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
| Particulars | Note No. | 31.03.2024 (₹) | 31.03.2023 (₹) |
|---|---|---|---|
| I – Equity and Liabilities : 1. Shareholders' Funds (a) Share Capital | 37,00,000 | 25,00,000 | |
| (b) Reserves and Surplus | 1 | 5,00,000 | 12,00,000 |
| 2 Non-Current Liabilities Long term borrowings | 2 | 20,00,000 | 18,00,000 |
| 3. Current Liabilities (a) Short term borrowings | 6,00,000 | 5,50,000 | |
| (b) Trade Payables | 5,00,000 | 3,50,000 | |
| Total | 73,00,000 | 64,00,000 | |
| II – Assets : 1. Non-Current Assets (a) Property, Plant and Equipment and Intangible Assets (i) Property, Plant and Equipment | 3 | 45,00,000 | 41,00,000 |
| (ii) Intangible Assets | 4 | 3,00,000 | 5,00,000 |
| 2. Current Assets (a) Current Investments | 5,00,000 | 2,00,000 | |
| (b) Inventories | 8,00,000 | 10,00,000 | |
| (c) Trade Receivables | 10,00,000 | 2,00,000 | |
| (d) Cash and Cash equivalents | 2,00,000 | 4,00,000 | |
| Total | 73,00,000 | 64,00,000 |
Notes to Accounts :
| Note No. | Particulars | 31.3.2024 (₹) | 31.3.2023 (₹) |
|---|---|---|---|
| 1 | Reserves and Surplus (i.e. Balance in the Statement of Profit and Loss) | 5,00,000 | 12,00,000 |
| 2 | Long Term Borrowings / 10% Debentures | 20,00,000 | 18,00,000 |
| 3 | Property, Plant and Equipment / Plant and Machinery | 50,00,000 | 44,00,000 |
| Less : Accumulated Depreciation | 5,00,000 | 3,00,000 | |
| 45,00,000 | 41,00,000 | ||
| 4 | Intangible Assets / Goodwill | 3,00,000 | 5,00,000 |
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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Start your 14-day free trial to unlock the full solution →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
| Particulars | Amount (Rs) |
|---|---|
| Net Loss before Tax and Extraordinary Items | (7,00,000) |
| Add: Depreciation | 5,00,000 |
| Add: Goodwill written off | 2,00,000 |
| Add: Loss on sale of machinery | 70,000 |
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