Calculate 'Cash Flows from Operating Activities' for the year ended 31st March, 2021 from the following Balance Sheet of Raman Ltd. as at 31st March, 2021 :
Balance Sheet of Raman Ltd. as at 31st March, 2021
| Particulars | Note No. | 31.3.2021 ₹ | 31.3.2020 ₹ |
|---|---|---|---|
| I – Equity and Liabilities : | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 7,50,000 | 7,00,000 | |
| (b) Reserves and Surplus | 1 | 1,25,000 | 55,000 |
| 2. Non-Current Liabilities | |||
| Long-term Borrowings | 1,00,000 | 62,500 | |
| 3. Current Liabilities | |||
| (a) Short-term Borrowings | 2 | 6,000 | 5,000 |
| (b) Trade Payables | 7,500 | 41,500 | |
| (c) Short-term Provisions | 3 | 9,000 | 5,500 |
| Total | 9,97,500 | 8,69,500 | |
| II – Assets : | |||
| 1. Non-Current Assets — Fixed Assets | |||
| (a) Tangible Assets | 4 | 9,30,000 | 8,05,000 |
| (b) Intangible Assets | 5 | 25,000 | 15,000 |
| 2. Current Assets | |||
| (a) Current Investments | 4,000 | 2,500 | |
| (b) Inventories | 18,500 | 29,500 | |
| (c) Trade Receivables | 13,000 | 11,500 | |
| (d) Cash and Cash Equivalents | 7,000 | 6,000 | |
| Total | 9,97,500 | 8,69,500 |
Notes to Accounts :
| Note No. | Particulars | 31.3.2021 ₹ | 31.3.2020 ₹ |
|---|---|---|---|
| 1 | Reserves and Surplus (Balance in Statement of Profit and Loss) | 1,25,000 | 55,000 |
| 2 | Short-term Borrowings — Bank Overdraft | 6,000 | 5,000 |
| 3 | Short-term Provisions — Provision for Tax | 9,000 | 5,500 |
| 4 | Tangible Assets — Machinery | 10,00,000 | 8,50,000 |
| 4 | Tangible Assets — Accumulated Depreciation | (70,000) | (45,000) |
| 4 | Tangible Assets — Total | 9,30,000 | 8,05,000 |
| 5 | Intangible Assets — Patents | 25,000 | 15,000 |
Additional Information : Tax paid during the year amounted to ₹ 6,500.
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Start your 14-day free trial to unlock the full solution →Cash Flows from Operating Activities of Raman Ltd. for the year ended 31st March, 2021 = ₹74,000, computed by the indirect method: Net Profit before Tax ₹80,000 + Depreciation ₹25,000 − net working-capital outflow ₹24,500 − Tax paid ₹6,500.
Concept and Approach
Under the indirect method (AS-3 Revised), Cash Flow from Operating Activities is found by starting with Net Profit before Tax, adding back non-cash and non-operating charges (like depreciation), adjusting for changes in operating current assets and current liabilities, and finally deducting tax paid.
Three items in this balance sheet are not operating working capital and are excluded from the operating section:
- Current Investments (₹2,500 → ₹4,000) — treated as an investing activity.
- Patents / Intangible Assets (₹15,000 → ₹25,000) — a purchase of a fixed asset (investing). No amortisation is charged, since the net book value rose and no sale is mentioned.
- Short-term Borrowings – Bank Overdraft (₹5,000 → ₹6,000) — a financing activity.
Step 1 — Net Profit before Tax
The increase in the Surplus (Statement of Profit and Loss) is the profit after tax; the tax charged for the year (the provision made) is added back to reach profit before tax.
| Particulars | ₹ |
|---|---|
| Closing balance of Surplus (Statement of P&L) | 1,25,000 |
| Less: Opening balance of Surplus | (55,000) |
| Net Profit after Tax | 70,000 |
| Add: Provision for Tax made during the year (Working Note 1) | 10,000 |
| Net Profit before Tax | 80,000 |
Step 2 — Operating Profit before Working Capital Changes
| Particulars | ₹ |
|---|---|
| Net Profit before Tax | 80,000 |
| Add: Depreciation on Machinery (Working Note 2) | 25,000 |
| Operating Profit before Working Capital Changes | 1,05,000 |
Step 3 — Adjust for Changes in Working Capital
| Particulars | ₹ |
|---|---|
| Operating Profit before Working Capital Changes | 1,05,000 |
| Add: Decrease in Inventories (29,500 − 18,500) | 11,000 |
| Less: Increase in Trade Receivables (13,000 − 11,500) | (1,500) |
| Less: Decrease in Trade Payables (41,500 − 7,500) | (34,000) |
| Cash Generated from Operations | 80,500 |
Step 4 — Less: Tax Paid
| Particulars | ₹ |
|---|---|
| Cash Generated from Operations | 80,500 |
| Less: Tax Paid (given) | (6,500) |
| Net Cash Flows from Operating Activities | 74,000 |
Working Notes …
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