Question

Anand Ltd. reported a loss of ₹ 80,000 for the year ended 31^st March, 2024, after considering the depreciation charged on Plant & Machinery represented by ‘??’ and the following items:

	(₹)
(a) Tax provided during the year	84,000
(b) Loss on sale of Plant & Machinery	15,000
(c) Interest on Short-term Loans and Advances	2,000
(d) Depreciation on Plant & Machinery	??

Additional information:

1. During the year 2023-24:

• A machine having a book value ₹ 40,000 was disposed of for ₹ 25,000, and a machine costing ₹ 2,20,000 was purchased.
• Credit sales were ₹ 1,00,000.

2. An extract of the balance sheet of the company as at 31^st March, 2023, and as at 31^st March, 2024:

Particulars	31st March, 2024 (₹)	31st March, 2023 (₹)
Trade Receivable	20,000	15,000
Cash at Bank	8,000	10,000
Short-term Loans and Advances	49,000	11,000
Trade Payables	5,000	2,000
Plant & Machinery (At Net Value)	6,00,000	4,90,000
Provision for depreciation	1,50,000	1,10,000

1. You are required to calculate for the year 2023-24: (Show the workings clearly.)
   1. The net operating profit of the company before working capital changes.
   2. Cash from Investing Activity.
2. Taking the information of credit sales into consideration, state with reason whether the increase in Trade Receivables in the year 2023-24 over the year 2022-23 will cause the cash from operating activities before tax paid to be more or less than the net operating profit of the company before its working capital changes.

Answer 1

(i)

1. Net Profit Before Tax:

Particulars	(₹)
Net Profit for the year	(80,000)
Add: Tax Provided during the year	84,000
Net Profit before Tax	4,000
Add:
Depreciation on Plant & Machinery	70,000
Loss on sale of machine	15,000
Less: Interest on Short-Term Loans and Advances	(2,000)
Net Operating Profit before Working Capital changes	87,000

2. Cash Flow from Investing Activities:

Particulars	(₹)
Purchase of Plant & Machinery	(2,20,000)
Sale of Plant & Machinery	25,000
Short-Term Loans and Advances	(38,000)
Interest on Short-Term Loans and Advances	2,000
Cash used in Investing Activities	(2,31,000)

(ii) The cash from operating activities before tax paid will be less than the net operating profit before working capital changes.
Reason: Although the operating profit increased by ₹ 1,00,000 because of the credit sales, the increase in cash was only ₹ 95,000:

Particulars	(₹)
Credit Sales	1,00,000
Add: Opening Trade Receivables	15,000
	1,15,000
Less: Closing Trade Receivables	20,000
	95,000

 Working Note: 1

Dr.	Provision for Depreciation A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Plant & Machinery A/c	30,000	By Balance b/d	1,10,000
To Balance c/d	1,50,000	By Depreciation A/c	70,000
	1,80,000		1,80,000

 Working Note: 2

Dr.	Plant & Machinery A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	6,00,000	By Provision for Depreciation A/c	30,000
To Bank A/c	2,20,000	By Bank A/c	25,000
		By Loss on sale A/c	15,000
		By Balance c/d	7,50,000
	8,20,000		8,20,000