Question

Read the following hypothetical text and answer the given questions on its basis. Profit for the year ended 31st March, 2026 of iPay (a payment processing start up) was ₹ 15,00,000 after accounting the following:

Particulars	₹
Depreciation	1,00,000
Loss of Furniture due to Fire	10,000
Interest on Investment (Long-term)	25,000
Tax Refund	10,000

Additional Information:

Particulars	31st March, 2026 (₹)	31st March, 2025 (₹)
Share Capital	20,00,000	15,00,000
Securities Premium	15,00,000	20,00,000
General Reserve	2,50,000	2,50,000
Machinery	5,00,000	3,00,000
Furniture	80,000	1,00,000
Marketable Securities	1,00,000	...
10% Non-current Investment	3,00,000	2,00,000
Patents	50,000	80,000
Cash-in-Hand and at Bank	50,000	1,00,000
Bank Overdraft	5,00,000	7,00,000
Provision for Tax	1,00,000	75,000

1. Patents purchased during the year was ₹ 50,000.
2. Proposed Dividend for the year ended 31st March, 2025 and 2026 was ₹ 1,50,000 and ₹ 2,00,000 respectively.
3. Interim Dividend during the year ended 31st March, 2025 and 2026 was ₹ 50,000 and ₹ 1,20,000 respectively.

You are required to:

1. Determine Net Profit before Tax and Extraordinary Items.
2. Determine Operating Profit before Working Capital Changes.
3. Determine Cash Flow from Investing Activities.
4. Determine Cash Flow from Financing Activities.
5. Determine Cash and Cash Equivalents.

Answer 1

1. Determination of Net Profit before Tax and Extraordinary Items

Particulars	Amount (₹)
Net Profit for the year (given)	15,00,000
Add: Provision for Tax made during the year	1,00,000
Add: Proposed Dividend for the previous year (ended 31st March, 2025)	1,50,000
Add: Interim Dividend paid during the current year	1,20,000
Net Profit before Tax and Extraordinary Items	18,70,000

2. Determination of Operating Profit before Working Capital Changes

Particulars	Details (₹)	Amount (₹)
Net Profit before Tax and Extraordinary Items		18,70,000
Add: Non-Cash and Non-Operating Expenses:
+ Depreciation	1,00,000
+ Loss of Furniture due to Fire	10,000
+ Patents Amortised (Note 1)	80,000	1,90,000
Less: Non-Operating Income/Extraordinary Items:
- Interest on Investment (Long-term)	(25,000)
- Tax Refund	(10,000)	(35,000)
Operating Profit before Working Capital Changes		20,25,000

3. Determination of Cash Flow from Investing Activities

Particulars	Amount (₹)
Purchase of Machinery (Note 2)	(3,00,000)
Purchase of 10% Non-Current Investment \[(3,00,000 - 2,00,000)\]	(1,00,000)
Purchase of Patents (Given)	(50,000)
Proceeds from Sale of Furniture (Note 3)	10,000
Interest on Investment Received	25,000
Cash Used in Investing Activities	(4,15,000)

4. Determination of Cash Flow from Financing Activities

Particulars	Amount (₹)
Proceeds from Issue of Share Capital $(20,00,000 - 15,00,000)$	5,00,000
Premium paid on redemption/decrease of Securities Premium $(15,00,000 - 20,00,000)$	(5,00,000)
Repayment of Bank Overdraft $(5,00,000 - 7,00,000)$	(2,00,000)
Previous Year's Proposed Dividend Paid	(1,50,000)
Current Year's Interim Dividend Paid	(1,20,000)
Cash Used in Financing Activities	(4,70,000)

5. Determination of Cash and Cash Equivalents (at the end of the year)

Particulars	Amount (₹)
Cash-in-Hand and at Bank (as on 31st March, 2026)	50,000
Marketable Securities (as on 31st March, 2026)	1,00,000
Total Cash and Cash Equivalents	1,50,000

Working Notes:

1. Patents Written Off (Amortized):
   $$\text{Opening Balance} + \text{Purchases} - \text{Closing Balance} = \text{Amount Written Off}$$
   $$80,000 + 50,000 - 50,000 = \mathbf{80,000}$$
2. Machinery Account (to find purchases):
   $$\text{Closing Balance} + \text{Depreciation} - \text{Opening Balance} = \text{Machinery Purchased}$$
   $$5,00,000 + 1,00,000 - 3,00,000 = \mathbf{3,00,000}$$
3. Furniture Account (to find sale proceeds):
   $$\text{Opening Balance} - \text{Loss by Fire} - \text{Closing Balance} = \text{Proceeds from Sale}$$
   $$1,00,000 - 10,000 - 80,000 = \mathbf{10,000}$$