From the following Balance Sheets of Xerox Ltd., prepare a Cash Flow Statement.
Balance Sheet of Xerox Ltd. as on March 31, 2017
| Particulars | Note No. | 31st March 2017 (₹) | 31st March 2016 (₹) |
|---|---|---|---|
| I. Equity and Liabilities | |||
| 1. Shareholders' Funds | |||
| a) Share capital | 15,00,000 | 10,00,000 | |
| b) Reserve and surplus (Balance in Statement of Profit and Loss) | 7,50,000 | 6,00,000 | |
| 2. Non-current Liabilities — Long-term borrowings | 1 | 1,00,000 | 2,00,000 |
| 3. Current Liabilities | |||
| a) Trade payables | 1,00,000 | 1,10,000 | |
| b) Short-term provisions (Provision for taxation) | 95,000 | 80,000 | |
| Total | 25,45,000 | 19,90,000 | |
| II. Assets | |||
| 1. Non-current assets — a) Fixed assets (i) Tangible assets | 2 | 10,10,000 | 12,00,000 |
| (ii) Intangible assets (Goodwill) | 1,80,000 | 2,00,000 | |
| b) Non-current investment | 6,00,000 | — | |
| 2. Current assets — a) Inventories | 1,80,000 | 1,00,000 | |
| b) Trade Receivables | 2,00,000 | 1,50,000 | |
| c) Cash and cash equivalents | 3 | 3,75,000 | 3,40,000 |
| Total | 25,45,000 | 19,90,000 |
Notes to Accounts:
Note 1 — Long-term Borrowings
| Particulars | 31st March 2017 (₹) | 31st March 2016 (₹) |
|---|---|---|
| 9% Debentures | — | 2,00,000 |
| 5% Bank loan | 1,00,000 | — |
| Total | 1,00,000 | 2,00,000 |
Note 2 — Tangible Assets
| Particulars | 31st March 2017 (₹) | 31st March 2016 (₹) |
|---|---|---|
| Land and building | 6,50,000 | 8,00,000 |
| Plant and machinery | 3,60,000 | 4,00,000 |
| Total | 10,10,000 | 12,00,000 |
Note 3 — Cash and Cash Equivalents
| Particulars | 31st March 2017 (₹) | 31st March 2016 (₹) |
|---|---|---|
| Cash in hand | 70,000 | 50,000 |
| Bank balance | 3,05,000 | 2,90,000 |
| Total | 3,75,000 | 3,40,000 |
Additional Information: (1) Proposed dividend for 2016-17 is ₹2,25,000 and for 2015-16 is ₹1,50,000. (2) Income tax paid during the year includes ₹15,000 on account of dividend tax. (3) Land and building of book value ₹1,50,000 was sold at a profit of 10%. (4) The rate of depreciation on plant and machinery is 10%. (5) 9% debentures were redeemed and a 5% bank loan was taken on March 31, 2017.
Operating activities generate ₹2,35,000, investing uses ₹4,35,000, and financing provides ₹2,35,000 — a net increase of ₹35,000 that reconciles opening cash of ₹3,40,000 to closing cash of ₹3,75,000.
The indirect method is used: we begin from net profit before tax (built up in Working Note 3), adjust for non-cash and non-operating items, and then work through investing and financing flows. Every figure below is taken from the prescribed solution.
Cash Flow Statement of Xerox Ltd. (for the year ended 31 March 2017)
| Particulars | Amount (₹) |
|---|---|
| I. Cash Flows from Operating Activities | |
| Net Profit before Taxation and Extraordinary Items | 3,95,000 |
| Adjustment for – Add: Depreciation | 40,000 |
| Add: Goodwill written-off | 20,000 |
| Less: Profit on Sale of Land | (15,000) |
| Operating Profit before working capital changes | 4,40,000 |
| Less: Decrease in Trade Payables | (10,000) |
| Less: Increase in Trade Receivables | (50,000) |
| Less: Increase in Inventories | (80,000) |
| Cash generated from Operations | 3,00,000 |
| Less: Income Tax Paid (Working Note 1) | (65,000) |
| A. Cash Inflows from Operations | 2,35,000 |
| II. Cash Flows from Investing Activities | |
| Proceeds from Sale of Land and Building | 1,65,000 |
| Purchase of Investment | (6,00,000) |
| B. Cash used in Investing Activities | (4,35,000) |
| III. Cash Flows from Financing Activities | |
| Proceeds from issue of Equity Share Capital | 5,00,000 |
| Redemption of Debentures | (2,00,000) |
| Proceeds from raising Bank Loan | 1,00,000 |
| Dividend Paid | (1,50,000) |
| Dividend Distribution Tax Paid | (15,000) |
| C. Cash flows from Financing Activities | 2,35,000 |
| Net Increase in cash and cash equivalents (A + B + C) | 35,000 |
| Add: Cash and Cash Equivalents in the beginning | 3,40,000 |
| Cash and Cash Equivalents at the end | 3,75,000 |
Working Notes
Working Note 1 — Income tax paid for operating activities
The tax figure paid during the year includes the dividend distribution tax, which belongs to financing activities, so it is separated out here.
| Particulars | Amount (₹) |
|---|---|
| Total tax paid during the year | 80,000 |
| Less: Dividend Distribution tax paid (given) | (15,000) |
| Income tax paid for operating activities | 65,000 |
Working Note 2 — Net profit earned during the year after tax and dividend
This is simply the increase in the balance of the Statement of Profit and Loss:
= ₹7,50,000 − ₹6,00,000 = ₹1,50,000
Working Note 3 — Net profit before tax
The provision for tax made during the year and the dividend declared are added back to the retained profit to arrive at the profit before tax used at the top of the statement.
= Net profit earned during the year after tax and dividend + Provision for tax made + Declared Dividend
= ₹1,50,000 + ₹95,000 (see Provision for Taxation) + ₹1,50,000 = ₹3,95,000
Ledger Accounts
The solution also prepares the following ledger accounts to establish the financing figures.
Equity Share Capital Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Balance c/d | 15,00,000 | By Balance b/d | 10,00,000 |
| By Cash (New capital raised) | 5,00,000 | ||
| Total | 15,00,000 | Total | 15,00,000 |
Debenture Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Cash (Redemption) | 20,000 | By Balance b/d | 20,000 |
| Total | 20,000 | Total | 20,000 |
Bank Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Balance c/d | 1,00,000 | By Cash | 1,00,000 |
| Total | 1,00,000 | Total | 1,00,000 |
Provision for Taxation Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Cash (Tax paid — includes ₹15,000 dividend tax) | 80,000 | By Balance b/d | 80,000 |
| To Balance c/d | 95,000 | By Statement of Profit and Loss (Provision made during the year) | 95,000 |
| Total | 1,75,000 | Total | 1,75,000 |
Land and Building Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 8,00,000 | By Cash | 1,65,000 |
| To Statement of Profit and Loss (Profit on sale) | 15,000 | By Balance c/d | 6,50,000 |
| Total | 8,15,000 | Total | 8,15,000 |
Proposed Dividend Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Cash | 1,50,000 | By Surplus | 1,50,000 |
| Total | 1,50,000 | Total | 1,50,000 |
Plant and Machinery Account
| Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 4,00,000 | By Depreciation | 40,000 |
| By Balance c/d | 3,60,000 | ||
| Total | 4,00,000 | Total | 4,00,000 |
There is a net increase in cash and cash equivalents of ₹35,000 (Operating ₹2,35,000 + Investing (₹4,35,000) + Financing ₹2,35,000), which takes Cash and Cash Equivalents from ₹3,40,000 at the beginning to ₹3,75,000 at the end of the year.
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