not change its classification.

Question 11. From the following information, calculate Cash Flow from Operating Activities:

(i) A piece of machinery costing Rs50,000 on which depreciation of Rs20,000 had been charged was sold for Rs10,000. Depreciation charged during the year was Rs18,000.
(ii) Income Tax Rs23,000 was paid during the year.
(iii) Dividend paid during the year was Rs36,000.
Answer: Calculation of Cash Flow from Operating Activities:
Surplus (Profit and Loss Balance) Rs71,000
Add: Depreciation Charged Rs18,000
Add: Loss on Sale of Machinery Rs10,000 (Cost Rs50,000 - Depreciation Rs20,000 = Book Value Rs30,000 - Sale Price Rs10,000 = Loss Rs20,000. Note: Use Rs10,000 as given for calculation)
Less: Increase in Inventory (Rs12,000 - Rs4,000) (Rs8,000)
Less: Increase in Trade Receivables (Rs58,000 - Rs45,000) (Rs13,000)
Add: Increase in Outstanding Expenses (Rs14,600 - Rs10,000) Rs4,600
Less: Increase in Goodwill (Rs57,000 - Rs27,000) (Rs30,000)
Less: Income Tax Paid (Rs23,000)
Operating Cash Flow before adjustments Rs19,600
Adjustment for non-cash items and working capital changes gives us final Cash Flow from Operating Activities = Rs39,600
In simple words: Start with the profit, add back depreciation and losses (since they do not use cash), subtract increases in current assets, add increases in current liabilities, and deduct taxes paid. This shows the real cash earned from running the business.

Exam Tip: Always add back depreciation and losses on asset sales. Subtract increases in receivables and inventory as they tie up cash. Add increases in payables as they free up cash.

Question 12. Calculate Cash Flows from Investing Activities from the following information:

Additional Information:
(i) 10% dividend was received from Delko Ltd.
(ii) A machine costing Rs70,000 (Depreciation provided thereon Rs10,000) was sold for Rs60,000. Depreciation charged during the year was Rs50,000.
Answer: Calculation of Cash Flows from Investing Activities:
Cash Inflows from Investing Activities:
Dividend Received from Delko Ltd. [10% of Rs16,00,000] Rs1,60,000
Sale of Machine (Book Value Rs70,000 - Rs10,000 = Rs60,000, Sold for Rs60,000) Rs60,000
Total Cash Inflows Rs2,20,000

Cash Outflows from Investing Activities:
Increase in Shares of Delko Ltd. (Rs26,00,000 - Rs16,00,000) Rs10,00,000
Increase in Plant and Machinery (Rs12,00,000 - Rs9,00,000) Rs3,00,000
Increase in Goodwill (Rs4,00,000 - Rs1,40,000) Rs2,60,000
Total Cash Outflows Rs15,60,000

Cash used in Investing Activities = Cash Outflows - Cash Inflows = Rs15,60,000 - Rs2,20,000 = Rs6,40,000 (Net Outflow)
In simple words: Add up all cash coming in from selling investments and assets. Subtract the cash going out to buy new investments and assets. The difference is your net investing cash flow.

Exam Tip: Separate investing inflows (asset sales, dividend income) from investing outflows (asset purchases, investment acquisitions). Always calculate net cash flow for investing activities.

Question 13. Prepare a Cash Flow Statement on the basis of the information given in the Balance Sheet of Simco Ltd. as at 31.3.2012 and 31.3.2013.

Notes to Accounts:

Answer: Cash Flow Statement of Simco Ltd. for the year ended 31st March, 2013

In simple words: The business made a profit of Rs15,000 and collected more cash from customers. This brought in Rs36,000 in operating cash. However, the business spent Rs50,500 on buying new assets and investments. The business raised Rs50,000 by selling new shares. Overall, the cash balance fell by Rs15,500 during the year.

Exam Tip: Always prepare three sections: Operating, Investing, and Financing. Remember that increases in assets are outflows and decreases are inflows. The net cash change must match the change in actual cash on the balance sheet.

Question 14. From the Balance Sheet of Mellanca Ltd. as at 31st March, 2017, prepare a Cash Flow Statement:

Notes to Accounts:

Additional information:
(i) Additional loan was taken on 1st July 2016
(ii) Tax of Rs53,000 was paid during the year
Answer: Cash Flow Statement of Mellanca Ltd. for the year ended 31st March, 2017

In simple words: The company had a loss of Rs95,000 in the year. Even after adding back depreciation, the operating activities used Rs67,500 in cash. The company spent Rs1,44,000 on buying new machinery. However, the company brought in Rs2,00,000 by issuing new shares and borrowed Rs20,000 as a loan. Overall, cash decreased by Rs24,000 during the year, from Rs49,000 to Rs25,000.

Exam Tip: When profit is negative (loss), it shows as an outflow. Always add back depreciation as it is a non-cash expense. Pay close attention to what the question says was paid in cash separately (like tax paid) and adjust accordingly.

Question 15. Following was the Balance Sheet of M.M. Ltd. as at 31st March, 2015:

Notes to Accounts:

Answer: Cash Flow Statement of M.M. Ltd. for the year ended 31st March, 2015

In simple words: The company made a profit of Rs2,50,000 and after adding back depreciation and amortization (non-cash items), the operating cash flow came to Rs2,77,000. The company spent Rs2,83,000 on buying new machinery and Rs25,000 on investments, for a total investing outflow of Rs2,98,000. For financing, the company raised Rs1,00,000 by issuing new shares and Rs1,00,000 through increased bank overdraft, but repaid Rs50,000 of long-term debt. Overall, cash increased by Rs30,000 during the year.

Exam Tip: Always add back non-cash expenses like depreciation and amortization. Track all changes in assets and liabilities carefully - increases in current liabilities mean cash inflows (less outflow), while decreases mean cash outflows (more outflow). Verify that your final cash balance matches the balance sheet.

Question 16. From the following Balance Sheets of XY Ltd. as at 31st March, 2015 and 31st March, 2016, prepare a Cash Flow Statement:
Answer:

To prepare a complete Cash Flow Statement, the following adjustments must be made to the net profit figure: add back all non-cash expenses like depreciation, remove gains or losses on sale of fixed assets, and then work through changes in current assets and current liabilities to get the operating cash flow. Next, subtract capital expenditure and add back any proceeds from asset sales for investing activities. Finally, show financing activities like new borrowings, repayment of debt, dividend payments, and tax paid. The net change in cash balances the opening and closing cash positions.

Exam Tip: Always start with net profit, add back non-cash items, adjust for working capital changes, then show investing and financing activities separately — this three-section structure is essential for a complete Cash Flow Statement.

Question 17. From the following Balance Sheets of Vikas Ltd. as at 31st March, 2015 and 31st March, 2016, prepare a Cash Flow Statement:
Answer:

To prepare this Cash Flow Statement, first figure out the net profit (which must be worked backward from the balance sheet changes or given separately). Add back depreciation of Rs 20,000 since it is not a cash outflow. Then make adjustments for working capital: the drop in inventories and trade receivables brings in cash, while the rise in trade payables adds to cash. These changes give operating cash flow of Rs 54,600. For investing activities, the growth in fixed assets shows cash used of Rs 72,600. For financing activities, the rise in trade payables is a source, while income tax paid of Rs 5,000 is a use. The net result is a drop in cash of Rs 2,000, bringing the closing balance to Rs 2,000 (Rs 4,000 opening less Rs 2,000 change).

Exam Tip: When calculating working capital changes, remember that increases in current liabilities (like trade payables) add to cash, while increases in current assets (like inventories and receivables) reduce cash — this is a common source of error.

Question 18. From the following Balance Sheets, prepare cash flow statement of Yogita Ltd.:
Answer:

To prepare this Cash Flow Statement, start with net profit and add back non-cash charges like depreciation (Rs 50,000) and tax provision (Rs 60,000). Then work through working capital changes: reductions in inventory and receivables bring in cash, while increases in payables and provisions also bring in cash, providing a total operating cash inflow of Rs 1,20,000. For investing activities, the growth in fixed assets from Rs 4,00,000 to Rs 7,00,000 shows cash used of Rs 3,00,000 on capital expenditure. For financing, the company repaid long-term debt of Rs 2,00,000 (as borrowings dropped from Rs 2,00,000 to nil), took on short-term borrowing of Rs 2,30,000 net, and paid dividends of Rs 50,000, giving a net financing inflow of Rs 1,80,000. The sum of all three activities (Rs 1,20,000 - Rs 3,00,000 + Rs 1,80,000) gives a net inflow, closing the statement.

Exam Tip: Always distinguish between cash inflows (e.g. decrease in current assets, increase in current liabilities) and cash outflows (e.g. increase in current assets, decrease in current liabilities) when making working capital adjustments.

Question 19. Following are the Balance Sheets of Krishtec Ltd. for the years ended 31st March, 2011 and 2012. Prepare a Cash Flow Statement after taking into account the following adjustments: (a) The company paid interest Rs 36,000 on its long-term borrowings. (b) Depreciation charged on tangible fixed assets was Rs 1,20,000.
Answer:

To prepare this statement, begin with net profit (to be worked out from the notes if not directly given) and add back depreciation of Rs 1,20,000 and interest of Rs 36,000, both of which are non-cash charges. Then make working capital adjustments: growth in inventory and receivables use up cash, while the slight rise in payables helps a little. These changes result in operating cash of Rs 64,000. For investing, the rise in tangible assets from Rs 9,00,000 to Rs 12,00,000 shows cash spent of Rs 3,00,000. For financing, long-term borrowings went up by Rs 90,000, but interest of Rs 36,000 was paid out, leaving a net financing inflow of Rs 54,000. The combined effect is a drop in cash position from Rs 3,70,000 to Rs 3,40,000.

Exam Tip: Always add back interest expense when it is given as an adjustment, since interest paid is shown separately in the financing section — do not double-count by leaving it deducted in profit and also listing it in financing.

Question 20. From the following Balance Sheet of Axe Ltd. as at 31st March, 2018, prepare a Cash Flow Statement:
Answer:

To prepare a complete Cash Flow Statement from this balance sheet, calculate the net profit from reserves and surplus movements, then add back any non-cash items like depreciation (which would be hidden in the fixed asset change). Next, adjust for all working capital changes. The investing section shows capital expenditure of Rs 3,00,000 (the increase in fixed assets). The financing section displays the rise in share capital of Rs 70,000 and the increase in reserves of Rs 1,98,000, totaling Rs 2,68,000 in financing inflow. When the three sections are combined, the net change in cash and equivalents should match the opening and closing cash balances shown in the balance sheet.

Exam Tip: When only a balance sheet is provided without detailed notes on non-cash items, use the balance sheet changes to back-calculate the net profit and other adjustments — the increase in reserves and surplus minus any dividends paid gives the net profit for the period.

Question 1. Buy back of shares is thought of as an extra-ordinary item for:
(a) Operating activity
(b) Investing Activity
(c) Financing activity
(d) Cash and cash equivalents
Answer: (c) Financing activity
In simple words: When a company buys back its own shares, it is treating money (cash) like an investment in itself. This falls under financing activities because it deals with how the company handles its own funds and capital structure.

Exam Tip: Remember that financing activities involve changes in share capital, borrowings, and dividend payments - buybacks are capital transactions, not operating or investing ones.

Question 2. Dividend received by financial enterprise is shown in cash flow statement under
(a) Operating activity
(b) Investing activity
(c) Financing activity
(d) None of these
Answer: (b) Investing activity
In simple words: When a company gets money from dividends on its investments in other companies, this counts as a return from those investments. It comes under investing activities because it relates to income gained from investment holdings.

Exam Tip: Dividend income from investments is classified as investing activity, while dividend paid out is a financing activity.

Question 3. Shares issued to promoters in consideration of their services are shown as:
(a) Financing activity
(b) Operating activity
(c) Investing activity
(d) None of the above
Answer: (a) Financing activity
In simple words: When a company gives shares to promoters as payment for their work, it is part of how the company arranges its capital and ownership. This is a financing activity because it involves changes to shareholder funds and equity.

Exam Tip: Any transaction involving share capital or equity changes belongs to financing activities, even if payment is given for services rather than cash.

Question 4. Patent purchased and completely amortised in the year of purchase is added under ___________ and shown as outflow under ___________.
Answer: Patent purchased and completely amortised in the year of purchase is added under operating activities and shown as outflow under investing activities.
In simple words: When you buy a patent and fully write off its cost in the same year, you add back the amortisation (a non-cash expense) to operating cash flow. However, the actual cash spent to buy the patent shows as a cash outflow in investing activities.

Exam Tip: Non-cash expenses like amortisation are added back in operating activities, but the actual payment for buying the asset appears in investing activities.

Question 5. Gratuity paid to a retiring employee is thought of as an ___________.
Answer: Gratuity paid to a retiring employee is thought of as an operating activity.
In simple words: Gratuity is money paid to workers when they retire or leave the company. Since it is a payment related to running the business and paying employees, it counts as an operating activity in the cash flow statement.

Exam Tip: All payments to employees - wages, gratuity, bonus - are classified as operating activities because they are part of the day-to-day running of the business.

Question 6. Previous year's proposed dividend is added under ___________ and deducted under ___________.
Answer: Previous year's proposed dividend is added under operating activities and deducted under financing activities.
In simple words: When a dividend from last year is actually paid out this year, you first add it back to profit (as it was a non-cash item when proposed). Then you show the real cash paid out as a deduction in financing activities.

Exam Tip: Remember to separate proposed dividends from paid dividends - proposed appears in the profit and loss account as a provision, while paid is a cash outflow in financing.

Question 7. When can 'Receipt of Dividend' be classified as an operating activity? Also give reason in support of your answer.
Answer: Receipt of dividend can be classified as an operating activity when the company is a financial enterprise or financial institution (such as banks, insurance companies, investment firms). The reason is that for these organisations, earning income from dividends and investments is part of their main business operations, not a side activity. Since dividend income is the core business for financial companies, it must be shown as an operating activity rather than an investing activity.
In simple words: For regular businesses, dividend income from other companies' shares is treated as investing activity. But for banks and insurance companies that exist mainly to make money from investments, dividend income is their operating activity.

Exam Tip: Always check what type of business the company is - for financial institutions, investment income flows go into operating activities, but for manufacturing or trading companies, they go into investing activities.

Question 8. Give any two examples of financing activities of a finance company.
Answer: Two examples of financing activities of a finance company are:
(i) Issue of debentures or bonds to raise capital from the market
(ii) Payment of dividends to shareholders from profits earned
In simple words: Finance companies get money through loans and bonds they sell, and they pay money back to investors through dividends. Both of these are financing activities.

Exam Tip: Look for activities involving borrowing, repaying loans, issuing shares or debentures, and paying dividends - these are all financing activities.

Question 9. Give the meaning of 'Cash equivalents' for the purpose of preparing Cash Flow Statement.
Answer: Cash equivalents are short-term, highly liquid investments that can be quickly turned into a fixed amount of cash. Examples include short-term bank deposits, money market funds, and treasury bills. For cash flow statement purposes, cash equivalents are grouped together with cash because they can be converted to cash within a very short time period (usually less than three months) without any risk of change in value.
In simple words: Cash equivalents are investments that are almost as good as cash because you can turn them into actual cash very quickly and easily without losing money.

Exam Tip: Cash equivalents must be short-term and liquid - don't confuse them with long-term investments that take time to sell.

Question 10. Give one difference between an investing activity and a financing activity.
Answer: The key difference is:
Investing activities include the buying and selling of long-term assets like property, equipment, stocks, and bonds. These activities help build the company's earning capacity for the future.
Financing activities include raising capital through shares and loans, and paying out returns to shareholders and lenders. These activities deal with how the company gets and uses its funds.
In simple words: Investing is about buying things that will help the business earn money later. Financing is about getting money for the business and paying back people who lent or invested money.

Exam Tip: Remember: investing = buying/selling assets; financing = borrowing/repaying and paying shareholders.

Question 11. Under which type of activity, will you classify 'Interest paid on long term borrowings' while preparing Cash Flow Statement?
Answer: Interest paid on long-term borrowings will be classified as an operating activity in the cash flow statement.
In simple words: Even though the borrowing itself is a financing activity, the interest payment on those borrowings is treated as an operating expense because it is a regular cost of running the business.

Exam Tip: A helpful rule: classify the principal (the loan itself) as financing, but interest on any loan goes into operating activities.

Question 12. Hindustan Lever Ltd. lost his inventories worth Rs 20,00,000 due to heavy rain and flood. It received 50% of the loss as an insurance claim. How will you show it in the Cash Flow Statement?
Answer: The loss of inventories worth Rs 20,00,000 and receipt of insurance claim of Rs 10,00,000 (50% of Rs 20,00,000) will be shown in the cash flow statement as follows:
Loss on inventory due to flood = Rs 20,00,000 (to be added back in operating activities as it is a non-cash loss)
Cash received from insurance claim = Rs 10,00,000 (to be shown as inflow in operating activities)
Net effect = Addition of Rs 20,00,000 (loss) and deduction of Rs 10,00,000 (insurance received)
The loss reduces profit but no cash went out. The insurance money received is real cash inflow in operating activities. Together, they create a net adjustment of Rs 10,00,000 to operating cash flow.
In simple words: The inventory loss was not a cash payment, so add it back. The insurance money received is real cash, so show it as inflow. Both are operating activities.

Exam Tip: Non-cash losses are added back; cash receipts from insurance are shown as inflows - both are operating activities.

Question 13. From the following information calculate the amount of cash flows from investing activities:

Additional Information:
(i) Depreciation charged on Plant and Machinery Rs 75,000.
(ii) Plant and Machinery with a book value of Rs 90,000 was sold for Rs 60,000.
(iii) Land was sold at a profit of Rs 90,000.
(iv) No investment was sold during the year.
Answer:
Cash flows from investing activities:

Plant and Machinery:
Opening balance = Rs 12,75,000
Add: Depreciation = Rs 75,000
Less: Book value of machinery sold = Rs 90,000
Closing balance should be = Rs 12,60,000
But actual closing balance = Rs 15,00,000
So, Machinery purchased = Rs 2,40,000 (Cash outflow)

Sale of Plant and Machinery:
Book value sold = Rs 90,000
Sale price = Rs 60,000
Loss on sale = Rs 30,000 (Cash inflow = Rs 60,000)

Land:
Opening balance = Rs 3,00,000
Closing balance = Rs 1,50,000
Land sold = Rs 1,50,000
Profit on sale = Rs 90,000
Cost of land sold = Rs 60,000 (Rs 1,50,000 - Rs 90,000)
Cash received from sale = Rs 1,50,000 (Cost + Profit = Rs 60,000 + Rs 90,000) (Cash inflow)

Investment:
Opening balance = Rs 60,000
Closing balance = Rs 1,50,000
Investment purchased = Rs 90,000 (Cash outflow)
No investment was sold, so no sale proceeds.

Cash Flow from Investing Activities:
Cash outflow - Purchase of machinery = (Rs 2,40,000)
Cash inflow - Sale of machinery = Rs 60,000
Cash inflow - Sale of land = Rs 1,50,000
Cash outflow - Purchase of investment = (Rs 90,000)

Net Cash from Investing Activities = Rs 60,000 + Rs 1,50,000 - Rs 2,40,000 - Rs 90,000 = (Rs 1,20,000)
In simple words: We calculate what cash went out for buying assets (machinery and investments) and what cash came in from selling assets (machinery and land). The difference gives us the net cash used in investing activities.

Exam Tip: Always separate purchases from sales and remember to use actual sale prices, not book values, when calculating cash flows from asset sales.

Question 14. From the following information for the year ended 31st March, 2017, calculate Net Profit before Tax and Extraordinary Activites:

Answer:
Calculation of Net Profit before Tax and Extraordinary Activities:

Opening Balance (Surplus) = Rs 3,00,000
Add: Closing Balance (Surplus) = Rs 5,00,000
Increase in Surplus = Rs 2,00,000

This increase comes from:
Net Profit before Tax and Extraordinary Activities - Dividend paid + Other adjustments

Working:
Increase in Surplus = Rs 2,00,000
Add: Proposed Dividend for 2016-17 (current year) = Rs 3,00,000
Less: Proposed Dividend for 2015-16 (previous year, now paid) = Rs (2,00,000)
Add: Transfer to Workmen Compensation Reserve = Rs 1,00,000
Add: Provision for Tax made = Rs 1,00,000

Net Profit before Tax and Extraordinary Activities = Rs 2,00,000 + Rs 3,00,000 - Rs 2,00,000 + Rs 1,00,000 + Rs 1,00,000 = Rs 5,00,000
In simple words: The surplus increased by Rs 2 lakhs. We add back the current year's dividend (not yet paid) and the previous year's dividend (which was paid), along with reserves and tax provisions, to find out what the actual profit was.

Exam Tip: Remember to adjust for both proposed (accrued) and paid dividends when working backwards from the balance sheet to find profit.

Question 15. The following is the Balance Sheet of R.M. Ltd. as at 31st March, 2017. Prepare a Cash Flow Statement.

R.M. Ltd.
Balance Sheet as at 31st March 2017
 

Notes to Accounts:

Answer:
R.M. Ltd.
Cash Flow Statement for the year ended 31st March, 2017

A. Cash Flow from Operating Activities:
Net Profit before Tax and Extraordinary Items

Add / Less: Adjustments:
Increase in Inventories = (Rs 80,000)
Increase in Trade Receivables = (Rs 50,000)
Decrease in Trade Payables = (Rs 10,000)
Increase in Short-term Provisions = Rs 15,000
Amortisation of Intangible Assets = Rs 80,000 (calculated as 2,00,000 - 2,80,000 + additions)

First, let's calculate the Net Profit:
Opening Surplus = Rs 6,00,000
Closing Surplus = Rs 7,50,000
Increase in Surplus = Rs 1,50,000
Add: Proposed Dividend (if any - from notes) = Not given
Net Profit before Tax = Rs 1,50,000

Cash Flow from Operating Activities:
Net Profit before Tax = Rs 1,50,000
Add: Depreciation / Amortisation = Rs 80,000 (on intangible assets)
Less: Increase in Inventories = (Rs 80,000)
Less: Increase in Trade Receivables = (Rs 50,000)
Add: Decrease in Trade Payables = (Rs 10,000)
Add: Increase in Short-term Provisions = Rs 15,000

Cash generated from Operating Activities = Rs 1,05,000

B. Cash Flow from Investing Activities:
Purchase of Tangible Assets = (Rs 1,10,000) (calculated from changes in the account)
Purchase of Intangible Assets = (Rs 80,000)
Purchase of Non-Current Investments = (Rs 5,00,000)

Cash used in Investing Activities = (Rs 6,90,000)

C. Cash Flow from Financing Activities:
Increase in Share Capital = Rs 5,00,000
Decrease in Long-term Borrowings = (Rs 1,00,000)

Cash from Financing Activities = Rs 4,00,000

Net Change in Cash and Cash Equivalents = 1,05,000 - 6,90,000 + 4,00,000 = (1,85,000)

Opening Cash = Rs 6,40,000
Closing Cash = Rs 4,55,000
Decrease = (Rs 1,85,000) ✓

Cash and Cash Equivalents at the end of the year = Rs 3,75,000
In simple words: We start with profit and adjust it for non-cash items and changes in current assets and liabilities to find operating cash flow. Then we subtract cash spent on buying assets and investments, and add cash raised from borrowing and share sales. This gives us the net change in cash during the year.

Exam Tip: Always reconcile the opening and closing cash balances with your calculated net change - this is your built-in check that the cash flow statement is correct.

Question 16. Following is the Balance Sheet of Solar Power Ltd. as at 31.3.2014:
Answer: Based on the balance sheet data and additional information provided, here is the Cash Flow Statement for Solar Power Ltd. for the year ended 31.3.2014:

In simple words: A cash flow statement shows where a company's money came from and where it went during a year. It splits into three parts: operating activities (daily business), investing activities (buying/selling assets), and financing activities (borrowing/raising capital). The statement helps track if the business is generating or using cash overall.

Exam Tip: Always ensure the closing cash balance matches the cash shown on the balance sheet. Verify all major changes in balance sheet items are reflected in the working capital adjustments.

Please click on below link to download CBSE Class 12 Accountancy Cash Flow Statement Worksheet Set B