Question

Compute Cash Flow from Operating Activities from the following:

Particulars	Closing Balances (₹)	Opening Balances (₹)
Surplus, i.e., Balance in Statement of Profit and Loss	65,000	60,000
Trade Receivables:
Debtors	67,000	1,02,000
Bills Receivable	1,03,000	62,000
General Reserve	2,37,000	2,02,000
Provision for Depreciation	30,000	20,000
Outstanding Expenses	12,000	30,000
Goodwill	70,000	80,000

An asset costing ₹ 40,000 having book value of ₹ 28,000 was sold for ₹ 36,000.

Answer 1

Cash Flow from Operating Activities
	Particulars		Amount (Rs)	Amount (Rs)
	Profit as per Statement of Profit or Loss		5,000
	Add: Transfer to Reserve		35,000	40,000
	Profit before Tax and Extraordinary Items			40,000
	Items to be Added:
	Depreciation(WN1)		22,000
	Goodwill written off		10,000	32,000
	Items to be Deducted:
	Profit on Sale of Asset			(8,000)
	Operating Profit before Working Capital Adjustments			64,000
	Less: Increase in Current Assets
		Bills Receivables		(41,000)
	Add:Decrease in Current Assets
		Debtors		35,000
	Less: Decrease in Current Liabilities
		Outstanding Expenses		(18,000)
	Cash Generated from Operations			40,000
	Less: Tax Paid			Nil
	Net Cash Flows from Operating Activities			40,000

Working Note1:

Provision for Depreciation Account
Dr.		Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)
Asset A/c (40,000 – 28,000)*	12,000	Balance b/d	20,000
Balance c/d	30,000	Profit and Loss A/c (Depreciation charged during the year)	22,000
	42,000		42,000

 

Particulars	Amount (Rs)
Cost of Asset Sold	40,000
Less: Provision for Depreciation*	(12,000)
Book Value	28,000
Less: Sale of Asset	(36,000)
Profit on Sale	8,000