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Illustrations · Illustration 8
Q.

From the following Balance Sheets of Xerox Ltd., prepare a Cash Flow Statement.

Balance Sheet of Xerox Ltd. as on March 31, 2017

ParticularsNote No.31st March 2017 (₹)31st March 2016 (₹)
I. Equity and Liabilities
1. Shareholders' Funds
a) Share capital15,00,00010,00,000
b) Reserve and surplus (Balance in Statement of Profit and Loss)7,50,0006,00,000
2. Non-current Liabilities — Long-term borrowings11,00,0002,00,000
3. Current Liabilities
a) Trade payables1,00,0001,10,000
b) Short-term provisions (Provision for taxation)95,00080,000
Total25,45,00019,90,000
II. Assets
1. Non-current assets — a) Fixed assets (i) Tangible assets210,10,00012,00,000
(ii) Intangible assets (Goodwill)1,80,0002,00,000
b) Non-current investment6,00,000—
2. Current assets — a) Inventories1,80,0001,00,000
b) Trade Receivables2,00,0001,50,000
c) Cash and cash equivalents33,75,0003,40,000
Total25,45,00019,90,000

Notes to Accounts:

Note 1 — Long-term Borrowings

Particulars31st March 2017 (₹)31st March 2016 (₹)
9% Debentures—2,00,000
5% Bank loan1,00,000—
Total1,00,0002,00,000

Note 2 — Tangible Assets

Particulars31st March 2017 (₹)31st March 2016 (₹)
Land and building6,50,0008,00,000
Plant and machinery3,60,0004,00,000
Total10,10,00012,00,000

Note 3 — Cash and Cash Equivalents

Particulars31st March 2017 (₹)31st March 2016 (₹)
Cash in hand70,00050,000
Bank balance3,05,0002,90,000
Total3,75,0003,40,000

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.

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✓ Free question

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)

ParticularsAmount (₹)
I. Cash Flows from Operating Activities
Net Profit before Taxation and Extraordinary Items3,95,000
Adjustment for – Add: Depreciation40,000
Add: Goodwill written-off20,000
Less: Profit on Sale of Land(15,000)
Operating Profit before working capital changes4,40,000
Less: Decrease in Trade Payables(10,000)
Less: Increase in Trade Receivables(50,000)
Less: Increase in Inventories(80,000)
Cash generated from Operations3,00,000
Less: Income Tax Paid (Working Note 1)(65,000)
A. Cash Inflows from Operations2,35,000
II. Cash Flows from Investing Activities
Proceeds from Sale of Land and Building1,65,000
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 Capital5,00,000
Redemption of Debentures(2,00,000)
Proceeds from raising Bank Loan1,00,000
Dividend Paid(1,50,000)
Dividend Distribution Tax Paid(15,000)
C. Cash flows from Financing Activities2,35,000
Net Increase in cash and cash equivalents (A + B + C)35,000
Add: Cash and Cash Equivalents in the beginning3,40,000
Cash and Cash Equivalents at the end3,75,000

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.

ParticularsAmount (₹)
Total tax paid during the year80,000
Less: Dividend Distribution tax paid (given)(15,000)
Income tax paid for operating activities65,000

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. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Balance c/d15,00,000By Balance b/d10,00,000
By Cash (New capital raised)5,00,000
Total15,00,000Total15,00,000

Debenture Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Cash (Redemption)20,000By Balance b/d20,000
Total20,000Total20,000

Bank Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Balance c/d1,00,000By Cash1,00,000
Total1,00,000Total1,00,000

Provision for Taxation Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Cash (Tax paid — includes ₹15,000 dividend tax)80,000By Balance b/d80,000
To Balance c/d95,000By Statement of Profit and Loss (Provision made during the year)95,000
Total1,75,000Total1,75,000

Land and Building Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Balance b/d8,00,000By Cash1,65,000
To Statement of Profit and Loss (Profit on sale)15,000By Balance c/d6,50,000
Total8,15,000Total8,15,000

Proposed Dividend Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Cash1,50,000By Surplus1,50,000
Total1,50,000Total1,50,000

Plant and Machinery Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Balance b/d4,00,000By Depreciation40,000
By Balance c/d3,60,000
Total4,00,000Total4,00,000
✓Final answer

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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