Question

Read the following hypothetical text and answer the given questions on the basis of the same:

Aashna, an alumnus of CBSE School, initiated her start up Smartpay, in 2015. Smartpay is a service platform that processes payments via UPI and POS, and provides credit or loans to their clients. During the year 2021-22, Smartpay issued bonus shares in the ratio of 5:1 by capitalising reserves. The profits of Smartpay in the year 2021-22 after all appropriations was ₹ 7,50,000. This profit was arrived after taking into consideration the following items -

Particulars	Amount (₹)
Interim Dividend paid during the year	90,000
Depreciation on Machinery	40,000
Loss of Machinery due to fire	20,000
Insurance claim received for Loss of Machinery due to Fire	10,000
Interest on Non-Current Investments received	30,000
Tax Refund	20,000

Additional Information:

Particulars	31.3.22 (₹)	31.3.21 (₹)
Equity Share Capital	12,00,000	10,00,000
Securities Premium Account	3,00,000	5,00,000
General Reserve	1,50,000	1,50,000
Investment in Marketable Securities	1,50,000	1,00,000
Cash in hand	2,00,000	3,00,000
Machinery	3,00,000	2,00,000
10% Non-Current Investments	4,00,000	3,00,000
Bank Overdraft	2,50,000	2,00,000
Goodwill	30,000	80,000
Provision for Tax	80,000	60,000

1. Goodwill purchased during the year was ₹ 20,000.
2. Proposed Dividend for the year ended March 31, 2021 was ₹ 1,60,000 and for the year ended March 31, 2022 was ₹ 2,00,000.

You are required to:

1. Calculate Net Profit before tax and extraordinary items.
2. Calculate Operating profit before working capital changes.
3. Calculate Cash flow from Investing activities.
4. Calculate Cash flow from Financing activities.
5. Calculate closing cash and cash equivalents.

Answer 1

(1) Net Profit before tax and extraordinary items = Net Profit for the year + Interim Dividend + Loss of assets due to fire + Provision for Tax + Proposed Dividend - Insurance claim received for Loss due to Fire – Tax refund

= 7,50,000 + 90,000 + 20,000 + 80,000 + 1,60,000 – 10,000 – 20,000

= ₹ 10,70,000

(2) Operating profit before working capital changes = Net Profit before tax and extraordinary items + Adjustments for non-cash and non-operating expenses and goodwill amortised – Adjustments for non-cash and non-operating incomes

= 10,70,000 + 40,000 + 70,000** – 30,000

= 11,50,000

** Goodwill amortised = Opening goodwill + Goodwill purchased - Closing goodwill

(3) Cash flow from Investing Activities = Interest on Non-Current Investments + Insurance claim for loss of assets due to fire – Purchase of Investments – Purchase of Machinery – Goodwill purchased

= 30,000 + 10,000 – 1,00,000 - 1,60,000 – 20,000

= ₹ (2,40,000) Outflow

(4) Cash flow from Financing Activities = Raise of Bank overdraft – Interim Dividend Paid – Final Dividend paid

= 50,000 – 90,000 – 1,60,000

= ₹ (2,00,000) Outflow

(5) Closing Cash and Cash Equivalents = Cash in Hand + Investment in Marketable Securities

= 2,00,000 + 1,50,000

= 3,50,000