Question

Following are the Balance Sheets of Rashi Ltd. as on 31^st March, 2022 and 31^st March, 2021:

Particulars	Note No.	31.3.2022 (₹)	31.3.2021 (₹)
I. EQUITY AND LIABILITIES:
(1) Shareholders’ Funds:
(a) Share Capital		12,00,000	8,00,000
(b) Reserve and Surplus	1	(1,70,000)	(2,15,000)
(2) Non-Current Liabilities:
Long-term Borrowings	2	3,00,000	2,50,000
(3) Current Liabilities:
Trade Payables		1,90,000	2,70,000
TOTAL		15,20,000	11,05,000
II. ASSETS:
(1) Non-Current Assets:
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment (Machinery)		6,90,000	5,00,000
(b) Non-Current Investments		1,20,000	2,00,000
(2) Current Assets:
(a) Inventory		4,60,000	2,80,000
(b) Trade Receivables	3	1,80,000	65,000
(c) Cash and Bank Balances		70,000	60,000
TOTAL		15,20,000	11,05,000

Notes:

	31.3.2022 (₹)	31.3.2021 (₹)
(1) Reserve & Surplus:
Profit & Loss Balance	(1,70,000)	(2,15,000)
	65,000	(50,000)
(2) Long-term Borrowings:
12% Public Deposits	3,00,000	2,50,000
(3) Trade Receivables:
Sundry Debtors	1,80,000	50,000
Bills Receivables	-	15,000
	1,80,000	65,000

Additional Information:

1. New public deposits were accepted on 1^st January, 2022.
2. Machinery costing ₹ 2,00,000, on which depreciation charged was ₹ 70,000, was sold for ₹ 1,50,000.
3. New machinery purchased during the year amounted to ₹ 4,00,000.
4. Non-current investments were sold at a profit of 25%.

Prepare Cash Flow Statement.

Hints:

1. Depreciation on Plant and Machinery ₹ 80,000.
2. Profit as per Balance Sheet ₹ 2,15,000 − ₹ 1,70,000 = ₹ 45,000.
3. Interest on Public Deposits ₹ 31,500.

Answer 1

Cash Flow Statement for the year ended 31st March, 2022.
Particulars	Amount (₹)	Amount (₹)
A. Cash Flow from Operating Activities:
Net Profit before Tax [–1,70,000 – (–2,15,000)]		45,000
Add:
Depreciation on Machinery (Given in Hints)	80,000
Interest on Public Deposits	31,500
Less: Profit on Sale of Machinery	(20,000)	91,500
Operating Profit before Working Capital Changes		1,36,500
Adjustments for Working Capital Changes:
Less:
Increase in Inventory	(1,80,000)
Increase in Trade Receivables	(1,15,000)
Decrease in Trade Payables	(80,000)
Total Working Capital Adjustments		(3,75,000)
Net Cash used in Operating Activities (A)		(2,58,500)
B. Cash Flow from Investing Activities:
Less: Purchase of Machinery		(4,00,000)
Add:
Sale of Machinery	1,50,000
Sale of Non-Current Investments	1,00,000	2,50,000
Net Cash used in Investing Activities (B)		(1,50,000)
C. Cash Flow from Financing Activities:
Issue of Share Capital	4,00,000
Increase in Long-term Borrowings (Public Deposits)	50,000	4,50,000
Less: Interest Paid on Public Deposits		(31,500)
Net Cash from Financing Activities (C)		4,18,500
Net Increase in Cash & Cash Equivalents (A + B + C)		20,000
Add: Opening Cash & Cash Equivalents		65,000
Closing Cash & Cash Equivalents		85,000

Working Note 1: Profit on Sale of Machinery.

Cost of Machinery Sold = ₹ 2,00,000

Depreciation = ₹ 70,000

Book Value (WDV) = ₹ 2,00,000 − ₹ 70,000 =

 ₹ 1,30,000

Sale Proceeds = ₹ 1,50,000

Profit = ₹ 1,50,000 − ₹ 1,30,000

= ₹ 20,000 

The ₹ 5,500 loss is not logically or mathematically possible based on the given data.

The only correct outcome from the data is a profit of ₹ 20,000.

Working Note 2: Sale of Non-Current Investments.

Opening Investments = ₹ 2,00,000

Closing Investments = ₹ 1,20,000

Investments Sold = ₹ 2,00,000 − ₹ 1,20,000

= ₹ 80,000

Profit on Sale = 25% of ₹ 80,000

= ₹ 20,000

Sale Proceeds = ₹ 80,000 + ₹ 20,000 =

 ₹ 1,00,000