1. Cash Flow Statement

2. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi.  Introduction  Meaning & Definition  Sources of Cash Inflows and Cash Outflows  Uses of Cash Flow Statement  Objective of Cash Flow Statement  Limitations of Cash Flow Statement  Difference between Fund Flow Statement and Cash Flow Statement  Classification of Cash Flow Activities  Preparation of Cash Flow Statement  Pro-forma of Cash Flow Statement (As per A. S. - 3)  Practical Problems

3.  Cash Flow Statement provides information about the cash receipts and payments for a specific period.  It deals with inflow and outflow of cash between two Balance Sheet dates.  The economic decisions that are taken by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their generations.  The statement deals with changes in cash and cash equivalents and classifies them into three categories: Operating, Investing and Financing activity.  Cash Flow Statement helps the business to identify whether there is an excess cash balance or shortage of cash, which would affect the profitability. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi.

4. Under the Cash Inflow can be included issued share capital, debenture, bank loan, sale of fixed assets and profit from operations. The Cash Outflow includes redemption of preference shares, redemption of debentures, repayment of bank loan, purchase of fixed assets and loss from operations. Cash inflows and outflows can be altered through operational activities which are discussed as follows:

5.  Operational activities incorporate expenses and incomes that affect the cash flow of the business and also those activities of non-cash items that do not affect the cash flow.  All non cash items which do not affect the cash flow must be added back to the profit. For instance, non cash items like depreciation, provisions for reserves and taxes, written off preliminary expenses, profit or loss on sale of fixed assets, etc. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi.

6.  Changes of working capital also affects cash flow statement.  Cash inflows and outflows also gets changed by changes in current assets and current liabilities.  Formulas of working capital: Cash flow decreases due to increases in current assets Cash flow increases due to decreases in current assets Cash flow increases due to increases in current liabilities Cash flow decreases due to decreases in current liabilities Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi.

7. Find out Cash flow from the following: Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Net Profit for 2007-08 less: Depreciation50,000 Opening stock (1-4-07)30,000 Closing Stock (31-3-08)20,000 Debtors (1-4-07)25,000 Debtors (31-3-08)40,000 Creditors (1-4-07)20,000 Creditors (31-3-08)30,000 Bills Payable (1-4-07)6,000 Bills payable (31-3-08)3,000 Depreciation written off during the year10,000

8. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. ParticularAmount Net profit during the year50,000 Add: Non-cash: Depreciation10,000 60,000 Add: (1) Decrease in current assets -stock10,000 (2) Increase in current liabilities - creditors10,000 80,000 Less: (1) Increase in current assets - debtors15,000 (2) Decrease in current liabilities - bills payable3,000 Cash from Operations 62,000 Statement of Cash from operations

9. This account is prepared to know the actual operational profit of the business derived from cash flow. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Model of Adjusted Profit and Loss Account ParticularAmountParticularAmount To Depreciation……….By Balance B/d………. To Goodwill written off……….By Profit on sale of fixed assets and Investment ………. To Preliminary expenses written off ……….By Cash profit from operations ………. To General reserve………. To Provision for taxation………. To Loss on sale of fixed assets and investment ………. To Proposed Dividend………. To Balance C/d……….

10. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Helps in efficient cash management Helps in Internal Financial Management Disclose the Movement of Cash Disclose Success or Failure of Cash Planning

11. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. To Assess Cash Flows from Operating Activities Dividend Payments Details of Investing and Financing Activities Tool for Planning

12. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash flow statement cannot be equated with income statement. Dividend payment is not a real barometer of liquid position of business Cash flow statement cannot replace the income statement or the fund flow statement. Funds flow statement is more comprehensive than cash flow statement.

13. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. CASH FLOW STATEMENTFUND FLOW STATEMNET It deals with flow of cash in hand, bank balance payable on demand and cash equivalents. It deals with flow of networking capital. i.e. current assets – current liabilities. It analyzes the balance of current assets and current liabilities to determine various sources and uses of cash. It does not analyze change in the structure of net working capital (current assets - current liabilities) as it is not relevant to determine sources and uses of networking capital. It is used for short range planning as cash projections are more relevant for immediate future. It is useful for long range planning; moreover, cash projections for a long period of time are not very accurate. There is direct relationship between changes in current liabilities and changes in cash. For exp. Increase in current liability increases cash. There is an inverse relationship between changes in current liabilities and changes in working capital. For exp. Increase in current liability decrease working capital. Changes in current assets and changes in cash are inversely related. There is direct relationship between changes in current assets and changes in working capital. To calculate cash from operations, funds from operations are adjusted of changes in operating current assets and operating current liabilities. There is no adjustment for changes in current assets and current liabilities in this case.

14. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. OperatingInvestingFinancing

15. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash receipts from the sale of goods and rendering of services. Cash receipts from royalties, fees, commissions and other revenue. Cash payments to suppliers for goods and services. Cash payments to and on behalf of employees. Cash payment of interest and dividends. Cash receipts and payments of an insurance enterprise for premiums and annuities and other policy benefits. Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities. Cash payment of any sum payable under some legal decisions. Cash receipts and payments relating to future contracts, forward contracts, option contracts and swap contracts when the contracts are held for dealing or trading purpose etc.

16. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash payments to acquire fixed assets (including intangible). Cash receipts from disposal of fixed assets (including intangible) Cash payments to acquire shares, warrants or debt instruments. Cash expenses on the extraordinary repairs of plant and other equipments. Cash advances and loans made to third parties. Cash receipts from the repayment of advances and loans made to third parties(other than advances and loan of financial enterprise) Cash receipts and payments relating to future contracts, forward contracts, options and swap contracts.

17. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash proceeds from issuing shares or other similar instruments. Cash proceeds from issuing debentures, loan notes, bonds and other short term borrowing. Cash repayment of long term loan and redemption of debentures in cash. Redemption of preference shares in cash. Payments of dividends etc.

18. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. It is prepared in the same manner as Funds Flow Statement. The change in the cash position from one period to another is calculated through sources and application of cash For preparing cash flow statement, requires minimum information like two consecutive year’s balance sheets, income statement and other information.

19. Cash Receipts: Issue of equity and preference shares Issue of debentures Sale of fixed assets Sale of investments Bank loan Operational profit Cash Payments: Redemption of preference shares Redemption of debentures Repayment of bank loan Purchase of fixed assets Purchase of investments Payment of dividend Payment of tax liability Operational loss Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi.

20. Model of Cash Flow Statement – AS - 3 PARTICULARAMT. (A) CASH FLOW FROM OPERATING ACTIVITIES: Net profit before extraordinary items, other adjustments and taxation------- Add: Depreciation------- Preliminary exp. Written off------- Decrease in stock------- Increase in creditors------- Less: increase in debtors Cash flow from operating activities Less: Income – tax paid ------- ---------- ------- ---------- NET CASH FLOW FROM OPERATING ACTIVITIES (B) CASH FLOW FROM INVESTING ACTIVITIES: Sale of fixed assets------- Sale of investments------- Less: purchase of fixed assets------- Purchase of investments------- Add: Interest and dividend received------- NET CASH FLOW FROM INVESTING ACTIVITIES---------- (C) CASH FLOW FROM FINANCING ACTIVITIES: Issue of shares or debentures------- Loan taken------- Less: repayment of loan------- Interest and dividend paid NET CASH FLOW FROM FINANCING ACTIVITIES ------- ---------- NET INCREASE OR DECREASE IN CASH AND CASH EQUIVALENTS ( A + B + C) ---------- Add: opening cash and Bank balance---------- CLOSING CASH AND BANK BALANCE----------

21. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi.

22. The following are Balance Sheet and Income Statement of Om ltd. Liabilities1.1.0631.12.06Assets1.1.0631.12.06 Share capital Profit & loss A/c Creditors Outstanding Expenses Provision for tax Prov. for Dep. on building 1,80,000 75,900 1,20,000 12,000 6,000 60,000 2,22,000 81,900 1,17,000 24,000 6,600 66,000 Fixed Assets: Land Building Current Assets: Cash Debtors Stock Advances 24,000 1,80,000 30,000 84,000 1,32,000 3,900 48,000 2,88,000 36,000 93,000 48,000 4,500 4,53,9005,17,5004,53,9005,17,500 Information: Company sold building during the year, cost price of which was Rs. 36,000.

23. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Profit And Loss A/C For year ended 31.3.06 ParticularRSParticularRS To Cost of sales To Wages & salaries To Gross profit c/d To Operating Exp. To Depreciation To Provision for tax To Net profit To proposed Dividend To balance Carried to balance sheet 9,90,000 1,20,000 1,50,000 By Net sales By Gross profit By Profit on sale of Building By Balance b/d By Net Profit (transf.) 12,60,000 40,000 30,000 44,000 42,000 1,50,000 6,000 1,56,000 36,000 81,900 75,900 42,000 1,17,900 You are required to prepare a cash flow statement

24. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Provision for tax A/c ParticularsRsParticularsRs To Bank (tax paid ) To Balance c/d 43,400 6,600 By Balance b/d By P & L A/c. (provision) 6,000 44,000 50,000 Building A/c ParticularsRsParticularsRs To Balance b/d To P & L A/c. (profit on sale) To Bank (purchase) 1,80,000 6,000 1,44,000 By Dep. Provision a/c By Bank(sale) By Balance c/d 24,000 18,000 2,88,000 3,30,000 Depreciation provision on building A/c ParticularsRsParticularsRs To Building a/c(dep.) To Balance c/d 24,000 66,000 By Balance b/d By P & L A/c. (current year’s dep.) 60,000 30,000 90,000 Adjusted Profit and Loss Account ParticularsRsParticularsRs To Provision for tax To Prov. for dep. on building To Dividend paid To Balance c/d 44,000 30,000 36,000 81,900 By Balance b/d By Profit on sale of building By Adj. Profit 75,900 6,000 1,10,000 191,900

25. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash flow statement of Om Ltd for the year ending on 31.3.06 (As per A. S. - 3) ParticularsAmount Rs. Amount Rs. (1) Cash Flow from Operating Activities: Profit before tax (after non-cash items)1,10,000 Add/Less: Changes in Working Capital - Inc. in debtors(9,000) - Dec. in stocks84,000 - Inc. in advances(600) - Dec. in creditors(3,000) - Inc. in Outstanding expenses12,000 Cash flows from operating activities1,93,400 Less: Tax Paid43,400 NET CASH FLOW FROM OPERATING ACTIVITES (A)1,50,000 (2) Cash Flow from Investing Activities: - Purchase of Land (refer question assets side) (24,000) - Purchase of Building (refer building A/c.) (1,44,000) - Sale of building (refer building A/c.) 18,000 NET CASH FLOW FROM INVESTING ACTIVITES (B)(1,50,000) (3) Cash Flow from Financing Activities: - Issued Equity Shares42,000 - Dividend paid(36,000) NET CASH FLOW FROM FINANCING ACTIVITIES (C)6,000 NET CASH FLOW FROM ALL ACTIVITES (A+B+C)6,000 Add: Opening Cash and Bank Balance30,000 Closing Cash and Bank Balance36,000

26. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. The Balance Sheets of a firm as on 31st December 2008 and 2009 are given below: Liabilities20082009Assets20082009 Share Capital1,00,0001,60,000Fixed Assets - Cost1,52,0002,00,000 Retained Earnings 70,25085,300 Inventory93,40089,200 Accumulated Depreciation60,00040,000 Debtors30,80021,100 12% Debenture50,000-Prepaid expenses3,9503,000 Creditors28,00048,000Bank28,10020,000 3,08,2503,33,3003,08,2503,33,300 Additional Information: Net profit is Rs. 27,050. Depreciation charged Rs. 10,000. Cash dividend declared during the period Rs. 12,000. An addition to the building was made during the year at a cost of Rs. 78,000 and fully depreciated equipment costing Rs. 30,000 was discarded as no salvage being realized. Prepare a Cash Flow Statement.

27. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Adjusted Profit & Loss Account ParticularAmountParticularAmount To Prov. for depreciation10,000By Balance b/d70,250 To Dividend12,000 To Balance c/d85,300By Adj. Profit37,050 1,07,300 Fixed Assets Account ParticularAmountParticularAmount To Balance b/d1,52,000By Accumulated Dep.30,000 To Bank78,000By Balance c/d2,00,000 2,30,000 Accumulated Depreciation Account ParticularAmountParticularAmount To Fixed Assets30,000By Balance b/d60,000 To Balance c/f40,000By Profit & Loss A/c.10,000 70,000

28. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash flow statement for the year ending on 31.12.09 (As per A. S. - 3) ParticularsAmount Rs. Amount Rs. (1) Cash Flow from Operating Activities: Profit before tax (after non-cash & extraordinary items)37,050 Add/Less: Changes in Working Capital - Dec. in Inventory4,200 - Decrease in Debtors9,700 - Increase in Creditors20,000 - Decrease in pre-paid expenses95034,850 Cash flows from operating activities71,900 Less: Tax PaidNil NET CASH FLOW FROM OPERATING ACTIVITES (A)71,900 (2) Cash Flow from Investing Activities: - Purchase of Building(78,000) NET CASH FLOW FROM INVESTING ACTIVITES (B)(78,000) (3) Cash Flow from Financing Activities: - Issued Equity Shares60,000 - Dividend paid(12,000) - Redemption of debenture(50,000) NET CASH FLOW FROM FINANCING ACTIVITIES (C)(2,000) NET CASH FLOW FROM ALL ACTIVITES (A+B+C)(8,100) Add: Opening Cash and Bank Balance28,100 Closing Cash and Bank Balance20,000

29. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. From the following information, prepare cash flow statement: Liabilities1-1-201231-12-2012Assets1-1-2012 31-12- 2012 Share Capital2,00,000 Cash8,00010,000 Profit & Loss50,00090,000Bank22,00020,000 Bank Loan10,000-Debtors10,00020,000 Outstanding Expenses 5,0001,000Stock25,00015,000 Creditors15,00020,000 Non- current asset 2,35,0002,75,000 Provision for tax20,00025,000 Unclaimed Dividend -4,000 3,00,0003,40,0003,00,0003,40,000 Balance-Sheet Net profit for the year 2012 after providing Rs.20,000 as depreciation was Rs. 60,000. During 2012, company declared equity dividend @ 10% and paid Rs. 15,000 as Income- tax.

30. Dr. Manoj Shah, Principal Investigator, NMEICT, MHRD Delhi. Cash flow statement for the year ended on December 2012 ParticularsAmount Rs. (1) Cash Flow from Operating Activities: Increase in Profit & Loss account40,000- Add: Proposed dividend (10% of 2,00,000)20,000 Net Profit60,000 Add: Depreciation20,000 Provision of Income tax20,000 Funds from operations1,00,000 Add: Increase in creditors5,000- Decrease in stock10,000- Less: Increase in debtors(10,000)- Decrease in outstanding expenses(4,000)- Cash generated from operations1,01,000 Less: Tax paid(15,000)- NET CASH PROVIDED BY OPERATING ACTIVITIES (A)86,000 (2)Cash Flow From Investing Activities: Purchase of Non -current Asset(60,000) NET CASH PROVIDED BY INVESTING ACTIVITIES (B)-(60,000) (3)Cash Flow From Financing Activities : Repayment of loan(10,000) Repayment of dividend (20,000 – 4,000)(16,000) NET CASH PROVIDED BY FINANCING ACTIVITIES (C)(26,000) NET CASH FLOW FROM ALL ACTIVITES (A+B+C)Nil Add:- Opening balance of cash & bank30,000 Closing balance of cash & bank30,000