Calculate cash flows from operating activities from the following information.

**Statement of Profit and Loss for the year ended March 31, 2020**

| Particulars | Note No. | Amount (₹) |
|---|---|---:|
| (i) Revenue from Operations | | 60,000 |
| (ii) Other Income | 1 | 5,000 |

Question

Calculate cash flows from operating activities from the following information.

**Statement of Profit and Loss for the year ended March 31, 2020**

| Particulars | Note No. | Amount (₹) |
|---|---|---:|
| (i) Revenue from Operations | | 60,000 |
| (ii) Other Income | 1 | 5,000 |
| (iii) Total Revenue (i + ii) | | 65,000 |
| (iv) Expenses: | | |
| Cost of materials consumed | | 15,000 |
| Employees benefits expenses | | 10,000 |
| Depreciation and Amortisation expenses | 2 | 7,000 |
| Other expenses | 3 | 13,000 |
| | | 45,000 |
| (v) Profit before tax (iii − iv) | | 20,000 |
| (vi) Provision for taxation | | 8,000 |
| (vii) Profit after tax (v − vi) | | 12,000 |

**Notes to Accounts**

Note 1 — Other Income: Profit on Sale of Machinery ₹2,000; Income Tax Refund ₹3,000 (total ₹5,000).

Note 2 — Depreciation and Amortisation expenses: Depreciation ₹5,000; Goodwill Amortised ₹2,000 (total ₹7,000).

Note 3 — Other expenses: Rent ₹10,000; Loss on sale of equipment ₹3,000 (total ₹13,000).

**Additional Information**

| Particulars | March 31, 2019 (₹) | March 31, 2020 (₹) |
|---|---:|---:|
| Provision for taxation | 10,000 | 13,000 |
| Rent payable | 2,000 | 2,500 |
| Trade payable | 21,000 | 25,000 |
| Trade receivables | 15,000 | 21,000 |
| Inventories | 25,000 | 22,000 |

Accepted Answer

> [!TLDR]
> After removing the extraordinary income-tax refund (₹3,000), Net Profit before Tax and Extraordinary Items is ₹17,000; adjusting for non-cash/non-operating items and working-capital changes, and for tax paid and the refund, gives Net Cash Inflow from Operating Activities of ₹24,500.

### Working Note 1 — Net Profit before Tax and Extraordinary Items

| Particulars | Amount (₹) |
|---|---:|
| Net Profit after Tax | 12,000 |
| Add: Provision for Taxation made | 8,000 |
| | 20,000 |
| Less: Income Tax Refund (extraordinary) | (3,000) |
| **Net Profit before Tax and Extraordinary Items** | **17,000** |

### Working Note 2 — Income Tax Paid (Provision for Taxation Account)

| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---:|---|---:|
| To Bank (Income Tax paid) | 5,000 | By Balance b/d | 10,000 |
| To Balance c/d | 13,000 | By Statement of Profit & Loss | 8,000 |
| **Total** | **18,000** | **Total** | **18,000** |

### Solution — Cash Flow from Operating Activities

| Particulars | Amount (₹) |
|---|---:|
| Net Profit before Taxation and Extraordinary Items | 17,000 |
| Add: Depreciation | 5,000 |
| Add: Goodwill amortised | 2,000 |
| Add: Loss on Sale of Equipment | 3,000 | …

Activity	What it includes	Example
Operating Activities	Main revenue-producing activities	Cash from selling goods, cash paid to suppliers, salaries
Investing Activities	Purchase/sale of long-term assets	Buying machinery, selling land, loans given
Financing Activities	Changes in equity and borrowings	Issue of shares, repayment of bank loan, dividend paid

Particulars	Amount (₹)
A. Cash Flow from Operating Activities
Net Profit before Tax (from P&L)	1,00,000
Adjustments for non-cash items:
Add: Depreciation	20,000
Add: Loss on sale of asset	5,000
Less: Profit on sale of asset	(3,000)
Changes in Working Capital:
Increase in Debtors	(10,000)
Decrease in Stock	8,000
Increase in Creditors	6,000
Net Cash from Operating Activities	1,26,000
B. Cash Flow from Investing Activities
Purchase of Machinery	(50,000)
Sale of Land	30,000
Net Cash used in Investing Activities	(20,000)
C. Cash Flow from Financing Activities
Issue of Share Capital	40,000
Repayment of Loan	(15,000)
Dividend Paid	(10,000)

Concept understanding — Cash Flow Calculation

Cash Flow: From Pocket Money to the Cash Flow Statement

Why Cash Flow Matters

The Three Activities of Cash Flow

Accounting Treatment — No Debit/Credit Here

The Proforma of a Cash Flow Statement (as per NCERT)

Working Note 1 — Net Profit before Tax and Extraordinary Items

Working Note 2 — Income Tax Paid (Provision for Taxation Account)

Solution — Cash Flow from Operating Activities

Particulars	Note No.	Amount (₹)
(i) Revenue from Operations		60,000
(ii) Other Income	1	5,000
(iii) Total Revenue (i + ii)		65,000
(iv) Expenses:
Cost of materials consumed		15,000
Employees benefits expenses		10,000
Depreciation and Amortisation expenses	2	7,000
Other expenses	3	13,000
		45,000
(v) Profit before tax (iii − iv)		20,000
(vi) Provision for taxation		8,000
(vii) Profit after tax (v − vi)		12,000

Particulars	March 31, 2019 (₹)	March 31, 2020 (₹)
Provision for taxation	10,000	13,000
Rent payable	2,000	2,500
Trade payable	21,000	25,000
Trade receivables	15,000	21,000
Inventories	25,000	22,000

Particulars	Amount (₹)
Net Profit before Taxation and Extraordinary Items	17,000
Add: Depreciation	5,000
Add: Goodwill amortised	2,000
Add: Loss on Sale of Equipment	3,000
Less: Profit on Sale of Machinery	(2,000)
Operating Profit before Working Capital Changes	25,000
Add: Decrease in Inventories	3,000
Add: Increase in Rent Payable	500
Add: Increase in Trade Payable	4,000

Particulars	Amount (₹)
Net Profit after Tax	12,000
Add: Provision for Taxation made	8,000
	20,000
Less: Income Tax Refund (extraordinary)	(3,000)
Net Profit before Tax and Extraordinary Items	17,000

Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank (Income Tax paid)	5,000	By Balance b/d	10,000
To Balance c/d	13,000	By Statement of Profit & Loss	8,000
Total	18,000	Total	18,000

Working Note 1 — Net Profit before Tax and Extraordinary Items

Working Note 2 — Income Tax Paid (Provision for Taxation Account)

Solution — Cash Flow from Operating Activities

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