Following is the Balance Sheet of Garima Ltd. Prepare a Cash Flow Statement. **Balance Sheet of Garima Ltd.**

> [!TLDR] > Cash Flow Statement of Garima Ltd. for the year ended 31 March 2017: Operating **₹(12,000)**; Investing **₹(1,96,000)**; Financing **₹1,56,000**; net **decrease** in cash **₹52,000**, taking cash from ₹80,000 down to **₹28,000**. Prepared under **AS-3 (Revised) - Indirect Method**. All figures in Rs. ### Working Note - Net Profit before Tax From Note 2, profit added to Surplus for the year is ₹16,000 (after interim dividend). Add back the provision for tax charged during the year. | Particulars | Rs | |---|---| | Increase in Surplus (40,000 - 28,000) | 12,000 | | Add: Interim Dividend paid | 4,000 | | Profit after tax for the year | 16,000 | | Add: Provision for taxation (current year) | 12,000 | | **Net Profit before Tax** | **28,000** | ### A. Cash Flow from Operating Activities | Particulars | Rs | |---|---| | Net Profit before Tax | 28,000 | | Add: Depreciation | 32,000 | | **Operating Profit before Working Capital Changes** | **60,000** | | Less: Increase in Inventories (1,60,000 - 60,000) | (1,00,000) | | Less: Increase in Trade Receivables (80,000 - 20,000) | (60,000) | | Less: Increase in Prepaid Expenses (16,000 - 8,000) | (8,000) | | Add: Increase in Trade Payables (1,56,000 - 56,000) | 1,00,000 | | **Cash Generated from Operations** | **(8,000)** | | Less: Income Tax paid (opening provision) | (4,000) | | **Net Cash used in Operating Activities (A)** | **(12,000)** | ### B. Cash Flow from Investing Activities | Particulars | Rs | |---|---| | Purchase of Tangible Fixed Assets (3,64,000 - [2,00,000 - 32,000]) | (1,96,000) | | **Net Cash used in Investing Activities (B)** | **(1,96,000)** | ### C. Cash Flow from Financing Activities | Particulars | Rs | |---|---| | Proceeds from issue of Equity Share Capital (3,00,000 - 2,00,000) | 1,00,000 | | Proceeds from issue of Preference Share Capital (1,40,000 - 80,000) | 60,000 | | Interim Dividend paid | (4,000) | | **Net Cash from Financing Activities (C)** | **1,56,000** | ### Net Change in

Numerical Questions · Q11

Following is the Balance Sheet of Garima Ltd. Prepare a Cash Flow Statement.

Balance Sheet of Garima Ltd.

Particulars	Note No.	31 March 2017 (₹)	31 March 2016 (₹)
I. Equity and Liabilities
1. Shareholders' Funds — a) Share capital	1	4,40,000	2,80,000
b) Reserve and surplus (Surplus)	2	40,000	28,000
2. Current Liabilities — a) Trade payables		1,56,000	56,000
b) Short-term provisions (Provision for taxation)		12,000	4,000
Total		6,48,000	3,68,000
II. Assets
1. Non-current assets — Fixed assets: Tangible		3,64,000	2,00,000
2. Current assets — Inventories		1,60,000	60,000
Trade receivables		80,000	20,000
Cash and cash equivalents		28,000	80,000
Other current assets (prepaid expenses)		16,000	8,000
Total		6,48,000	3,68,000

Notes to Accounts

Particulars	31 March 2017 (₹)	31 March 2016 (₹)
1. Share capital: Equity share capital	3,00,000	2,00,000
Preference share capital	1,40,000	80,000

Note 2 — Reserve and surplus: Surplus at the beginning of the year ₹28,000; Add: Profit of the year ₹16,000; Less: Interim Dividend ₹4,000; Surplus at the end of the year ₹40,000.

Additional Information: Depreciation charged during the year was ₹32,000.

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Concept understanding — Balance Sheet Presentation

Balance Sheet Presentation – A First Look

Think of your own finances. You have some things you own – a phone, a bike, maybe some cash in your pocket. And you have some things you owe – maybe you borrowed money from a friend, or you have a pending fee payment. If you wrote down everything you own on one side and everything you owe (plus what's truly yours) on the other, you'd have a personal balance sheet.

That's exactly what a company does. The Balance Sheet is a snapshot of a business's financial position at a single point in time – usually the last day of the accounting year. It shows two sides that must always be equal:

Assets = Liabilities + Capital

This is the fundamental accounting equation. The Balance Sheet is not an account – it's a statement. It doesn't get debited or credited. It simply presents the balances of real accounts (assets) and personal accounts (liabilities) plus the capital account, after all transactions for the year have been recorded and the Profit & Loss Account has been closed.

Why Does It Matter?

The Balance Sheet answers three critical questions for anyone reading it – owners, banks, investors, tax authorities:

What does the business own? (Assets – from cash to machinery to buildings)
What does the business owe to outsiders? (Liabilities – loans, creditors, outstanding expenses)
What is the owner's stake? (Capital – the net worth)

If the Balance Sheet doesn't balance, something is wrong in the books. That's why it's the final check after preparing the Trial Balance and the Profit & Loss Account.

The Format (as per NCERT Class 12)

The Companies Act, 2013 prescribes a specific format for the Balance Sheet. It is divided into two sides:

Left Side (Liabilities + Capital)	Right Side (Assets)
1. Shareholders' Funds	1. Non-Current Assets

Share Capital | - Fixed Assets (Tangible & Intangible)
Reserves & Surplus | - Non-Current Investments
Money received against share warrants | - Long-term Loans & Advances 2. Share Application Money pending allotment | 2. Current Assets 3. Non-Current Liabilities | - Current Investments
Long-term Borrowings | - Inventories
Deferred Tax Liabilities (Net) | - Trade Receivables
Other Long-term Liabilities | - Cash & Cash Equivalents
Long-term Provisions | - Short-term Loans & Advances 4. Current Liabilities | - Other Current Assets
Short-term Borrowings |
Trade Payables |
Other Current Liabilities |
Short-term Provisions |

Note

This is the vertical format (also called the "order of liquidity" format) used by companies. For sole proprietors and partnerships, a simpler horizontal format is common, but the principle is identical.

Accounting Treatment – What Gets Debited/Credited?

The Balance Sheet itself is never debited or credited. It is a statement of balances. However, the items that appear on it come from accounts that were debited or credited during the year.

Here's how the major items originate:

Balance Sheet Item	Originates From	Debit/Credit Nature
Capital	Capital Account	Credit balance (owner's claim)
Reserves & Surplus	Profit & Loss Appropriation Account	Credit balance (undistributed profit)
Long-term Borrowings	Loan Account (e.g., Bank Loan)	Credit balance (liability)
Trade Payables	Creditors Account	Credit balance (amount owed)
Fixed Assets	Asset Account (e.g., Machinery A/c)	Debit balance (what the business owns)
Inventories	Stock Account	Debit balance (goods on hand)
Trade Receivables	Debtors Account	Debit balance (amounts due from customers)
Cash & Bank	Cash/Bank Account	Debit balance (positive cash)

Watch out

A common mistake: students think the Balance Sheet is "balanced" by making a journal entry. No – it balances because the accounting equation always holds. Every debit has a matching credit somewhere.

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We prepare the Cash Flow Statement of Garima Ltd. for the year ended 31 March 2017 by the indirect method. Cash and cash equivalents fell from ₹80,000 to ₹28,000, a net decrease of ₹52,000.

Step 1 - Net Profit before Tax

Particulars	Amount (₹)
Increase in Surplus (40,000 - 28,000)	12,000
Add: Interim Dividend paid	4,000
Profit after tax for the year	16,000
Add: Provision for taxation (current year)	12,000
Net Profit before Tax	28,000

Step 2 - Cash Flow from Operating Activities

Particulars	Amount (₹)
Net Profit before Tax	28,000
Add: Depreciation	32,000
Operating Profit before Working Capital Changes	60,000
Less: Increase in Inventories (1,60,000 - 60,000)	(1,00,000)
Less: Increase in Trade Receivables (80,000 - 20,000)	(60,000)
Less: Increase in Prepaid Expenses (16,000 - 8,000)	(8,000)
Add: Increase in Trade Payables (1,56,000 - 56,000)	1,00,000
Cash Generated from Operations	(8,000)
Less: Income Tax paid (opening provision)	(4,000)
Net Cash used in Operating Activities	(12,000)

Step 3 - Cash Flow from Investing Activities

Particulars	Amount (₹)
Purchase of Tangible Fixed Assets (3,64,000 - [2,00,000 - 32,000])	(1,96,000)
Net Cash used in Investing Activities	(1,96,000)

Step 4 - Cash Flow from Financing Activities

Particulars	Amount (₹)
Proceeds from issue of Equity Share Capital (3,00,000 - 2,00,000)	1,00,000
Proceeds from issue of Preference Share Capital (1,40,000 - 80,000)	60,000
Interim Dividend paid	(4,000)
Net Cash from Financing Activities	1,56,000

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Cash Flow Statement of Garima Ltd. for the year ended 31 March 2017: Operating ₹(12,000); Investing ₹(1,96,000); Financing ₹1,56,000; net decrease in cash ₹52,000, taking cash from ₹80,000 down to ₹28,000.

Prepared under AS-3 (Revised) - Indirect Method. All figures in Rs.

Working Note - Net Profit before Tax

From Note 2, profit added to Surplus for the year is ₹16,000 (after interim dividend). Add back the provision for tax charged during the year.

Particulars	Rs
Increase in Surplus (40,000 - 28,000)	12,000
Add: Interim Dividend paid	4,000
Profit after tax for the year	16,000
Add: Provision for taxation (current year)	12,000
Net Profit before Tax	28,000

A. Cash Flow from Operating Activities

Particulars	Rs
Net Profit before Tax	28,000
Add: Depreciation	32,000
Operating Profit before Working Capital Changes	60,000
Less: Increase in Inventories (1,60,000 - 60,000)	(1,00,000)
Less: Increase in Trade Receivables (80,000 - 20,000)	(60,000)
Less: Increase in Prepaid Expenses (16,000 - 8,000)	(8,000)
Add: Increase in Trade Payables (1,56,000 - 56,000)	1,00,000
Cash Generated from Operations	(8,000)
Less: Income Tax paid (opening provision)	(4,000)
Net Cash used in Operating Activities (A)	(12,000)

B. Cash Flow from Investing Activities

Particulars	Rs
Purchase of Tangible Fixed Assets (3,64,000 - [2,00,000 - 32,000])	(1,96,000)
Net Cash used in Investing Activities (B)	(1,96,000)

C. Cash Flow from Financing Activities

Particulars	Rs
Proceeds from issue of Equity Share Capital (3,00,000 - 2,00,000)	1,00,000
Proceeds from issue of Preference Share Capital (1,40,000 - 80,000)	60,000
Interim Dividend paid	(4,000)
Net Cash from Financing Activities (C)	1,56,000

Net Change in Cash …

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Working Note - Net Profit before Tax

A. Cash Flow from Operating Activities

B. Cash Flow from Investing Activities

C. Cash Flow from Financing Activities

Net Change in Cash …

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