Question

From the following Balance Sheets of Rainbow Ltd., you are required to prepare a Cash Flow Statement (as per AS 3) for the year 2021-22.

Balance Sheets of Rainbow Ltd. As at 31st March, 2022 and 31st March, 2021.
Particulars	Note No.	31.3.2022 (₹)	31.3.2021 (₹)
I. Equity and liabilities
1. Shareholders’ Funds
(a) Share Capital (Equity)		4,00,000	4,00,000
(b) Reserve and Surplus	1	1,60,000	1,20,000
2. Non-Current Liabilities
Long-term Borrowings (5% Debentures)		3,50,000	2,60,000
3. Current Liabilities
Short-term Provision (Provision for Tax)		30,000	25,000
Total		9,40,000	8,05,000
II. Assets
1. Non-Current Assets
Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment (Plant & Machinery)		6,00,000	7,80,000
2. Current Assets
Cash & Bank Balances (Cash at Bank)		3,40,000	25,000
Total		9,40,000	8,05,000

Notes to Accounts:

Particulars	31.3.2022 (₹)	31.3.2021 (₹)
1. Reserves and Surplus
General Reserve	30,000	20,000
Balance in Statement of Profit and Loss	1,30,000	1,00,000

Additional Information:

During the year 2021-22, the company:

1. Sold a machine for ₹ 90,000 at a loss of ₹ 10,000.
2. Issued the 5% Debentures on 31^st March, 2022, at a discount of 10%. The discount was written off from General Reserve.

Answer 1

Cash Flow Statement of Rainbow Ltd. for the year ended 31st March, 2022.
Particulars	Amount (₹)	Amount (₹)
A. Cash Flow from Operating Activities:
Net profit before tax (working note 1)	70,000
Adjustments for non-cash and non-operating items
Add:
Depreciation on plant and machinery.	80,000
Loss on sale of the machine	10,000
Discount on issue of debentures	9,000
Interest on debentures (2,60,000 × 5%)	13,000
Operating profit before working capital changes	1,82,000
Less: Tax paid	(25,000)
Net Cash Flow from Operating Activities	1,57,000	1,57,000
B. Cash flow from Investing Activities:
Proceeds from sale of machine	90,000
Net Cash Flow from Investing Activities	90,000	90,000
C. Cash Flow from Financing Activities:
Add: Proceeds from issue of debentures (90,000 − 9,000)	81,000
Less: Payment of interest on debentures	(13,000)
Net Cash Flow from Financing Activities	68,000	68,000
Net increase in cash and cash equivalents (A + B + C)		3,15,000
Add: Opening cash and bank balances.		25,000
Closing cash and bank balances		3,40,000

Working Notes:

New debentures issued = 3,50,000 − 2,60,000 = ₹ 90,000

Discount on issue of debentures = 90,000 × 10% = ₹ 9,000

Transfer to general reserve = 30,000 − 20,000 = ₹ 10,000

(1) 

Calculation of Net Profit before tax difference between closing and opening balance of surplus, i.e., balance in the statement of profit and loss (1,30,000 − 1,00,000)	30,000
Add: Transfer to general reserve	10,000
Provision for tax for the current year	30,000
Net profit before tax	70,000

(2)

Dr.	Plant and Machinery Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	7,80,000	By Bank A/c	90,000
		By Statement of Profit & Loss (Loss of sale)	10,000
		By Depreciation A/c (balancing fig.)	80,000
		By Balance c/d	6,00,000
	7,80,000		7,80,000