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Numerical Questions · Q7
Q.

From the following Balance Sheet of Mohan Ltd., prepare a Cash Flow Statement.

Balance Sheet of Mohan Ltd.

ParticularsNote No.31 March 2017 (₹)31 March 2016 (₹)
I. Equity and Liabilities
1. Shareholders' Funds
a) Equity share capital3,00,0002,00,000
b) Reserves and Surplus2,70,0002,20,000
2. Non-current liabilities — Long-term borrowings180,0001,00,000
3. Current liabilities — Trade payables1,20,0001,40,000
Total7,70,0006,60,000
II. Assets
1. Non-current assets — Fixed assets25,00,0003,20,000
2. Current assets — a) Inventories1,50,0001,30,000
b) Trade receivables390,0001,20,000
c) Cash and cash equivalents430,00090,000
Total7,70,0006,60,000

Notes to Accounts

Particulars31 March 2017 (₹)31 March 2016 (₹)
1. Long-term borrowings: 9% Bank Loan80,0001,00,000
2. Fixed assets (gross)6,00,0004,00,000
Less: Accumulated Depreciation(1,00,000)(80,000)
Net Fixed Assets5,00,0003,20,000
3. Trade receivables: Debtors60,0001,00,000
Bills receivables30,00020,000
4. Cash and cash equivalents: Bank30,00090,000

Additional Information: A machine costing ₹80,000, on which accumulated depreciation was ₹50,000, was sold for ₹20,000. A 9% bank loan of ₹20,000 was repaid on March 31, 2017. Proposed dividend for the year 2015-16 was ₹60,000.

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Net Cash from Operating Activities = ₹1,89,000; Net Cash used in Investing Activities = ₹(2,60,000); Net Cash from Financing Activities = ₹11,000; Net decrease in Cash & Cash Equivalents = ₹(60,000), reconciling the fall from ₹90,000 to ₹30,000.

Working notes

W1 - Depreciation charged during the year

Accumulated depreciation: opening ₹80,000, closing ₹1,00,000; the machine sold carried ₹50,000 of accumulated depreciation (now removed).

Depreciation for the year = 1,00,000 + 50,000 - 80,000 = ₹70,000.

W2 - Loss on sale of machine

Book value = Cost 80,000 - Accumulated depreciation 50,000 = ₹30,000; sold for ₹20,000.

Loss on sale = 30,000 - 20,000 = ₹10,000.

W3 - Interest on 9% bank loan

The loan was repaid on 31 March 2017, so it ran at ₹1,00,000 for the whole year. Interest = 9% x 1,00,000 = ₹9,000 (a finance cost - added back to operating profit and shown as an outflow under financing).

W4 - Net Profit before Tax

The previous year's proposed dividend (₹60,000 for 2015-16) is declared and paid in 2016-17, so it reduces this year's reserves.

Closing Reserves = Opening Reserves + Profit - Dividend declared

2,70,000 = 2,20,000 + Profit - 60,000, so Profit before Tax = ₹1,10,000 (no tax is given).

W5 - Fixed assets purchased

Gross block: opening ₹4,00,000, closing ₹6,00,000; machine of cost ₹80,000 sold.

Purchases = 6,00,000 + 80,000 - 4,00,000 = ₹2,80,000.

Cash Flow Statement of Mohan Ltd. for the year ended 31 March 2017

ParticularsRs.Rs.
A. Cash Flow from Operating Activities
Net Profit before Tax (W4)1,10,000
Add: Interest on bank loan (W3)9,000
Add: Depreciation (W1)70,000
Add: Loss on sale of machine (W2)10,00089,000
Operating Profit before Working Capital Changes1,99,000
Add: Decrease in Trade Receivables30,000
Less: Increase in Inventories(20,000)
Less: Decrease in Trade Payables(20,000)(10,000)
Cash Generated from Operations1,89,000
Less: Income Tax paidNil
Net Cash from Operating Activities1,89,000

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