Question

From the following information and extracts of Balance Sheets of Pioneer Ltd. as at 31^st March, 2017 and 31^st March, 2018, calculate for the year 2017-18:

1. Cash Flow from Operating Activities.
2. Cash Flow from Investing Activities.

Particulars	31.3.2018 (₹)	31.3.2017 (₹)
General Reserve	40,000	30,000
Balance in Statement of Profit and Loss	2,40,000	1,40,000
Provision for Tax	1,20,000	90,000
Trade Payables	32,000	44,000
Plant and Machinery (at cost)	2,90,000	2,45,000
Accumulated depreciation on Plant and Machinery	30,000	40,000
Patents	50,000	1,50,000
10% Debentures	1,20,000	10,000
Goodwill	15,000	12,000

Note: Proposed dividends for the years 2016-17 and 2017-18 were ₹ 40,000 and ₹ 50,000, respectively.

Additional Information:

During the year 2017-18:

1. The company provided depreciation on Plant and Machinery amounting to ₹ 24,000.
2. A fully depreciated machine had been condemned and scrapped.
3. Some patents were written off, while some patents were sold for ₹ 75,000 at a profit of ₹ 5,000. No new patents were purchased.
4. Interest of ₹ 12,000 was paid on Debentures.
5. Tax paid: ₹ 50,000.
6. Dividend proposed in 2016-17 was approved by the shareholders and paid by the company.

Answer 1

Cash Flow from Operating Activities
Particulars	Amount (₹)	Amount (₹)
Net Profit before Tax (WN-4)		2,30,000
Add: Non-operating/non-cash expenses.
Interest on Debentures	12,000
Depreciation on Plant and Machinery	24,000
Amortization of Patents (WN-2)	30,000	66,000
Less: Non-Operating/Non-Cash gains
Gain on sale of Patents		(5,000)
Net operating profit before working capital changes		2,91,000
Less: Decrease in Trade Payables		(12,000)
Cash from Operating Activities before Tax		2,79,000
Less: Tax Paid (WN-3)		(50,000)
Cash from Operating Activities		2,29,000

 

Cash Flow from Investing Activities
Particulars	Amount (₹)
Purchase of Plant & Machinery (WN-1)	(79,000)
Purchase of Goodwill	(3,000)
Sale of Patents	75,000
Cash used in Investing Activities	75,000

Working Note 1:

Dr.	Plant & Machinery Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	2,45,000	By Accumulated Dep. A/c (Machine condemned transferred from Acc. Dep. A/c	34,000
To Bank A/c (Purchase of Machinery)	79,000	By Balance c/d	2,90,000
	3,24,000		3,24,000

 

Dr.	Accumulated Depreciation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Plant & Machinery A/c (Bal. Fig. being machine condemned transferred to Plant & Machinery A/c)	34,000	By Balance b/d	40,000
To Balance c/d	30,000	By Depreciation A/c	24,000
	64,000		64,000

Working Note 2:

Dr.	Patents Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	1,50,000	By Bank A/c	75,000
To Gain on Sale of Patents A/c	5,000	By Statement of P & L (Patents written off) (Bal. Fig.)	30,000
		By Balance c/d	50,000
	1,55,000		1,55,000

Working Note 3:

Dr.	Provision for Tax Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank A/c	50,000	By Balance b/d	90,000
To Balance c/d	1,20,000	By Depreciation A/c	80,000
	1,70,000		1,70,000

Working Note 4: Calculation of Net Profit before Tax.

Particulars	Amount (₹)	Amount (₹)
Net Profit for the year		1,00,000
Add:
Transfer to General Reserve	10,000
Proposed Dividend 2016-17	40,000
Provision for Tax	80,000	1,30,000
Net Profit before Tax		2,30,000