Question

X Ltd. has applied for a short-term loan of ₹10 Lac from State Bank of India. The bank manager, while making a decision about granting the loan, wants to have an idea about the Sources and Utilisation of Cash. You are required to submit a project report to the bank manager, which would enable him to decide about granting the loan. Following particulars are related to X Ltd.

BALANCE SHEET as at 31st March, 2023
Particulars			Note No.	March 31, 2023 (₹’000)	March 31, 2022 (₹’000)
I.	Equity & Liabilities:
	(1)	Shareholder’s Funds
		Share Capital		2,500	2,000
		Reserves and Surplus		1,800	1,200
	(2)	Non-Current Liabilities
		Long-term Borrowings		1,200	1,000
	(3)	Current Liabilities
		Short-term Borrowings	1	250	-
		Trade Payables		1,860	1,800
		Short-term Provision	2	240	200
				7,850	6,200
II.	Assets:
	(1)	Non Current Assets
		(a) Property, Plant and Equipment and Intangible Assets
		(i) Property, Plant and Equipment (Machinery)	3	4,300	2,900
		(b) Non-Current Investments		300	200
	(2)	Current Assets
		Short-term Investments (Marketable)		120	250
		Inventories		1,000	500
		Trade Receivables		1,500	1,400
		Cash & Bank Balance		630	850
		Other Current Assets	4	-	100
				7,850	6,200

Note:

		31-3-2023 (₹’000)	31-3-2022 (₹’000)
1.	Short-term Borrowings:
	Bank Overdraft	250	-
2.	Short-term Provision:
	Provision for Tax	240	200
3.	Machinery:	6,200	4,500
	Less: Accumulated Depreciation	1,900	1,600
		4,300	2,900
4.	Other Current Assets:
	Payment in Advance	-	100

Additional Information:

1. Provision for Tax made during the year 2022-23 amounted to ₹2,25,000.
2. An interim dividend of ₹2,00,000 was paid during the year.
3. Machinery costing ₹8,00,000 (accumulated depreciation thereon being 1,80,000) were sold during the year at a loss ₹1,20,000.
4. Interest received on Investments amounted to ₹30,000.
5. Interest on long-term borrowings paid during the year amounted to ₹1,20,000.

Answer 1

Introduction of the Project:

     The project work is to submit a report to the bank manager, which should enable him to arrive at a decision regarding granting a short-term loan of ₹10 Lac. to X Ltd.

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

     Since X Ltd. has applied for a short-term loan, the bank manager will require information regarding the company’s short-term financial position. He will also require information regarding the sources and utilisation of cash during the period to assess the ability of the enterprise to generate future cash flows.

     Hence, the project work is planned and executed by preparing a Cash Flow Statement.

CASH FLOW STATEMENT
for the year ended 31st March, 2023
Particulars		Amount (₹’000)	Amount (₹’000)	Amount (₹’000)
A.	Cash flows from Operating Activities:
	Net Profit before Tax (Note 1)		1,025
	Adjustments For Non-Cash and Non-Operating Items:
	Add: Depreciation(4)		480
	Loss on Sale of Machinery		120
	Interest on Long-term Borrowings		120
	Interest on Non-Current Investments		(30)
	Operating Profit before Working Capital Changes		1,715
	Add: Increase in Trade Payables	60
	Decrease in Payment in Advance	100	160
			1,875
	Less: Increase in Inventories	500
	Increase in Trade Receivables	100	600
			1,275
	Payment of Tax(2)		(185)
	Net cash from operating activities		1,090	1,090
B.	Cash flows from Investing Activities:
	Sales of Machinery		500
	Purchase of Machinery(3)		(2,500)
	Purchase of Non-Current Investments		(100)
	Interest received		30
	Net cash used in investing activities		(2,070)	(2,070)
C.	Cash flows from Financing Activities:
	Proceeds from the issue of share capital		500
	Proceeds from Long-term Borrowings		200
	Proceeds from Short-term Borrowings (Increase in Bank Overdraft)		250
	Interest paid		(120)
	Interim Dividend Paid		(200)
	Net cash from financing activities		630	630
Net decrease in cash and cash equivalents				(350)
Add: Cash and cash equivalents at the beginning of the period(5)				1,100
Cash and cash equivalents at the end of the period				750

Notes:

(1)

	Amount (₹’000)
Calculation of Net Profit before Tax:
Reserve and Surplus Balance on 31st March 2023	1,800
Less: Reserve and Surplus Balance on 31st March, 2022	1,200
	600
Add: Current year’s Provision for Tax	225
Interim Dividend	200
	1,025

(2)

PROVISION FOR TAX ACCOUNT
Particulars	Amount (₹’000)	Particulars	Amount (₹’000)
To Bank A/c (balancing figure, being Payment of Tax)	185	By Balance b/d	200
To Balance c/d	240	By Statement of P & L (Provision made during Current Year)	225
	425		425

(3)

MACHINERY ACCOUNT
Particulars	Amount (₹’000)	Particulars	Amount (₹’000)
To Balance b/d	4,500	By Bank A/c (Sale)	500
To Bank A/c (Balancing figure, being purchased)	2,500	By Accumulated Depreciation A/c	180
		By Loss on Sale of Machinery A/c	120
		By Balance c/d	6,200
	7,000		7,000

(4)

ACCUMULATED DEPRECIATION ACCOUNT
Particulars	Amount (₹’000)	Particulars	Amount (₹’000)
To Machinery A/c (Accumulated depreciation of Machinery sold)	180	By Balance b/d	1,600
To Balance c/d	1,900	By Depreciation A/c (balancing figure, being the current year’s depreciation)	480
	2,080		2,080

(5)

	Amount (₹’000)	Amount (₹’000)
Cash and Cash Equivalents:
Marketable Securities	120	250
Cash & Bank Balances	630	850
	750	1,100

Comments: Cash outflow due to Investing activities is ₹20,70,000, whereas cash inflow from operating and financing activities is only ₹10,90,000 and ₹6,30,000, respectively. As a result, there is a net cash outflow of ₹3,50,000. Fixed Assets should have been purchased from long-term sources.

PRESENTATION OF INFORMATION:

CASH FLOWS ACTIVITIES IN X LTD.