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From the following Balance Sheet of Bose Ltd. as at 31st March, 2024, calculate 'Cash Flows from Operating Activities'.

Balance Sheet of Bose Ltd. as at 31st March, 2024

ParticularsNote No.31.03.2024 (₹)31.03.2023 (₹)
I – Equity and Liabilities : 1. Shareholders' Funds (a) Share Capital37,00,00025,00,000
(b) Reserves and Surplus15,00,00012,00,000
2 Non-Current Liabilities Long term borrowings220,00,00018,00,000
3. Current Liabilities (a) Short term borrowings6,00,0005,50,000
(b) Trade Payables5,00,0003,50,000
Total73,00,00064,00,000
II – Assets : 1. Non-Current Assets (a) Property, Plant and Equipment and Intangible Assets (i) Property, Plant and Equipment345,00,00041,00,000
(ii) Intangible Assets43,00,0005,00,000
2. Current Assets (a) Current Investments5,00,0002,00,000
(b) Inventories8,00,00010,00,000
(c) Trade Receivables10,00,0002,00,000
(d) Cash and Cash equivalents2,00,0004,00,000
Total73,00,00064,00,000

Notes to Accounts :

Note No.Particulars31.3.2024 (₹)31.3.2023 (₹)
1Reserves and Surplus (i.e. Balance in the Statement of Profit and Loss)5,00,00012,00,000
2Long Term Borrowings / 10% Debentures20,00,00018,00,000
3Property, Plant and Equipment / Plant and Machinery50,00,00044,00,000
Less : Accumulated Depreciation5,00,0003,00,000
45,00,00041,00,000
4Intangible Assets / Goodwill3,00,0005,00,000

Additional Information : (i) A piece of machinery costing ₹ 4,00,000 on which accumulated depreciation was ₹ 3,00,000 was sold at a loss of ₹ 70,000. (ii) 10% Debentures of 2,00,000 were issued on 31.3.2024.

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Bose Ltd. had a net cash outflow (cash used) from Operating Activities of Rs 2,00,000 for the year ended 31 March 2024.

Under the indirect method we start from the change in the Statement of Profit and Loss balance, add back non-cash and non-operating items to reach the operating profit before working-capital changes, and then adjust the operating current assets and current liabilities.

Step 1 - Net Loss before Tax

The balance in the Statement of Profit and Loss fell from Rs 12,00,000 to Rs 5,00,000, a decrease of Rs 7,00,000. With no tax, dividend or reserve transfer stated, this is the net loss before tax = (Rs 7,00,000).

Step 2 - Depreciation charged during the year

Machinery sold: cost Rs 4,00,000, accumulated depreciation Rs 3,00,000 -> book value Rs 1,00,000; sold at a loss of Rs 70,000 -> sale proceeds Rs 30,000.

Accumulated Depreciation account: Opening Rs 3,00,000 + Depreciation charged - Rs 3,00,000 (on machinery sold) = Closing Rs 5,00,000 -> Depreciation charged = Rs 5,00,000.

Step 3 - Goodwill written off

Goodwill (an intangible asset) fell from Rs 5,00,000 to Rs 3,00,000, so Rs 2,00,000 of goodwill was written off during the year. This is a non-cash charge and is added back to operating profit.

Step 4 - Interest on debentures

The new Rs 2,00,000, 10% debentures were issued on the last day (31.3.2024) and carry no interest this year, so interest = 10% x Rs 18,00,000 = Rs 1,80,000. Being a finance cost, it is added back to operating profit (and would appear as a financing outflow).

Cash Flow from Operating Activities

ParticularsAmount (Rs)
Net Loss before Tax and Extraordinary Items(7,00,000)
Add: Depreciation5,00,000
Add: Goodwill written off2,00,000
Add: Loss on sale of machinery70,000

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