Question

Star Products Ltd. has applied for a short-term loan of ₹15 lac from HDFC Bank. The bank manager is in a dilemma whether to grant the loan or not. You are required to calculate the sources and utilization of cash, which will enable him to make a decision about granting the loan. Following particulars are submitted by Star Products Ltd.:

BALANCE SHEET as at 31st March, ...
Particulars			Nt. No.	31.3.2023 (₹ in Lakhs)	31.3.2022 (₹ in Lakhs)
I.	Equity & Liabilities
	(1)	Shareholder’s Funds:
		Share Capital		100	80
		Reserves & Surplus		72	34
	(2)	Non-Current Liabilities
		Long-Term Borrowings		32	15
	(3)	Current Liabilities
		Short-term Borrowings	(1)	8.0	3.0
		Trade Payables		29.7	23.8
		Other Current Liabilities	(2)	0.3	0.2
		Short-term Provision	(3)	32	18
				274	174
II.	Assets
	(1)	Non-Current Assets:
		(a) Property, Plant and Equipment and Intangible Assets
		(i) Property, Plant and Equipment (Machinery)	(4)	125	92
		(b) Non-Current Investments		8	10
	(2)	Current Assets
		Current Investments (Marketable Securities)		0.4	0.6
		Inventories		75	35
		Cash Balance		0.8	0.4
				274	174

Note:

		31.3.2023 (₹ in Lakhs)	31.3.2022 (₹ in Lakhs)
(1)	Short term Borrowings:
	Bank Overdraft	8	3
(2)	Other Current Liabilities:
	Outstanding Expenses	0.3	0.2
(3)	Short-term Provision:
	Provision for Tax	32	18
(4)	Machinery	171	118
	Less: Provision for Depreciation	46	26
		125	92

Additional Information:

1. Depreciation charged during the year ₹20,00,000. 
2. Interest on Long term borrowings paid during the year ₹3,00,000. 
3. Income from Non-Current Investments ₹2,00,000. 
4. Provision for Tax made during the year ₹30,00,000. 
5. Interim Dividend paid during the year ₹6,00,000.

Answer 1

Star Products Ltd.
Cash Flow Statement for the year ended 31st March, 2023
Particulars		Amount (₹)
A.	Cash Flow from Operating Activities:
	Net Profit before Tax (W.N.1)	74,00,000
	Add: Depreciation	20,00,000
	Add: Interest on Long-term Borrowings	3,00,000
	Less: Income from Investments	(2,00,000)
	Operating Profit before Working Capital Changes	95,00,000
	Less: Increase in Inventories	(40,00,000)
	Add: Increase in Trade Payables	5,90,000
	Add: Increase in Short-term Provisions	14,00,000
	Add: Increase in Other Current Liabilities	10,000
	Cash Generated from Operations	75,00,000
	Less: Income Tax Paid (W.N.3)	(58,80,000)
	Net Cash from Operating Activities (A)	16,20,000
B.	Cash Flow from Investing Activities:
	Purchase of Fixed Assets (Machinery) (W.N.2)	(53,00,000)
	Sale of Non-current Investments	2,00,000
	Income from Investments	2,00,000
	Net Cash used in Investing Activities (B)	(49,00,000)
C.	Cash Flow from Financing Activities:
	Proceeds from Issue of Share Capital	20,00,000
	Proceeds from Long-term Borrowings	17,00,000
	Proceeds from Short-term Borrowings	5,00,000
	Less: Dividend Paid	(6,00,000)
	Less: Interest Paid on Long-term Borrowings	(3,00,000)
	Net Cash from Financing Activities (C)	33,00,000
Net Increase in Cash and Cash Equivalents (A+B+C)		20,000
Add: Opening Balance of Cash and Bank		40,000
Closing Balance of Cash and Bank		60,000

Working Note 1: Profit & Loss Adjustment for Profit Before Tax.

Dr.	Reserves & Surplus Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Interim Dividend Paid	6,00,000	By Balance b/d	34,00,000
To Provision for Tax (Current Yr.)	30,00,000	By Net Profit before Tax (Bal. Fig.)	74,00,000
To Balance c/d (Closing Reserves)	72,00,000
Total	1,08,00,000	Total	1,08,00,000

Working Note 2:

Dr.	Machinery Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	92,00,000	By Depreciation A/c	20,00,000
To Bank A/c (Purchase – Bal.Fig.)	53,00,000	By Balance c/d	1,25,00,000
Total	1,45,00,000	Total	1,45,00,000

Working Note 3:

Dr.	Provision for Tax Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank A/c (Tax Paid)	58,80,000	By Balance b/d	18,00,000
To Balance c/d	32,00,000	By P&L A/c (Current Yr.)	72,80,000
Total	90,80,000	Total	90,80,000