Question

From the following information, you are required to prepare a Cash Flow Statement of Messrs Nirmal & Co. Ltd. for the year ended 31^st March, 2023, and give your comments about the same.

BALANCE SHEET as at 31st March, 2023
Particulars		Note No.	March 31, 2023 (₹)	March 31, 2022 (₹)
I.	Equity & Liabilities
	Shareholders’ Funds:
	Share Capital		9,00,000	8,00,000
	Reserves and Surplus		1,00,000	70,000
	Non-Current Liabilities
	Long-term Borrowings		4,00,000	-
	Current Liabilities
	Trade Payables		2,90,000	1,40,000
	Short-term Provision	1	30,000	10,000
			17,20,000	10,20,000
II.	Assets:
	Non Current Assets	2	10,10,000	6,00,000
	Current Assets:
	Inventory		4,00,000	1,50,000
	Trade Receivables		2,00,000	50,000
	Cash Balance		70,000	2,00,000
	Other Current Assets	3	40,000	20,000
			17,20,000	10,20,000

Note:

		2023 (₹)	2022 (₹)
1.	Short-term Provision:
	Provision for Tax	30,000	10,000
2.	Non-Current Assets:
	Plant & Machinery	10,10,000	6,00,000
3.	Other Current Assets:
	Prepaid General Exp.	40,000	20,000

Additional Information:

1. Interest paid on long-term borrowings ₹20,000.
2. Depreciation charged during the year ₹60,000.
3. Machinery discarded during the year ₹20,000.
4. Provision for tax made during the year was ₹40,000.
5. Interim Dividend paid ₹10,000.

Answer 1

Introduction of the Project:

     The project work is to prepare a Cash Flow Statement and Comment upon the same.

     Necessary data is provided in the form of Balance Sheets as at 31st March, 2022 and 2023. The data provided is used for the purpose of the project work.

     The project work is planned and executed by preparing a Cash Flow Statement. The Plant & Machinery Account has also been prepared to ascertain the payments made for purchasing Plant & Machinery. A provision for the tax account has also been prepared to ascertain the tax payment during the year.

CASH FLOW STATEMENT
(As per AS-3 Revised)
for the year ended 31st March, 2023
Particulars		Amount (₹)	Amount (₹)	Amount (₹)
A.	Cash flows from Operating Activities:
	Net Profit before Tax (Note 1)		80,000
	Adjustments For Non-Cash and Non-Operating Items:
	Add: Depreciation		60,000
	Add: Machinery discarded		20,000
	Add: Interest on Long-term Borrowings		20,000
	Operating Profit before Working Capital Changes		1,80,000
	Add: Increase in Trade Payables		1,50,000
			3,30,000
	Less: Increase in Inventory	2,50,000
	Less: Increase in Trade Receivables	1,50,000
	Less: Increase in Prepaid Expenses	20,000	4,20,000
			(90,000)
	Payment of Tax(3)		(20,000)
	Loss of Cash in operating activities		(1,10,000)	(1,10,000)
B.	Cash flows from Investing Activities:
	Purchase of Plant & Machinery(2)		(4,90,000)	(4,90,000)
C.	Cash flows from Financing Activities:
	Issue of Share Capital		1,00,000
	Long-Term Borrowings		4,00,000
	Interim Dividend paid		(10,000)
	Interest paid		(20,000)
	Net cash from financing activities		4,70,000	4,70,000
Net decrease in cash and cash equivalents				(1,30,000)
Add: Cash and cash equivalents in the beginning				2,00,000
Add: Cash and cash equivalents at the end				70,000

Notes:

(1)

	Amount (₹)
Calculation of Net Profit Before Tax:
Profit & Loss on 31st March, 2023	1,00,000
Profit & Loss on 31st March, 2022	70,000
	30,000
Add: Current year’s Provision for Tax	40,000
Add: Interim Dividend Paid	10,000
	80,000

(2)

PLANT & MACHINERY ACCOUNT
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	6,00,000	By Depreciation A/c	60,000
To Bank A/c (Balancing figure, being purchase)	4,90,000	By Statement of P & L (Machinery discarded)	20,000
		By Balance c/d	10,10,000
	10,90,000		10,90,000

(3)

PROVISION FOR TAX ACCOUNT
Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank A/c (Balancing figure, being the payment of tax during the year)	20,000	By Balance b/d	10,000
To Balance c/d	30,000	By Statement of P & L (Provision made during the Current Year)	40,000
	50,000		50,000

PRESENTATION OF INFORMATION:

CASH FLOW ACTIVITIES IN NIRMAL & CO. LTD.

Comments:

1. The operating tasks don’t bring in any cash. This is a bad situation for the business because it could have trouble getting cash in the future. An inventory going up from ₹1,50,000 to ₹4,00,000 could mean that the company has items that are taking a long time to sell. Also, the fact that trade receivables went from ₹50,000 to ₹2,00,000 shows that debt collection isn’t going well. It might make bad loans more likely.
2. Inventory and trade debts have gone up a lot. The company should immediately remove the piled-up goods and collect the trade receivables.
3. Almost twice as much money has been owed in trade. This may be because of a lack of cash, as trade debts are not being paid on time. The company should not wait to pay its trade debts because doing so will hurt its reputation and ability to get credit. It should get a loan from the bank to pay its trade debts.