Comprehensively based on:

New Education Policy & National Curriculum Framework for School Education

Accountancy XII
VOLUME III

Financial Statement Analysis

Reference Textbook for Class XII Accountancy, CBSE

Subhash Dey
B.Com. (Hons.), M.Com. (Delhi School of Economics), M.A. (Economics),
PGDBA (Finance), B.Ed., PGD (Labour and Administrative Laws)

Shree Radhey Publications

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Preface
Dear Reader,
I humbly bow at your lotus feet and express my deep gratitude for the opportunity to serve in the field of
education. It is with great joy and humility that I present this book, which has been written under divine
guidance to support the students of CBSE Class XII studying Accountancy.
The content of this book aligns strictly with the latest CBSE syllabus and is crafted from the most recent
resources, including the NCERT textbooks.
Key Features of This Reference Book:
 Multiple Choice Questions (MCQs), including Assertion-Reasoning and Statement-Based MCQs
 Competency-Based Questions, in line with the new CBSE question paper format
 Illustrations with explanation, in line with the new CBSE question paper format
 Self-Assessment Tests at the end of each topic to evaluate progress
I firmly believe that a thorough study of this book will enable students to excel in their CBSE Accountancy Class
XII Board Examination, with the potential to score 100%. However, I remain open to feedback and suggestions
for further improvement, which will be gratefully acknowledged.
My heartfelt thanks go to my dedicated team—Sugan Sharma, Deepak Pandey, R.K.Roy, Shiv Prakash Sharma,
Shridhar, Saurabh, and Raghav—whose hard work has been instrumental in bringing this book to life.
Especially, I would like to extend my heartfelt gratitude to our Chief Editor, Vinod Sukheja and our core team
members Gaurav Handa, Rajeev Thakur, Amit Gehlot, Mukul Gupta, Moksh Kushwaha & Shubhangi Pawar for
their invaluable insights and suggestions that have significantly contributed to the innovative nature of this
book. Their dedication and expertise have not only enriched the content but have also inspired a creative
approach throughout the writing process.
I would also like to extend my heartfelt gratitude to Babita Sharma, Chitra Kumar and Surinder Agarwal for their
contributions to the proofreading process. I deeply appreciate their dedication, expertise, and commitment to
identifying and correcting errors, which has significantly enhanced the overall quality of the publication.
A special acknowledgment goes to my pillar of strength, my mother Smt. Neeta Dey, whose unwavering support
has been a constant source of motivation. I also owe my thanks to my wife Shonali Dey and my children Vrinda
and Neel Madhav for their patience and understanding as I spent long hours working on this project.
This book is dedicated to the loving memory of my father, Late Sh. Kanai Dey, whose life principles continue to
inspire me.
Finally, I dedicate this work to the divine blessings of Sri Sri Radha Shyamsundar, HDG A.C. Bhaktivedanta Swami
Prabhupad (Founder Acharya of ISKCON) and my spiritual guide HH Gopal Krishna Goswami (GBC and BBT
Trustee of ISKCON). Their mercy and guidance have made this endeavor possible, as without their blessings, I
would not have been able to undertake this task.
With respect and devotion,
Subhash Dey
CBSE Syllabus: Volume III
Analysis of Financial Statements
 Financial statements of a Company: Meaning, Nature, Uses and importance of
financial Statement.
Statement of Profit and Loss and Balance Sheet in prescribed form with major
headings and sub headings (as per Schedule III to the Companies Act, 2013)
Note: Exceptional items, extraordinary items and profit (loss) from discontinued
operations are excluded.
 Financial Statement Analysis: Meaning, Significance Objectives, importance and
limitations.
 Tools for Financial Statement Analysis: Comparative statements, common size
statements, Ratio analysis, Cash flow analysis.
 Accounting Ratios: Meaning, Objectives, Advantages, classification and
computation.
 Liquidity Ratios: Current ratio and Quick ratio.
 Solvency Ratios: Debt to Equity Ratio, Total Asset to Debt Ratio, Proprietary Ratio
and Interest Coverage Ratio. Debt to Capital Employed Ratio.
 Activity Ratios: Inventory Turnover Ratio, Trade Receivables Turnover Ratio, Trade
Payables Turnover Ratio, Fixed Asset Turnover Ratio, Net Asset Turnover Ratio
and Working Capital Turnover Ratio.
 Profitability Ratios: Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net
Profit Ratio and Return on Investment.
Note: Net Profit Ratio is to be calculated on the basis of profit before and after
tax.

Cash Flow Statement

Meaning, objectives Benefits, Cash and Cash Equivalents, Classification of Activities
and preparation (as per AS 3 (Revised) (Indirect Method only)
Note:
(i) Adjustments relating to depreciation and amortization, profit or loss on sale of
assets including investments, dividend (both final and interim) and tax.
(ii) Bank overdraft and cash credit to be treated as short term borrowings.
(iii) Current Investments to be taken as Marketable securities unless otherwise
specified.
(iv) Previous year’s Proposed Dividend to be given effect, as prescribed in AS-4, Events
occurring after the Balance Sheet date. Current year’s Proposed Dividend will be
accounted for in the next year after it is declared by the shareholders.
Chapter 7
CASH FLOW
STATEMENT
Cash Flow Statement
CBSE Syllabus
Meaning, objectives Benefits, Cash and Cash Equivalents, Classification of Activities and
preparation (as per AS 3 (Revised) (Indirect Method only)
Adjustments relating to depreciation and amortization, profit or loss on sale of assets
including investments, dividend (both final and interim) and tax.
Note:
(i) Bank overdraft and cash credit to be treated as short term borrowings.
(ii) Current Investments to be taken as Marketable securities unless otherwise specified.
(iii) Previous years’ Proposed Dividend to be given effect, as prescribed in AS-4, Events
occurring after the Balance Sheet date. Current years’ Proposed Dividend will be
accounted for in the next year after it is declared by the shareholders.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.3

Cash Flow Statement– Meaning, Objectives and Benefits; Cash and Cash Equivalents,
Cash Flows A
Meaning of Cash Flow Statement
Cash Flow Statement is a financial statement which shows inflows and outflows of cash and cash equivalents from various
activities (operating activities, investing activities and financing activities) of an enterprise during an accounting year.

Objectives of Cash Flow Statement

1. The primary objective of cash flow statement is to provide useful information about cash flows (inflows and outflows)
of an enterprise during a particular period under various heads, i.e., operating activities, investing activities and financing
activities.
2. This information is useful in providing users of financial statements with a basis to assess the ability of the enterprise to
generate cash and cash equivalents and the needs of the enterprise to utilise those cash flows.

Benefits/Advantages of Cash Flow Statement

1. A cash flow statement when used along with other financial statements provides information that enables users to evaluate
changes in net assets of an enterprise, its financial structure and its ability to affect the amounts and timings of cash flows.
2. Cash flow information is useful in assessing the ability of the enterprise to generate cash and cash equivalents and enables
users to develop models to assess and compare the present value of the future cash flows of different enterprises.
3. It also enhances the comparability of the reporting of operating performance by different enterprises because it eliminates
the effects of using different accounting treatments for the same transactions and events.
4. It also helps in balancing its cash inflow and cash outflow, keeping in response to changing condition.

Cash and Cash Equivalents

Cash: As per AS-3, ‘Cash’ comprises cash in hand and cash at bank (demand deposits with banks).
Cash equivalents: ‘Cash equivalents’ means short-term highly liquid investments which are easily convertible into cash having
insignificant risk of changes in value.
Examples:
(i) Preference shares of a company acquired shortly before their specific redemption date with insignificant risk of failure of
the company to repay the amount at maturity.
(ii) Short-term marketable securities which can be readily converted into cash are treated as cash equivalents and is liquidable
immediately without considerable change in value.

Top Tips
• Current Investments are to be taken as Marketable securities, i.e. cash and cash equivalents, unless otherwise specified.
• An investment will be treated as cash equivalents only when it has a short maturity of 3 months/90 days or less.
• Investments in shares are excluded from cash equivalents unless they have maturity of 3 months or less from the date of
acquisition.

Cash Flows
‘Cash Flows’ (cash inflows and cash outflows) means movement of cash and cash equivalents (in and out) due to non-cash
items. (Non-cash items are the items other than cash and cash equivalents, e.g. machinery, share capital, etc.)
 Proceeds from sale of machinery, cash received from trade receivables, dividend received, etc. are cash inflows.
 Purchase of machinery for cash, payment to trade payables, interest payments, etc. are cash outflows.

Must know!
Cash management includes the investment of excess cash in cash equivalents. Hence, purchase of marketable securities
or short-term investment is not considered while preparing cash flow statement as it constitutes cash equivalents only.
It is only the movement between the items of cash and cash equivalents. There is no flow of cash and cash equivalents.
7.4 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

State, giving reasons, whether the following transactions will result in inflow or outflow or no flow
of Cash or Cash equivalents:

S.No. Transaction Effect Reason

1. Sale of fixed asset (Book Cash inflow `95,000 There is movement of cash in from a non-cash
Value `100,000) at a loss of item, i.e., fixed asset.
`5,000
2. Purchase of Stock-in-trade for Cash outflow There is movement of cash out from a non-cash
Cash item, i.e., stock-in-trade.
3. Cash received from debtors Cash inflow There is movement of cash in from a non-cash
item, i.e., debtors.
4. Cash deposited in Bank/Short No effect on Cash and It simply represents the movement between items
term deposits in Banks Cash Equivalents of cash and cash equivalents.
5. Cash withdrawn from Bank No effect on Cash and It simply represents the movement between items
Cash Equivalents of cash and cash equivalents.
6. Sale of marketable securities No effect on Cash and It simply represents the movement between items
for cash at par Cash Equivalents of cash and cash equivalents.
7. Proposed Dividend No effect on Cash and Dividend is not yet paid since it is not yet declared/
Cash Equivalents approved by the shareholders. Hence, there is no
outflow of cash and cash equivalents.
8. Dividend/Interest Paid Cash outflow There is movement of cash out from a non-cash
item.
9. Interest received on Cash inflow There is movement of cash in from a non-cash
debentures held as investment item, i.e., investments.
10. Discount received on making No effect on cash and There is no inflow or outflow of cash on
payment to suppliers cash equivalents discount received.

11. Old furniture written off No effect on cash and There is no inflow or outflow of cash when an
cash equivalents old furniture is written off.
12. Purchase of fixed assets on No effect on cash and There is no immediate outflow of cash.
long term deferred payment cash equivalents

13. Charging of depreciation on No effect on cash and Depreciation is a non-cash expense. There is no
furniture cash equivalents inflow or outflow of cash when depreciation is
charged on furniture.
14. Payment of cash to creditors Cash outflow There is movement of cash out from a non-cash
item, i.e., creditors.
15. Goodwill written off No effect on cash and There is no inflow or outflow of cash and cash
cash equivalents equivalents.
16. Refund of Tax Cash inflow There is movement of cash in from non-cash
item.
17. Provision for Tax No effect on cash and There is no outflow of cash yet. Only provision
cash equivalents for tax has been made from Statement of Profit
and Loss.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.5

Classification of Activities for Preparation of Cash Flow Statement as per AS-3 (Revised) B
1. Cash flows from Operating Activities
Operating activities are the principal revenue generating activities (or the primary or main activities) of the enterprise and these
activities are not investing or financing activities.
For example, for a company manufacturing garments, operating activities are procurement of raw material, manufacturing
expenses incurred, sale of garments, etc.
Cash flows from operating activities generally result from the transactions and other events that enter into the determination of
net profit or loss.

Top Tip
The amount of cash from operations indicates the internal solvency level of the company, and is regarded as the key indicator of
the extent to which the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the
enterprise, paying dividends, making of new investments and repaying of loans without recourse to external source of financing.

Examples of Cash Inflows from Operating Activities Examples of Cash Outflows from Operating Activities
• Cash receipts from sale of goods and the rendering of • Cash payments to suppliers for goods and services
services to customers (i.e. Cash revenue from operations) purchased (Cash purchases)
and Cash collection from trade receivables • Cash payments to and on behalf of the employees (i.e.
• Cash receipts from royalties, fees, commissions (e.g. payment of employees benefits expenses)
Trading commission) and other revenues • Cash payments of operating expenses — office and
• Refund of income-tax received administrative expenses, selling and distribution expenses,
etc. E.g. Manufacturing overheads paid, Rent paid.
• Cash payments to an insurance enterprise for premiums
and claims, annuities, and other policy benefits
• Cash payments of income tax

• An enterprise may hold securities and loans for dealing or for trading purposes. In both cases they represent ‘Inventory’
specifically held for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are
classified as operating activities.
• Cash advances and loans made by financial enterprises (whose main business is lending and borrowings) are usually
classified as operating activities since they relate to main activity of that enterprise. Thus, Interest or dividend received by
a Bank or a Mutual Fund Company will be classified as cash inflow from operating activities. Similarly, Short-term loans
and advances made to third parties by a financial enterprise will be classified as cash outflow from operating activities.
2. Cash Flows from Investing Activities
Investing activities are the acquisition and disposal of long-term assets and long-term investments. In other words, investing
activities relate to purchase and sale of fixed assets such as machinery, furniture, etc. and long-term investments.
Top Tip
Separate disclosure of cash flows from investing activities is important because they represent the extent to which expenditures have
been made for resources intended to generate future income and cash flows.

Examples of Cash Inflows from Investing Activities Examples of Cash Outflows from Investing Activities
• Cash receipts from sale of fixed assets (both tangible and • Cash payments to acquire fixed assets (both tangible
intangible fixed assets) and non-current investments e.g. and intangible fixed assets) and capitalised research and
Proceeds from sale of patents, property, plant or equipment development, e.g. Purchase of property, plant or equipment
• Cash receipt from the repayment of advances or loans made for cash, Purchase of goodwill for cash
to third parties (except in case of financial enterprise) • Cash payments to acquire shares, warrants or debt
• Cash receipts from sale of shares, warrants or debt instruments instruments of other enterprises (other than the instruments
of other enterprises (except those held for trading purposes) those held for trading purposes), i.e. Purchase of non-
current investment
7.6 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

• Interest received in cash by a non-financial enterprise from • Brokerage paid on purchase of non-current investment
loans and advances made to third parties or Interest received by
a non-financial enterprise on debentures held as investments
• Dividend received on shares held as investment by a non- • Cash advances and loans made to third party by non-
financial enterprise financial enterprises (since advances and loans made by a
• Rent received on property held as investment financial enterprise is classified as operating activities)

3. Cash Flows from Financing Activities

As per AS‑3, financing activities are activities that result in changes in the size and composition of the owners’ capital (including
preference share capital in case of a company) and borrowings of the enterprise. In simple words, financing activities relate to
long-term funds or capital of an enterprise, e.g., cash proceeds from issue of equity shares, debentures, raising long-term bank
loans, repayment of bank loan, etc.

Top Tip
Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on
future cash flows by providers of funds (both capital and borrowings) to the enterprise.

Examples of Cash Inflows from Financing Activities Examples of Cash Outflows from Financing Activities
• Cash proceeds from issuing shares (equity or/and • Cash repayments of amounts borrowed, e.g. redemption of
preference) debentures or preference shares, buy back of equity shares,
repayment of long-term debts, etc.
• Cash proceeds from issuing debentures, bonds and short- • Interest paid on long-term borrowings (on debentures and
term borrowings (e.g. Bank overdraft and Cash credit) and long-term debts) by a non-financial enterprise
other long-term borrowings (e.g. procurement of term- • Equity and preference dividends paid (both final dividend
loans) and interim dividend) by a finance company or a non-
financial company
• Securities Premium on issue of shares or debentures • Underwriting commission paid
• Dividend distribution tax paid
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.7

Accounting Treatment of Some Peculiar Items C

1. Extraordinary items
Extraordinary items are not the regular phenomenon, i.e. non-recurring in nature. Examples:
(i) Loss of stock of goods due to theft/earthquake/flood
(ii) Insurance proceeds from the famine settlement/ earthquake disaster settlement
Top Tip
Cash flows associated with extraordinary items should be classified and disclosed separately as arising from operating, investing
or financing activities. This is done to enable users to understand their nature and effect on the present and future cash flows of
an enterprise.
For example, Loss of stock of goods due to fire/theft/earthquake/flood is classified under operating activities, whereas, loss of
machinery due to fire/theft/earthquake/flood is classified under investing activities.

2. Interest and Dividend

In case of a non-financial enterprise:
(i) Payment of interest and dividends are classified as cash outflows from financing activities.
(ii) Receipt of interest and dividends are classified cash inflows from investing activities.
In case of a financial enterprise (whose main business is lending and borrowing):
(i) Interest paid, interest received and dividend received are classified as operating activities.
(ii) Dividend paid is a cash outflow from financing activities.

Examples of activities which are an investing activity for every type of enterprise: (i) Purchase of Goodwill (ii) Purchase of
Fixed assets (iii) Sale of fixed assets
• Examples of activities which are a financing investing activity for every type of enterprise: (i) Dividends paid (ii)Issue
of Shares (iii) Redemption of Preference shares (iv) Buy Back of equity shares (v) Issue of Debentures (vi) Redemption of
Debentures (vii) Obtaining Long Term Loans (viii) Repayment of long term loans
• A transaction may include cash flows that are classified differently. For example, when the instalment paid in respect
of a fixed asset acquired on deferred payment basis includes both interest and loan, the interest element is classified under
financing activities and the loan element is classified under investing activities.
• Same activity may be classified differently for different enterprises. For example, purchase of shares is an operating
activity for a share brokerage firm (an investment company) while it is investing activity in case of other enterprises.

3. Accounting Treatment of Tax

Case I: ‘Provision for Tax’ is given as Notes to Account under Short-term Provisions: In this case, the previous year’s
figure will be ‘Tax paid’. Whereas,the current year’s figure will be ‘Tax provision of the current year’.
Case II: ‘Tax paid’ is given as an additional information: In this case, amount of ‘Tax paid’ as given in additional
information will be ‘Tax paid’ as well as ‘Tax provision of the current year’.
Case III: ‘Provision for Tax’ is given as Notes to Account under Short-term Provisions and ‘Tax paid’ is given as
additional information: In this case, we will prepare Provision for Tax Account for calculation of Tax paid/Provision
for Tax made during current year.
Dr. Provision for Tax A/c Cr.
Particulars (`) Particulars (`)
To Bank A/c (Tax paid) By Balance b/d
To Balance c/d By Statement of Profit and Loss
(Tax provision of current year)
7.8 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Types of Taxes Classification of Activities

Income tax (i.e. tax on normal profit/operating profit) Cash outflow from operating activities
Capital gains tax (i.e. tax on capital profits, e.g. tax paid on sale of Cash outflow from investing activities
land and building)
Dividend tax (i.e. tax on amount distributed as dividend) Cash outflow from financing activities

4. Non-Cash Transactions
As per AS-3, investing and financing transactions that do not require the use of cash or cash equivalents are termed as non-cash
transactions.
Non-cash transactions should be excluded from a cash flow statement since there is no inflow or outflow of cash and cash equivalents.
Examples of non-cash transactions:
(i) Issue of shares or debentures to the vendors for the purchase of fixed assets
(ii) Redemption of debentures by converting them into equity shares
(iii) Issue of fully paid bonus shares by utilising the balance of securities premium account.

Top Tip
Non-cash transactions should be excluded from a cash flow statement. They should be disclosed elsewhere in the financial
statements in a way that provide all the relevant information about these investing and financing activities.

5. Proposed Dividend
As per AS-4, Contingencies and Events Occurring after the Balance Sheet Date, Proposed dividend is shown in the Notes to
Accounts. It will be shown as contingent liability since it becomes a liability after it is declared (approved) by the shareholders.
It will be accounted in the books of account after it is declared (approved) by the shareholders in the Annual General Meeting.
Since, previous year’s Proposed Dividend will be declared (approved) in the current year; previous year’s Proposed Dividend
will be accounted as dividend payable.
Proposed dividend of previous year after declaration (approved) by the shareholders will be debited to surplus i.e., Balance in
Statement of Profit and Loss. While preparing cash flow statement, previous year’s proposed dividend will be added to Net Profit
under operating activities and will be shown under financial activity.
Current years’ Proposed Dividend will be ignored as it will be accounted for in the next year after it is declared by the
shareholders.
Classify the following transactions into cash flows from operating activities, investing activities and
financing activities:

S.No. Transaction Cash flow Activities

1. Purchase of machinery for cash Cash outflow Investing activities
2. Proceeds from issuance of equity share capital Cash inflow Financing activities
3. Cash revenue from operations Cash inflow Operating activities
4. Proceeds from long-term borrowings Cash inflow Financing activities
5. Proceeds from sale of old machinery Cash inflow Investing activities
6. Cash receipt from trade receivables Cash inflow Operating activities
7. Trading commission received Cash inflow Operating activities
8. Purchase of non-current investment Cash outflow Investing activities
9. Redemption of preference shares for cash Cash outflow Financing activities
10. Cash purchases Cash outflow Operating activities
11. Proceeds from sale of non-current investment Cash inflow Investing activities
12. Purchase of goodwill Cash outflow Investing activities
13. Cash paid to suppliers for goods purchased Cash outflow Operating activities
14. Interim dividend paid on equity shares Cash outflow Financing activities
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.9

15. Employee benefits expenses paid Cash outflow Operating activities

16. Proceeds from sale of patents Cash inflow Investing activities
17. Interest received on debentures held as investments by a non-financial Cash inflow Investing activities
enterprise
18. Interest paid on long-term borrowings by a non-financial enterprise Cash outflow Financing activities
19. Office and administrative expenses paid Cash outflow Operating activities
20. Manufacturing overheads paid Cash outflow Operating activities
21. Dividend received on shares held as investment by a non-financial Cash inflow Investing activities
enterprise
22. Rent received on property held as investment Cash inflow Investing activities
23. Selling and distribution expenses paid Cash outflow Operating activities
24. Income tax paid Cash outflow Operating activities
25. Dividend paid on preferences shares Cash outflow Financing activities
26. Rent paid Cash outflow Operating activities
27. Bank overdraft and Cash credit Cash inflow Financing activities
28. Underwriting commission paid Cash outflow Financing activities
29. Brokerage paid on purchase of non-current investment Cash outflow Investing activities
30. Refund of income-tax received Cash inflow Operating activities
31. Purchase of property, plant or equipment for cash Cash outflow Investing activities
32. Sale of property, plant or equipment Cash inflow Investing activities
33. Procurement of loans Cash inflow Financing activities
34. Buy back of equity shares Cash outflow Financing activities
35. Tax paid on sale of land and building Cash outflow Investing activities
36. Dividend distribution tax paid Cash outflow Financing activities
37. Dividend paid by a finance company Cash outflow Financing activities
38. Dividend paid by a non-financial company Cash outflow Financing activities
39. Interest paid by a finance company Cash outflow Financing activities
40. Interest received by a finance company Cash inflow Operating activities
41. Dividend received by a Mutual Fund Company Cash inflow Operating activities
42. Purchase of shares by a share brokerage firm Cash outflow Operating activities
43. Securities Premium on issue of shares or debentures Cash inflow Financing activities
44. Redemption of debentures by payment in lump sum Cash outflow Financing activities
45. Loan element of the installment paid in respect of a machinery Cash outflow Investing activities
purchased on long-term deferred payment basis
46. Short-term loans and advances made to third parties by a financial enterprise Cash outflow Operating activities
47. Cash receipt from sale of debt instruments of other enterprises Cash inflow Investing activities
48. Interest received in cash from loans and advances made to third parties Cash inflow Investing activities
49. Cash receipt from the repayment of advances or loans made to third Cash inflow Investing activities
parties
50. Purchase of securities for trading purpose Cash outflow Operating activities
51. Cash payments for insurance premiums Cash outflow Operating activities
52. Cash receipts from royalties, fees, commissions, etc. Cash inflow Operating activities
53. Cash proceeds from short-term borrowings Cash inflow Financing activities
54. Receipt of interest by a bank Cash inflow Operating activities
7.10 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Multiple Choice Questions (MCQs)

Q.1 Which of the following is never classified as operating activities?

(a) Payment of taxes (b) Payment of employment benefits expenses
(c) Payment of dividends (d) Both (b) and (c)
Q.2 The transaction ‘Acquisition of machinery by issue of equity shares of ` 5,00,00,000 will result in:
(a) Cash inflow of `5,00,00,000 from financing activities (b) Cash outflow of ` 5,00,00,000 from financing activities
(c) Cash outflow of `5,00,00,000 from investing activities (d) No flow of cash
Q.3 The transaction ‘Capital Gains Tax paid on sale of fixed assets’ is classified under which of the following:
(a) Operating Activities (b) Investing Activities
(c) Financing Activities (d) Cash and Cash Equivalents
Q.4 Statement I: Issue of Debentures will result in inflow of cash.
Statement II: Issue of Debentures to the vendors for purchase of machinery will result in outflow of cash.
Choose the correct option from the following:
(a) Both statements are correct. (b) Both statements are incorrect.
(c) Statement I is correct and Statement II is incorrect. (d) Statement I is incorrect and Statement II is correct.
Q.5 What will be effect of ‘Purchase of Marketable Securities for Cash’ on Cash Flow Statement?
(a) No effect (b) Inflow from financing activities
(c) Outflow from investing activities (d) Outflow from financing activities
Q.6 Statement I : Issue of fully paid bonus shares out of Securities Premium Account will result in inflow of cash.
Statement II: Cash withdrawn from bank will result in inflow of cash.
(a) Both statement I and statement II are correct (b) Both statement I and statement II are incorrect
(c) Statement I is correct and statement II is incorrect (d) Statement I is incorrect and statement II is correct
Q.7 ‘Dividend paid by a finance company’ is classified under which of the following:
(a) Operating Activities (b) Investing Activities
(c) Financing Activities (d) Cash and Cash Equivalents
Q.8 What will be the effect of the transaction ‘Payment of employee benefit expenses’ on the cash flow statement?
(a) Outflow from operating activities. (b) Outflow from investing activities.
(c) Outflow from financing activities. (d) No effect on cash flow.
Q.9 Shyam Sunder Ltd. is a financing company. Under which of the following activity will the amount of ‘Interest paid on
loan’ be shown:
(a) Investing activity (b) Financing activity
(c) Both Financing & Operating activity (d) Operating activity
Q.10 Which of the following transaction will result in flow of cash?
(a) Cash withdrawn from bank `71,000.
(b) Issue of 9% debentures of `1,00,000 to the vendors of Machinery.
(c) Received from debtors `74,000.
(d) Redeemed 10% debentures by converting into equity shares.
Q.11 Income tax paid is classified under:
(a) Operating activities (b) Investing activities (c) Financing activities (d) Cash and cash equivalents
Q.12 Which of the following transaction will result in no flow of cash?
(a) Purchase of machinery (b) Sale of investments
(c) Acquisition of machinery by issue of equity shares (d) Redemption of debentures
Q.13 Match the transactions given in Column-II with their correct category given in Column-I for the purpose of preparation
of ‘Cash Flow Statement’.
Column-II Column-II
(A) Investing Activity (i) Interest paid
(B) Financing Activity (ii) Purchase of Goodwill
(C) Operating Activity (iii) Cash receipts from sale of goods
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.11
(a) A-(iii), B-(i), C-(ii) (b) A-(ii), B-(i), C-(iii)
(c) A-(i), B-(iii), C-(ii) (d) A-(ii), B-(iii), C-(i)
Q.14 Which of the following activities are operating activities for the purpose of preparing ‘Cash flow statement’?
(i) Dividend and Interest received on securities. (ii) Payment of employee benefit expenses.
(iii) Cash receipts from royalties and fees. (iv) Issue of shares against purchase of machinery.
(a) (i), (ii) and (iii) (b) (ii), (iii) and (iv) (c) (i), (ii) and (iv) (d) (ii) and (iii)
Q.15 Which of the following transaction does not result in ‘Inflow or outflow of cash and cash Equivalents’?
(a) Collection of cash from trade receivables (b) Payment to trade payables
(c) Cash received on maturity of marketable securities (d) Payment to employees
Q.16 Which of the following is not included in ‘Cash and Cash Equivalents’?
(a) Demand deposits with banks (b) Short-term marketable securities
(c) Cheques in hand (d) Trade receivables
Q.17 Cash receipts from sale of machinery by a machinery dealer will be considered which type of activity from the following
while preparing Cash Flow Statement?
(a) Investing Activity (b) Operating Activity
(c) Financing Activity (d) Both Investing and Financing Activity
Q.18 ‘Cash received from royalties’ will be considered which type of activity from the following while preparing Cash Flow
Statement?
(a) Financing Activity (b) Investing Activity
(c) Both Financing and Investing Activity (d) Operating Activity
Q.19 Which of the following are included in ‘Cash’ for the purpose of preparing Cash flow Statement?
(i) Cash in hand (ii) Marketable securities
(iii) Demand deposits with banks (iv) Trade receivables
Choose the correct option from the following :
(a) (i) and (ii) (b) (i) and (iii) (c) (i) and (iv) (d) (ii) and (iii)
Q.20 Interest of `3,000 received in cash on loans and advances will result in:
(a) cash inflow from operating activities. (b) cash inflow from investing activities.
(c) cash inflow from financing activities. (d) No change in cash or cash equivalents.
Q.21 Which of the following transactions will not result in flow of cash?
(a) Cash withdrawn from the bank `7,000 (b) Issue of shares `20,00,000
(c) Purchase of investments `60,000 (d) Payment of wages `11,000
Q.22 Which of the following transactions will result into flow of cash?
(a) Deposited `40,000 into bank.
(b) Withdrew cash from bank `54,000.
(c) Sold marketable securities of ` 25,000 at par.
(d) Sold machinery of book value of `50,000 at a gain of `10,000.
Q.23 Which of the following transactions would result in inflow of cash and cash equivalents :
(a) Furniture costing `80,000 sold for `75,000 (b) Issue of bonus shares `5,00,000
(c) Payment to trade payables `15,000 (d) Provided depreciation on fixed assets `11,000
Q.24 Which of the following transactions is not related to cash flows from investing activities : 1
(a) Purchase of marketable securities `25,000 (b) Sale of land `2,80,000
(c) Sale of investments `3,00,000 (d) Purchase of equipment `1,00,000
Q.25 An investment normally qualifies as cash equivalent only when it has a short maturity, of say, ______ from the date of
acquisition.
(a) Three months or more (b) Six months or less
(c) One year or less (d) Three months or less
Q.26 Which of the following transactions will result in outflow of cash while preparing cash flow statement?
(a) Decrease in outstanding employees benefits by `3,000
(b) Increase in Current Investment by `6,000.
(c) Refund of Tax `10,000
(d) Purchase of fixed assets costing `5,00,000 on long term deferred payment.
7.12 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Q.27 Which of the following activities is/are cash equivalents?

(i) Brokerage paid on purchase of non-current investment (ii) Short-term deposit
(iii) Marketable securities (iv) Trading commission received
(a) Only (ii) (b) Only (iii) (c) Only (ii) and (iii) (d) Only (ii), (iii) and (iv)
Q.28 Assertion (A): While preparing the Cash Flow Statement of Alka Ltd., a financial enterprise ‘dividend paid’ was shown
as an operating activity by the accountant of the company.
Reason (R): Dividend paid is always a financing activity for all types of enterprises.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.29 Assertion (A): Short term deposits in bank will result in no flow of cash and cash equivalents.
Reason (R): There is only movement between the items of cash and cash equivalents.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.30 Which of the following is not an operating activity for a company manufacturing garments?
(a) Procurement of raw material (b) Sale of garments
(c) Payment of interest on loans (d) Manufacturing expenses incurred
Q.31 Statement-I: Extraordinary items are non-recurring in nature, i.e. not the regular phenomenon, e.g. loss due to theft or
earthquake or flood.
Statement-II: Dividend paid is always a financing activity.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.32 Which of the following will not result into cash inflow?
(a) Decrease in debtors (b) Issue of shares (c) Decrease in creditors (d) Sale of fixed assets
Q.33 Which of the following is an operating activity?
(a) Interest received in cash from loans and advances
(b) Cash payments to acquire securities for dealing or trading purposes
(c) Cash payments to acquire capitalized research and development
(d) Cash repayment of amount borrowed
Q.34 Which of the following is an operating activity?
(a) Interest paid by a manufacturing company (b) Interest received by a manufacturing company
(c) Interest paid by a financing company (d) Dividend paid by a financing company
Q.35 Which of the following is not classified as investing activities?
(a) Dividend received from investments in other enterprises.
(b) Cash receipt from disposal of patents.
(c) Cash payments to acquire capitalized research and development.
(d) Cash receipt from the repayment of loans or advances made by financial enterprises.
Q.36 Which of the following is not classified as investing activities?
(a) Purchase of property (b) Purchase of goodwill
(c) Purchase of inventory from suppliers (d) Purchase of non-current investments
Q.37 Which of the following transactions will result into cash flows from financing activities?
(i) Interest received in cash from loans and advances made to third parties
(ii) Cash receipt from the repayment of advances or loans made to third parties
(iii) Purchase of securities for trading purpose
(iv) Cash receipts from royalties, fees, commissions, etc.
(a) Only (i) (b) Only (ii) (c) Only (ii) and (iii) (d) None of these
Q.38 Which of the following transactions will not result into flow of cash:
(a) Issue of equity shares of ` 1,00,000. (b) Purchase of machinery of ` 1,75,000.
(c) Redemption of 9% debentures ` 3,50,000. (d) Cash deposited into bank ` 15,000.
Q.39 Which of the following is not included in cash and cash equivalents?
(a) Balances with banks (b) Bank deposits with 100 days of maturity
(c) Cheques and drafts on hand (d) Cash on hand
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.13
Q.40 Statement-I: ‘Rent Paid’ will be classified under Operating activity while preparing Cash Flow Statement.
Statement-II: Interest received in cash on loans and advances results in cash inflow from financing activity.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.41 Assertion (A): Investments in shares are included in cash equivalents.
Reason (R): Investments in shares are excluded from cash equivalents unless they are in substantial cash equivalents i.e.
maturity of three months or less from the date of acquisition.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.42 Which of the following statements is incorrect?
(a) Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities.
(b) Cash advances and loans made by financial enterprises are usually classified as operating activities.
(c) Capital gains tax paid on sale of fixed assets should be classified under investing activities.
(d) In case of a financial enterprise, payment of interest and dividends are classified as financing activities whereas
receipt of interest and dividends are classified as investing activities.
Q.43 Which of the following transactions will not result into cash flows from operating activities?
(a) Purchase of shares by a share brokerage firm
(b) Short-term loans and advances made to third parties by a financial enterprise
(c) Cash receipt from sale of debt instruments of other enterprises
(d) Receipt of interest by a bank
Q.44 Assertion (A): Purchase of software by a manufacturing concern is classified as operating activities.
Reason (R): It is a cash outflow from investing activities.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.45 Assertion (A): ‘Receipt of Dividend’ can never be classified as an operating activity.
Reason (R): Receipt of dividend can be an operating activity for a financial company as it is a principal revenue
generating activity.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.46 Which of the following is an example of cash inflow from operating activities?
(a) Cash receipts from disposal of shares, warrants, or debt instruments held for trading purposes
(b) Cash receipts from royalties, fees, commissions and other revenues.
(c) Cash receipts from the rendering of services.
(d) All of the above
Q.47 Which of the following should be excluded from a cash flow statement?
(a) Acquisition of machinery by issue of equity shares (b) Redemption of debentures of issue of equity shares
(c) Both (a) and (b) (d) Loss of goods due to theft or earthquake or flood
Q.48 Statement-I: While preparing Cash Flow Statement, cash comprises Cash in hand and demand deposits with bank.
Statement-II: An investment normally qualifies as a cash equivalent only when it has a maturity of three months or
more from the date of acquisition.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.49 Statement-I: Short term highly liquid investments that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value are called Cash equivalents.
Statement-II: X Ltd. redeemed `1,00,000, 9% debentures at 10% premium. The amount of ‘Cash Flows financing
activities’ will be `1,10,000.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.50 Assertion (A): While preparing the ‘Cash Flow Statement’ the accountant of Gulfam Ltd., a financing company showed
Dividend received on Investments’ as ‘Investing Activity’.
Reason (R): As Gulfam Ltd. is a financing company so dividend received is an operating activity for it.
7.14 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.51 Assertion (A): While preparing Cash Flow Statement, the accountant of ‘Rachana Ltd.’, a financing company, included
‘Interest received on loan’ in financing activities.
Reason (R): The accountant was not correct as it will be classified under operating activities.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.52 Statement-I: Receipts from sale of goods to customer, Payment of wages and salaries, electricity, food items and other
items used in accommodation constitute the operating activities for a hotel.
Statement-II: Receipts from selling film rights of a film to the distributors and Payment to the staff, actors, actresses,
directors, etc. constitute the investing activities for a Film production house.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.53 Statement-I: Repayment of loans, recovery expenditure for recover of loans etc, salaries of employees are operating
activities for financial enterprises.
Statement-II: Receipts from advertisements, Payments to staff reporters, etc. are operating activities for Media
Enterprises.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.54 Sale of current investments for cash will be shown under
(a) Operating Activity (b) Financing Activity
(c) Investing Activity (d) Cash and Cash Equivalents
Q.55 Assertion (A): The nature/type of enterprise can change altogether the category into which a particular activity may be
classified.
Reason (R): Purchase of shares is an operating activity for a share brokerage firm (an investment company) whereas it
is an investing activity for other enterprises.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.56 Statement-I: Financing activities are the activities that result in change in capital or borrowings of the enterprise.
Statement-II: For a company manufacturing garments, procurement of raw material, incurrence of manufacturing
expenses, sale of garments are classified as investing activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.57 Statement-I: Payment of dividend is always financing with regards to the Cash Flow Statement.
Statement-II: Interest on Long term Borrowings, Issue of Shares for cash and Issue of Debenture for cash are cash
flows from financing activity for every enterprise.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.58 Assertion (A): ‘Sale of marketable securities at par’ would result in inflow of cash.
Reason (R): It will lead to no change in cash and cash equivalents.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.59 Assertion (A): While preparing cash flow statement, will ‘Cash withdrawn from bank’ result into no flow of cash.
Reason (R): There is no change in cash and cash equivalents.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.15
Q.60 X Ltd. issued shares at a premium. The Securities Premium will be shown as:
(a) Cash inflow from operating activities (b) Cash inflow from financing activities
(c) Cash inflow from investing activities (d) Cash outflow from financing activities
Q.61 Assertion (A): Short term marketable securities are included in cash equivalents.
Reason (R): Because these can be readily converted into cash within three months or less and without an insignificant
risk of change in value.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.62 Statement-I: ‘Cash Flows’ implies movement of cash in and out due to some extra-ordinary items.
Statement-II: Normally maximum 90 days/3 months should be the maturity period for a short-term investment from
the date of its acquisition to be qualified as cash equivalents.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.63 Assertion (A): Purchase of short-term investment is not considered while preparing cash flow statement .
Reason (R): Because it constitutes cash equivalents . So, there is no flow of cash and cash equivalents. It is a part of
cash management which includes the investment of excess cash in cash equivalents.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.64 Assertion (A): ‘Cash deposited in bank’ will result in outflow of cash while preparing Cash Flow Statement.
Reason (R): No flow of cash as there is no change in cash and cash equivalents.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.65 Assertion (A): ‘Cheques and drafts in hand’ are not considered while preparing cash flow statement.
Reason (R): Being cash and cash equivalents, ‘Cheques and drafts in hand’ are part of cash management of the
enterprise.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.66 Statement-I: Redemption of debentures would result in Cash outflow.
Statement-II: Cash deposited in bank will result in no flow of cash.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.67 Assertion (A): Movement between items that constitute cash or cash equivalents may also result into cash flow.
Reason (R): Movements between items that constitute cash or cash equivalents doesn’t result into cash flow because
these are the components of the cash and cash equivalents only.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.68 Statement-I: Operating activities are the principal revenue generating (or primary/ main) activities of an enterprise.
Statement-II: Investing activities are the acquisition and disposal of long-term assets and other investments not
included in Cash equivalents.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.69 Assertion (A): Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating
activities.
Reason (R): An enterprise may hold securities and loans for dealing or for trading purposes. In either case they represent
inventory specifically held for resale.
7.16 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.70 Assertion (A): Cash advances and loans made by financial enterprises to third party are classified as investing activities.
Reason (R): These are classified as operating activities since they relate to main activity of financial enterprises.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.71 Which of the following is not cash or cash equivalents?
(a) Cash in hand
(b) Demand Deposit
(c) Bank Borrowings
(d) Investment which is maturing within 2 months from the date of acquisition
Q.72 Assertion (A): Financing activities are activities that result in changes in the size and composition of the owners’ capital
and borrowings of the enterprises.
Reason (R): Financing activities relate to long-term funds or capital of an enterprise, e.g. cash proceeds from issue of
equity shares, debentures, raising long-term bank loans, repayment of bank loans, etc.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.73 Assertion (A): Rent received is an operating activity by a manufacturing concern.
Reason (R): Rent received is an investing activity.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.74 Assertion (A): Instalment paid in respect of a fixed asset acquired on deferred payment basis is a cash outflow financing
activity.
Reason (R): The instalment includes both interest and loan, the interest element is classified under financing activities
and the loan element is classified under investing activities.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.75 Assertion (A): Purchase of shares is always an investing activity.
Reason (R): Purchase of shares is an operating activity for a share brokerage firm while it is investing activity in case of
other enterprises.
(a) Both (A) and (R) are false.
(b) (A) is false, but (R) is true.
(c) Both (A) and (R) are true and (R) is a correct explanation of (A).
(d) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
Q.76 Assertion (A): Cash flows associated with extraordinary items are always classified as operating activities.
Reason (R): Cash flows associated with extraordinary items are classified and disclosed separately as arising from
operating, investing or financing activities. This is done to enable users to understand theirnature and effect on the
present and future cash flows of an enterprise.
(a) Both (A) and (R) are false.
(b) (A) is false, but (R) is true.
(c) Both(A) and (R) are true and (R) is a correct explanation of (A).
(d) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
Q.77 Statement-I: In case of a non-financial enterprise (whose main business is lending and borrowing), interest paid,
interest received and dividend received are classified as Operating activities while dividend paid is a Financing activity.
Statement-II: In case of a financial enterprise, payment of interest and dividends are classified as Financing activities
whereas receipt of interest and dividends are classified as Investing activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.17
Q.78 Assertion (A): Tax paid is always classified as an operating activity.
Reason (R): Income Tax (i.e., tax paid on operating profit) is classified as cash outflow from operating activities.
Capital gains tax paid on sale of fixed assets should be classified under investing activities. Dividend tax, i.e. tax paid an
dividend distributed to shareholders should be classified as financing activity along with dividend paid.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.79 Assertion (A): Investing and financing activities that do not require the use of cash equivalents are excluded from a
cash flow statement.
Reason (R): These are called non-cash transactions. Cash flow statement shows the cash inflows and cash outflow from
operating, investing and financing activities during a period.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.80 Assertion (A): Non-cash transactions are not disclosed anywhere in the financial statements.
Reason (R): Non-cash transactions are excluded from a cash flow statement. However, such transactions should be
disclosed elsewhere in the financial statements in a way that provide all the relevant information about these investing
and financing activities.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.81 Assertion (A): Assets acquired by issue of shares are not disclosed in cash flow statement.
Reason (R): It is a non-cash transaction; so not included in cash flow statement.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.82 Statement-I: Interest received `10,000 by a non-financial company is an Investing activity.
Statement-II: In case of financial enterprises, interest paid and dividend paid will be treated as cash flow from operating
activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.83 Statement-I: Interest paid by a financial enterprise will be operating activity but dividend paid will be classified under
financing activity.
Statement-II: Dividend received is considered as operating activity when company is a Financing company.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.84 Assertion (A): Redemption of Debentures by converting them into equity shares would result into outflow of cash.
Reason (R): It is a non-cash transaction while a cash flow statement shows inflows and outflows of cash and cash
equivalents.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.85 Statement-I: Interest paid on bank overdraft is a financing activity.
Statement-II: ‘Interest received and paid’ by a finance company is Operating activity.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.86 Statement-I: ‘Payment of dividend and interest’ will be classified as Financing activity while preparing cash flow
statement.
Statement-II: Purchase of Goodwill is an example of an activity, which is an operating activity for every type of
enterprise.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
7.18 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Q.87 Statement-I: Redemption of Debentures is an example of an activity, which is a financing activity for every type of
enterprise.
Statement-II: ‘Proceeds from Sale of Buildings’ will be an Investing Activity while preparing Cash Flow Statement.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.88 Statement-I: While preparing Cash Flow Statement, ‘Dividend Received `50,000 on investments’ is an operating
activity.
Statement-II: While preparing ‘Cash Flow Statement’ of ‘Jain Limited’, a financing company, dividend received on
investments is an investing activity.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.89 Statement-I: While preparing Cash Flow Statement, ‘Payment of cash to aquire shares of another company by a trading
company’ is shown under operating activity.
Statement-II: Non-cash transactions are ignored while preparing a Cash Flow Statement.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.90 Statement-I: Interest received is never considered as financing activity.
Statement-II: An increase in accrued income during the year is added to the net profit for calculating cash flow from
operating activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.91 Statement-I: An investment normally qualities as cash equivalents only when it has a short maturity, of say, two months
or less from the date of acquisition.
Statement-II: Interest received by a finance company is classified under operating activity while preparing a cash flow
statement?
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.92 Statement-I: Interest received by a finance company is classified under Operating Activity while preparing a cash flow
statement.
Statement-II: Rent received is inflow of cash from Investing Activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.93 Assertion (A): Interest on debentures paid is added to net profit while calculating cash flows from operating activities.
Reason (R): Because it is a non-operating expense or cash outflow from financing activities
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.

A NSWERS
1. (c) 2. (d) 3. (b) 4. (c) 5. (a) 6. (b) 7. (c) 8. (a)
9. (d) 10. (c) 11. (a) 12. (c) 13. (b) 14. (d) 15. (c) 16. (d)
17. (b) 18. (d) 19. (b) 20. (b) 21. (a) 22. (d) 23. (a) 24. (a)
25. (d) 26. (a) 27. (c) 28. (d) 29. (b) 30. (c) 31. (a) 32. (c)
33. (b) 34. (c) 35. (d) 36. (c) 37. (d) 38. (d) 39. (b) 40. (c)
41. (d) 42. (d) 43. (c) 44. (c) 45. (c) 46. (d) 47. (c) 48. (c)
49. (a) 50. (c) 51. (d) 52. (c) 53. (a) 54. (d) 55. (b) 56. (c)
57. (a) 58. (c) 59. (b) 60. (b) 61. (a) 62. (d) 63. (b) 64. (c)
65. (b) 66. (a) 67. (d) 68. (a) 69. (b) 70. (c) 71. (c) 72. (b)
73. (c) 74. (d) 75. (b) 76. (b) 77. (b) 78. (c) 79. (a) 80. (d)
81. (a) 82. (b) 83. (a) 84. (c) 85. (a) 86. (c) 87. (a) 88. (c)
89. (d) 90. (c) 91. (d) 92. (a) 93. (b)
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.19

Calculation of Cash Flows from Operating Activities D

Particulars Amt.
Net Profit/Loss before Tax and Extraordinary Items
Add: Non-cash and non-operating expenses for which deductions already made in Statement of P&L
• Depreciation
• Intangible assets amortised e.g., Goodwill/Patents written-off
• Loss on sale of property, plant and equipment or non-current investments
• Finance Cost (i.e. Interest paid on Long-term Borrowings)
• Discount or loss on issue of debentures/Preliminary expenses written off
• Provision made for doubtful debts
• Premium on redemption of debentures or preference shares
Less: Non-operating incomes for which additions already made in Statement of P&L
• Interest received or Dividend received or Rent received
• Profit on sale of property, plant and equipment or non-current investments
• Excess provision for depreciation/doubtful debts written back
Operating Profit before working capital changes
Add: Decrease in current assets (other than current investments, cash and cash equivalents and short-term loans and
advances), and Increase in current liabilities (other than short-term borrowings and short-term provisions)
Less: Increase in current assets (other than current investments, cash and cash equivalents and short-term loans and
advances), and Decrease in current liabilities (other than short-term borrowings and short-term provisions)
Cash Generated from (or used in) Operating Activities before Tax and Extraordinary Items
Less: Income Tax paid (Tax on normal profits/operating profits)
Add: Income Tax Refund received
Cash Generated from (or used in) Operating Activities after Tax but before Extraordinary Items
+/– Effects of Extraordinary Items (+ Insurance proceeds from famine settlement/earthquake disaster settlement
– Loss of stock of goods due to theft/fire)
A. Net Cash from (or used in) Operating Activities

HELPFUL

TIPS For the purpose of adjustments related to Changes in Working Capital, following points are important:

1. Cash and cash equivalents should not be taken as current assets.

2. Current Investments should not be taken as current assets since they are to be taken as marketable securities unless
otherwise specified. In other words, current assets are treated as a part of cash and cash equivalents.
3. Adjustments related to changes in Working Capital (other than cash and cash equivalents) are necessary to convert net
profit/loss which is based on accrual basis into cash flows from operating activities.
• Decrease in current assets and increase in current liabilities are added to net profit/loss to arrive at net cash flow from
operating activities. This is so because decrease in current assets and increase in current liabilities both will result in net
decrease in working capital, which implies cash inflow from operating activities.
• Increase in current assets and decrease in current liabilities are deducted from net profit/loss arrive at net cash flow from
operating activities. This is so because increase in current assets and decrease in current liabilities both will result in net
increase in working capital, which implies cash outflow from operating activities.
4. Short-term loans and advances should not be taken as current assets.
• If Short-term loans and advances are increasing, it is shown as cash outflow from investing activities (short-term loans
and advances made to third parties).
• If Short-term loans and advances are decreasing, it is shown as cash inflow from investing activities (repayments of short-
term loans and advances made to third parties).
5. Short-term borrowings (e.g. cash credit or bank overdraft) should not be taken as current liabilities.
• If short-term borrowings are increasing, it is shown as cash inflow from financing activities (proceeds from short-term
borrowings)
7.20 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

• If short-term borrowings are decreasing, it is shown as cash outflow from financing activities (repayments of short-term
borrowings)
6. Short-term provisions should not be taken as current liabilities. Short-term provisions include provision for tax or provision
for doubtful debts.
T
WORKING
NOTES

WORKING NOTES

1. Calculation of Net profit/loss before tax and extraordinary items

Cash flow from operating activities begins with the amount of ‘Net profit/loss before tax and extraordinary items’, not
the net profit as per statement of Profit and Loss. This is so because statement of profit and loss incorporates the effects of
all operating activities of an enterprise.
However, Statement of Profit and Loss is prepared on accrual basis (and not on cash basis). Moreover, it also includes certain
non-operating items such as interest paid, profit/loss on sale of fixed assets, etc. and non-cash items (such as depreciation,
goodwill written-off, etc.).
Therefore, it becomes necessary to adjust the amount of net profit/loss as shown by Statement of Profit and Loss for arriving at
cash flows from operating activities.
Example:
Statement of Profit and Loss
Particulars Amt. (`)
Revenue from Operations xxx
Add: Other Income (which includes Income Tax Refund received and Insurance proceeds from earthquake xxx
disaster settlement)
Total Revenue xxx
Less: Total Expenses (which includes loss of stock due to earthquake) (xxx)
Net Profit before Tax xxx or (xxx)
Less: Provision for Tax made during the current year (xxx)
Net Profit after Tax xxx
Less: Transfer to General Reserve (xxx)
Less: Final Dividend paid (xxx)
Less: Interim Dividend paid (xxx)
Net Profit after Appropriations (to be added to previous year’s balance of Statement of Profit and Loss) xxx or (xxx)
Thus, if Balance Sheet is given, the difference between the current year’s and previous year’s balance of Statement of Profit and
Loss is Net Profit/Loss (after appropriations).
For calculating cash flow from operating activities, the starting point is the ‘Net profit/loss before tax and extraordinary items’.
Net profit/loss before tax and extraordinary items will be calculated by adding all the appropriations made from profits (e.g.
Provision for Tax net of Income Tax Refund, Dividend paid, Transfer to general reserve, etc.) and then adding/subtracting
extraordinary item(s).
Particulars (`)
Net Profit/Loss after Appropriations (Current year’s balance of Statement of Profit and Loss – Previous year’s
figure)
Add: Dividend paid (both final dividend and interim dividend)
Add: Transfer to General reserve
Add: Provision for Tax made during the current year
Less: Income Tax Refund received
Net Profit/Loss before Tax
+/– Effects of Extraordinary Items (– Insurance proceeds from earthquake disaster settlement + Loss of
stock of goods due to earthquake)
Net Profit before Tax and Extraordinary Items
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.21

2. Accounting Treatment of Depreciation

CASE I: There is additional information about Depreciation charged/Provision for depreciation made during the year
and/or Purchase/Sale of Property, Plant and Equipment (e.g. Machinery).
But Accumulated Depreciation Account/ Provision for Depreciation Account is NOT appearing in Notes to Accounts:
In this case, we will prepare Machinery Account to calculate the missing figure which may be Purchase of machinery, Sale of
machinery, Depreciation or profit/loss on sale of machinery.
Dr. Machinery A/c Cr.
Particulars ` Particulars `
To Balance b/d By Depreciation
To Statement of Profit and Loss (profit on sale) By Bank A/c (sale)
To Bank A/c (purchase) By Statement of Profit and Loss (loss on sale)
By Balance c/d

CASE II: There is additional information about Depreciation charged/Provision for depreciation made during the year
and/ or Purchase/Sale of Property, Plant and Equipment (e.g. Machinery).
Also, Accumulated Depreciation Account/ Provision for Depreciation Account is appearing in Notes to Accounts:
In this case, we will prepare Accumulated Depreciation Account/ Provision for Depreciation Account also besides preparing
Machinery Account and to calculate the missing figure which may be Purchase of machinery, Sale of machinery, Depreciation
or profit/loss on sale of machinery.
Dr. Machinery A/c Cr.
Particulars ` Particulars `
To Balance b/d By Accumulated Depreciation (on machinery
To Statement of Profit and Loss (profit on sale)* sold)
To Bank A/c (new machinery purchased) By Bank A/c (proceeds from sale of machinery)
By Statement of Profit and Loss (loss on sale)*
By Balance c/d

*Either of the two will appear.

Dr. Accumulated Depreciation A/c Cr.
Particulars ` Particulars `
To Machinery A/c (accumulated depreciation By Balance b/d
on machinery sold) By Statement of Profit and Loss (Depreciation
To Balance c/d charged during the year)

ILLUSTRATIONS — Cash flows from Operating Activities

ILLUSTRATION 1
X Ltd., made a profit of `1,00,000 after considering the following items:
(a) Depreciation on Fixed Assets `20,000 (b) Writing off preliminary expenses `10,000
(c) Loss on sale of furniture `1,000 (d) Provision for taxation `1,60,000
(e) Transfer to General Reserve `14,000 (f ) Profit on sale of machinery `6,000
7.22 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Additional Information:
Items 31-3-2024 (`) 31-3-2025 (`)
Debtors 24,000 30,000
Creditors 20,000 30,000
Bills Receivable 20,000 17,000
Bills Payable 16,000 12,000
Prepaid expenses 400 600
Calculate Cash flow from operating activities, if tax paid during the year was `1,20,000.

Solution: Calculation of cash flow from operating activities:

Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items (Note 1) 2,74,000
Add: Depreciation on fixed assets 20,000
Add: Preliminary expenses written off 10,000
Add: Loss on sale of furniture 1,000
Less: Profit on sale of machinery (6,000)
Operating Profit before working capital changes 2,99,000
Add: Increase in creditors 10,000
Add: Decrease in bills receivable 3,000
Less: Increase in debtors (6,000)
Less: Decrease in bills payable (4,000)
Less: Increase in prepaid expenses (200)
Cash generated from operations before tax 3,01,800
Less: Tax paid (1,20,000)
Net cash from operating activities 1,81,800
Working Notes: 1. Net profit before tax = Net profit after appropriations + Provision for tax + Transfer to General Reserve
1,00,000 + 1,60,000 + 14,000 = `2,74,000

ILLUSTRATION 2
Raj Ltd. had a profit of `17,50,000 for the year ended 31.3.2025 before writing off goodwill.
Depreciation on building `1,30,000 Depreciation on plant and machinery `40,000
Goodwill written off `25,000 Loss on sale of machinery `9,000
Additional Information:
Particulars 31.3.2024 (`) 31.3.2025 (`)
Inventory 70,000 87,000
Trade Receivables 67,000 58,000
Cash and cash equivalents 60,000 75,000
Trade payables 1,11,000 1,06,000
Outstanding Salary 7,000 4,000
Calculate cash flow from operating activities.
Solution: Calculation of cash flow from operating activities:
Particulars Details (`) Amount (`)
Net profit before tax and extraordinary items 17,50,000
Add: Depreciation on building 1,30,000
Add: Depreciation on plant and machinery 40,000
Add: Loss on sale of machinery 9,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.23

Operating profit before working capital changes 19,29,000

Less: Increase in inventories (17,000)
Add: Decrease in trade receivables 9,000
Less: Decrease in trade payables (5,000)
Less: Decrease in outstanding salary (3,000)
Net Cash generated from operating activities 19,13,000
Explanation
Since profit of `17,50,000 is before writing off goodwill, therefore goodwill written off `25,000 will not be added back
because it was not deducted from Statement of Profit and Loss.

ILLUSTRATION 3
The following is the Statement of Profit and Loss Account of Yamuna Limited:
Statement of Profit and Loss of Yamuna Ltd. for the Year ended March 31, 2025
Particulars Amount (`)
(i) Revenue from Operations 10,00,000
(ii) Expenses:
Cost of Materials Consumed 50,000
Purchases of Stock-in-trade 5,00,000
Depreciation 25,000
Other Expenses 2,75,000
Total Expenses 8,50,000
(iii) Profit before tax (i-ii) 1,50,000
Additional information:
(i) Trade receivables decrease by `30,000 during the year.
(ii) Prepaid expenses increase by `5,000 during the year.
(iii) Trade payables increase by `15,000 during the year.
(iv) Outstanding expenses payable increased by `3,000 during the year.
Compute net cash from operations for the year ended March 31, 2025.
Solution: Calculation of cash flow from operating activities:
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items 1,50,000
Add: Depreciation 25,000
Operating Profit before working capital changes 1,75,000
Add: Decrease in trade receivables 30,000
Less: Increase in prepaid expenses (5,000)
Add: Increase in trade payables 15,000
Add: Increase in outstanding expenses 3,000
Net cash from operating activities 2,18,000

ILLUSTRATION 4
From the following information, calculate Cash Flow from Operating Activities. Show your workings clearly.
Particulars 31.3.2024 31.3.2025
Amount (`) Amount (`)
Surplus (i.e. Balance in the Statement of Profit and Loss) 71,000 89,000
Inventory 12,000 4,000
Trade receivables 58,000 45,000
Outstanding expenses 14,600 10,000
Goodwill 57,000 27,000
Cash in hand 9,000 12,000
Machinery 82,000 56,000
7.24 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

(i) A piece of machinery cosing `50,000 on which depreciation of `20,000 had been charged was sold for `10,000.
Depreciation charged during the year was `18,000.
(ii) Income tax `23,000 was paid during the year.
(iii) Dividend paid during the year was `36,000.
Solution: Calculation of cash flow from operating activities:
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items (Note 1) 77,000
Add: Depreciation on machinery 18,000
Add: Loss on sale of machinery 20,000
Add: Goodwill written off 30,000
Operating Profit before working capital changes 1,45,000
Add: Decrease in inventories 8,000
Add: Decrease in trade receivables 13,000
Less: Decrease in outstanding expenses (4,600)
Cash generated from operations before tax 1,61,400
Less: Income Tax paid (23,000)
Net cash from operating activities 1,38,400
Working Notes: 1. Net profit before tax = Net profit after appropriations (difference in Balance of Statement of Profit and
Loss of current year and previous year) + Provision for tax + Dividend paid
= 18,000 + 23,000 + 36,000 = `77,000
2. Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 82,000 By Depreciation 18,000
To Bank A/c (purchase) 12,00,000 By Bank A/c (sale) 10,000
(Bal. fig.) By Loss on Sale of Machinery 20,000
By Balance c/d 56,000
1,04,000 1,04,000

Explanation
1. Income tax paid `23,000 is given. It is assumed that provision for tax is also equal to `23,000, which will be added back while
calculating net profit before tax.
2. Book value of machinery sold = Cost – Accumulated depreciation (till the date of sale) = 50,000 – 20,000 = `30,000
Proceeds from sale of machinery = `10,000.
Therefore, loss on sale = Book value – Sale proceeds = 30,000 – 10,000 = `20,000
3. Depreciation charged during the year on total machinery is `18,000, which is to be added back to net profit, not `20,000 (i.e.
accumulated depreciation on machinery sold)

Competency Based Illustrations — Cash flows from Operating Activities

ILLUSTRATION 5
Calculate cash flows from operating activities from the following information.
Statement of Profit and Loss for the year ended March 31, 2025
Particulars Note No. Amount (`)
I. Revenue from Operations 60,000
II. Other Income 1. 5,000
III. Total Revenues (I + II) 65,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.25

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
Total expenses 45,000
V. Profit before Tax (III – IV) 20,000
VI. Less: Tax 8,000
VII. Profit after Tax (V – VI) 12,000
Notes to Accounts:
Note No. Particulars Amount (`)
1. Other Income:
Profit on Sale of Machinery 500
Income tax refund 1,500
Insurance proceeds from earthquake disaster settlement 3,000
5,000
2. Depreciation and Amortisation Expenses:
Depreciation on fixed assets 5,000
Goodwill amortised 2,000
7,000
3. Other Expenses
Rent 10,000
Loss on sale of equipment 3,000
13,000
Additional Information:
Particulars 31.3.2024 (`) 31.3.2025 (`)
Provision for taxation 10,000 13,000
Rent payable 2,000 2,500
Trade payables 21,000 25,000
Trade receivables 15,000 21,000
Inventories 25,000 22,000
Solution: Calculation of cash flow from operating activities
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items* 15,500
Add: Depreciation 5,000
Add: Goodwill amortised 2,000
Add: Loss on sale of equipment 3,000
Less: Profit on sale of machinery (500)
Operating Profit before working capital changes 25,000
+ Increase in Rent Payable 500
+ Increase in Trade Payables 4,000
– Increase in Trade Receivables (6,000)
+ Decrease in Inventories 3,000
Cash generated from Operations before Tax 26,500
Less: Income Tax paid (5,000)
Add: Income Tax Refund 1,500
Cash generated from Operating Activities before Extraordinary items 23,000
Add: Insurance proceeds from earthquake disaster settlement 3,000
Net cash from operating activities 26,000
7.26 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Dr. Provision for Tax A/c Cr.

Particulars Amount (`) Particulars Amount (`)
To Bank A/c (Tax paid) (Bal. fig.) 5,000 By Balance b/d 10,000
To Balance c/d 13,000 By Statement of Profit and Loss 8,000
18,000 18,000
Working Notes: Net profit before tax and extraordinary items* = Net profit after tax + Provision for tax – Income tax refund –
Insurance proceeds from earthquake disaster settlement = 12,000 + 8,000 – 1,500 – 3,000 = `15,500

ILLUSTRATION 6
From the following information calculate net cash from operations:
Particulars Amount (`)
Operating Profit after Provision for Tax of `1,53,000 6,28,000
Insurance proceeds from the famine settlement 1,00,000
Dividend paid during the year 72,000
Dividend Received on Investments 6,000
Increase in Current Liabilities 1,51,000
Increase in Current Assets other than Cash and Cash Equivalents 6,00,000
Income Tax Paid 1,18,000
Refund of Income Tax Received 3,000
Solution: Net Profit before Tax and Extraordinary Items = Operating Profit during the year (after appropriations) + Dividend
paid + Provision for Tax – Income Tax Refund – Insurance proceeds from the Famine Settlement
= 6,28,000 + 72,000 + 1,53,000 – 3,000 – 1,00,000 = `7,50,000
Calculation of cash flow from operating activities:
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items 7,50,000
Less: Dividend received on Investments (6,000)
Operating Profit before working capital changes 7,44,000
Add: Increase in current liabilities 1,51,000
Less: Increase in current assets (6,00,000)
Cash generated from Operations before Tax 2,95,000
Less: Income Tax paid (1,18,000)
Add: Income Tax Refund received 3,000
Add: Insurance proceeds from the Famine settlement 1,00,000
Net cash from operating activities 2,80,000

ILLUSTRATION 7
Following was the Balance Sheet of M.M. Ltd at on 31.3.2025:
Balance Sheet as at 31.3.2025
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital 5,00,000 4,00,000
(b) Reserves and Surplus 1 2,00,000 (50,000)
(2) Non-Current Liabilities
Long- term borrowings 2 4,50,000 5,00,000
(3) Current Liabilities
(a) Short-term borrowings 1,50,000 50,000
(b) Short-term provisions 3 70,000 90,000
Total 13,70,000 9,90,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.27

II. ASSETS
(1) Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 4 10,03,000 7,20,000
(ii) Intangible Assets 5 20,000 30,000
(b) Non-Current Investments 1,00,000 75,000
(2) Current Assets
(a) Current Investments 50,000 60,000
(b) Inventories 1,07,000 45,000
(c) Cash and Cash Equivalents 90,000 60,000
Total 13,70,000 9,90,000
Notes to Accounts
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
(1) Reserves and Surplus
(Surplus i.e. Balance in statement of Profit and Loss) 2,00,000 (50,000)
(2) Long-term borrowings
12% Debentures 4,50,000 5,00,000
(3) Short-term Provisions
Provision for tax 70,000 90,000
(4) Property, Plant & Equipment
Machinery 12,03,000 8,21,000
Less: Accumulated Depreciation (2,00,000) (1,01,000)
10,03,000 7,20,000
(5) Intangible Assets
Goodwill 20,000 30,000
Additional Information:
(i) 12%Debentures were redeemed on 31.3.2025.
(ii) Tax `70,000 was paid during the year.
Calculate cash flow from operating activities showing your workings clearly.

Solution: Calculation of cash flow from operating activities:

Particulars Details (`) Amount (`)
Net Profit before tax & extraordinary items (note 1)
Add: Non cash and non-operating charges 3,00,000
Goodwill written off (30,000 – 20,000) 10,000
Depreciation on machinery (2,00,000 – 1,01,000) 99,000
Interest on debentures (12% of `5,00,000) 60,000
Operating profit before working capital changes 4,69,000
Less: Increase in stock in trade (62,000)
Cash generated from operations before tax 4,07,000
Less: Tax paid (70,000)
Net Cash from Operating Activities 3,37,000
Working Notes:
1. Calculation of Net Profit before tax: (`)
Net profit as per statement of Profit & Loss [2,00,000 – (–50,000)] 2,50,000
Add: Provision for tax made 50,000
Net Profit before tax & extraordinary items 3,00,000
7.28 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Dr. Provision for tax A/c Cr.

Particulars Amount (`) Particulars Amount (`)
To Bank A/c (Paid) 70,000 By Balance b/d 90,000
To balance c/d 70,000 By Statement of P/L (Bal fig.) 50,000
1,40,000 1,40,000

Explanation
1. Balance of 12% debentures is decreasing from `5,00,000 to `4,50,000. Since debentures of `50,000 were redeemed on
31.3.2025, outstanding balance of debentures was `5,00,000 throughout the year. Therefore, interest on debentures paid
= 12% of `5,00,000 = `60,000
2. For the purpose of calculating cash flow from operating activities, short-term borrowing is not treated as current liability.
Increase in short-term borrowing from `50,000 to `1,50,000 is cash proceeds from short-term borrowings `1,00,000,
which is a cash inflow from financing activities.
3. Current investment is not treated as current asset for the purpose of adjustments related to working capital changes while
calculating cash flow operating activities. Current investments should be taken as cash and cash equivalents.

Multiple Choice Questions (MCQs) 7D

Q.1 While computing cash from operating activities, which of the following item(s) will be added to the net profit?
(i) Decrease in value of inventory (ii) Increase in share capital
(iii) Increase in the value of trade receivables (iv) Increase in the amount of outstanding expenses
(a) Only (i) (b) Only (i) and (ii) (c) Only (i) and (iii) (d) Only (i) and (iv)
Q.2 Identify which of the following transactions will result in ‘Cash Inflow From Operating Activities’:
(a) Payment to creditors (b) Interest received by a non-finance company
(c) Dividend received by a non-finance company (d) Amount received from debtors
Q.3 Which of the following transactions will result in cash flows from operating activities?
(a) Cash receipts from sale of investments `60,000 (b) Cash receipts from sale of goods `94,000
(c) Dividend received `31,000 (d) Payment of cash for purchase of fixed assets `3,00,000
Q.4 Particulars 1-4-2024 31-3-2025
Provision for Tax `10,000 `25,000
Tax paid during the year ending on 31st March, 2025 was `15,000. While calculating Net Profit before Tax and Extra
ordinary items, the amount of provision for tax to be added is
(a) `30,000 (b) `25,000 (c) `10,000 (d) `15,000
Q.5 Which of the following transactions will result in cash outflow from operating activities?
(a) Payment to creditors (b) Proceeds from sale of investments
(c) Dividend received by a non-finance company (d) Depreciation charged on furniture
Q.6 Prayas Ltd. made a profit of `1,75,000 after considering the following items:
(i) Goodwill written off `6,000 (ii) Depreciation on Furniture `3,400
(iii) Loss on sale of Building `89,000 (iv) Gain on sale of Land `4,250
Operating Profit before Working Capital changes will be:
(a) `2,25,149 (b) `2,69,150 (c) `2,35,160 (d) `2,53,145
Q.7 Which of the following statements is incorrect?
(a) If the net profits made during the year are `50,000 and the bills receivables have decreased by `10,000 during the
year then the cash flow from operating activities will be equal to `60,000.
(b) Expenses paid in advance at the end of the year are deducted from the profit made during the year.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.29
(c) An increase in accrued income during the particular year is added to the net profit.
(d) For calculating cash flow from operating activities, provision for doubtful debts is added to the profit made during
the year.
Q.8 Statement-I: A Ltd., engaged in the business of retailing of two wheelers, invested `50,00,000 in the shares of a
manufacturing company. Dividend received on this investment will be cash flow from operating activities.
Statement-II: If the net profits made during the year are `50,000 and the bills receivables have decreased by `10,000
during the year then the cash flow from operating activities will be equal to `40,000.
(a) Both the statements are true. (b) Both the statements are false.
(c) Only Statement-I is true. (d) Only Statement-II is true.
Q.9 While computing cash flows from operating activities, which of the following items will not be considered?
(a) Increase in the value of creditors (b) Increase in the value of patents
(c) Decrease in prepaid expenses (d) Decrease in income received in advance
Q.10 Assertion (A): Decrease in trade payables is deducted to calculate cash flows from operating activities.
Reason (R): It will increase working capital, i.e. cash outflow from operating activities.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(d) (A) is false, but (R) is true.
Q.11 Raj Ltd. had a profit of `17,50,000 for the year ended 31.3.2025 before writing off goodwill. Depreciation on building
`1,30,000; Depreciation on plant and machinery `40,000; Goodwill written off `25,000; Loss on sale of machinery
`9,000. What is the amount of Operating Profit before working capital changes?
(a) `19,54,000 (b) `19,29,000 (c) `17,99,000 (d) None of these
Q.12 Assertion (A): Depreciation is added back to net profit while calculating cash flows from operating activities.
Reason (R): Depreciation is a non-cash expense. It had reduced the net profit while there is no cash outflow.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(d) (A) is false, but (R) is true.
Q.13 While computing cash from operating activities, which of the following item will be added to the net profit?
(a) Increase in the value of creditors (b) Increase in the value of patents
(c) Increase in prepaid expenses (d) Decrease in income received in advance
Q.14 Assertion (A): The amount of ‘cash from operations’ indicates the internal solvency level of the company.
Reason (R): Because the amount of ‘cash from operating activities’ is the key indicator of the extent to which the
operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise,
paying dividends, making of new investments and repaying of loans without recourse to external source of financing.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.15 Assertion (A): Goodwill written off is added while calculating cash flow from operating activities.
Reason (R): It will be considered as a non-cash expense and will be added back to the net profit for the purpose of
calculating operating profit before working capital changes.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (a) is false, but (R) is true.

A NSWERS
1. (d) 2. (d) 3. (b) 4. (a) 5. (a) 6. (b) 7. (c) 8. (b) 9. (b) 10. (a)
11. (b) 12. (a) 13. (a) 14. (b) 15. (a)
7.30 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Numerical Ques
Questions
tions (for Practice) 7D
Q.1 Charles Ltd., made a profit of `1,00,000 after charging depreciation of `20,000 on assets and a transfer to general
reserve of `30,000 but before amortisation of goodwill `7,000.
Other information available to you are:
(i) Gain on sale of machinery was `3,000.
(ii) Trade receivables showed an increase of `3,000 and outstanding expenses a decrease of `2,000.
Ascertain cash flow from operating activities
[Ans. `1,42,000]
Q.2 Compute cash from operations from the following figures:
(i) Profit for the year 2024-25 is a sum of `10,000 after providing for depreciation of `2,000.
(ii) The current assets and current liabilities of the business for the year ended March 31, 2024 and 2025 are as follows:
Particulars 31-03-2024 (`) 31-03-2025 (`)
Provision for Doubtful Debts 1,000 1,200
Inventories 5,000 8,000
Expenses payable 1,000 1,500
Accrued Income 3,000 4,000
Income received in advance 2,000 1,000
[Ans. ` 7,700]
Q.3 The net profit of a company before tax is `12,50,000 as on March 31, 2025, after considering the following:
Particulars Amount (`)
Depreciation on Fixed Assets 25,000
Goodwill written off 15,000
Loss on sale of Machine 12,000
The current assets and current liabilities of the company in the beginning and at the end of the year were as follows:
Particulars 31.3.2024 (`) 31.3.2025 (`)
Bills Receivables 25,000 15,500
Outstanding Expenses 8,000 7,000
Calculate Cash flow from operating activities.
[Ans. `13,10,500]
Q.4 From the following Balance Sheet of Nishant Ltd. as on 31st March, 2025, calculate ‘Cash Flows From Operating
Activities’.
Balance Sheet of Nishant Ltd. as on 31st March, 2025
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES:
1. Shareholders’ Funds
(a) Share Capital 6,00,000 5,50,000
(b) Reserves and Surplus 1 1,50,000 1,00,000
2. Non-Current Liabilities
(a) Long-term Borrowings 2 1,20,000 85,000
3. Current Liabilities
(a) Trade Payables 89,500 1,02,000
(b) Short-term Provisions 3 25,000 38,500
Total 9,84,500 8,75,500
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.31

II. Assets:
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 4 5,35,000 4,25,000
(ii) Intangible Assets 5 20,000 56,000
2. Current Assets
(a) Current Investments 1,20,000 75,000
(b) Inventories 64,500 60,500
(c) Trade Receivables 85,000 71,500
(d) Cash and Cash Equivalents 1,60,000 1,87,500
Total 9,84,500 8,75,500

Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1 Reserves and Surplus
Surplus i.e. Balance in Statement of Profit and Loss 1,50,000 1,00,000
2 Long-term Borrowings
10% Debentures 1,20,000 85,000
3 Short-term Provisions
Provision for Tax 25,000 38,500
4 Property, Plant and Equipment
Machinery 6,35,000 5,00,000
Less : Accumulated Depreciation (1,00,000) (75,000)
5,35,000 4,25,000
5 Intangible Assets
Goodwill 20,000 56,000
Additional Information: (i) A piece of machinery costing ` 12,000 on which accumulated depreciation was ` 8,000
was sold for ` 3,000. (ii) Interest paid on 10% Debentures amounted to ` 8,500.
[Ans. `85,000]
Q.5 Following is the Balance Sheet of Mevanca Limited as at 31st March, 2025:
Balance Sheet as at 31st March, 2025
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 3,00,000 1,00,000
(b) Reserves and Surplus 1 25,000 1,20,000
2. Non-Current Liabilities
Long-term Borrowings 2 80,000 60,000
3. Current Liabilities
(a) Trade Payables 6,000 20,000
(b) Short-term Provisions 3 68,000 70,000
Total 4,79,000 3,70,000
II. ASSETS
1. Non-Current Assets
Property, Plant & Equipment and Intangible Assets 4 3,36,000 1,92,000
2. Current Assets
(a) Inventories 67,000 60,000
(b) Trade Receivables 51,000 65,000
(c) Cash and Cash Equivalents 25,000 49,000
(d) Other Current Assets – 4,000
Total 4,79,000 3,70,000
7.32 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1 Reserves and Surplus
Surplus i.e., Balance in Statement of Profit & Loss 25,000 1,20,000
25,000 1,20,000
2 Long-term Borrowings
10% Long term Loan 80,000 60,000
80,000 60,000
3 Short-term Provisions
Provision for Tax 68,000 70,000
68,000 70,000
4 Property, Plant & Equipment and Intangible Assets
Machinery 3,84,000 2,15,000
Less: Accumulated Depreciation (48,000) (23,000)
3,36,000 1,92,000
Additional Information:
(i) Additional loan was taken on 1st July, 2024. (ii) Tax of `53,000 was paid during the year.
Calculate Cash Flow operating activities. Show your workings clearly.
[Ans. Net cash used in operating activities `67,500]
Q.6 From the following Balance Sheet of JY Ltd. as at 31st March 2025, Calculate cash flow from operating activities.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 5,00,000 5,00,000
(b) Reserves and Surplus (Balance in Statement of P/L) 1,00,000 (25,000)
2. Non-Current Liabilities
Long-term Borrowings (10% Debentures) 2,50,000 1,50,000
3. Current Liabilities
(a) Short-term Borrowings 1,50,000 1,00,000
(b) Short-term Provisions (Provision for Tax) 2,00,000 1,25,000
Total 12,00,000 8,50,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 1 6,00,000 4,50,000
2. Current Assets
(a) Trade Receivables 2,75,000 2,25,000
(b) Cash and Cash Equivalents 1,25,000 75,000
(c) Short-term Loans and Advances 2,00,000 1,00,000
Total 12,00,000 8,50,000
Notes to accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant & Equipment:
Machinery 7,37,500 5,25,000
Less: Accumulated Depreciation (1,37,500) (75,000)
6,00,000 4,50,000
Additional Information: `1,00,000, 10% debentures were issued on 31.3.2025.
[Ans. `2,27,500]
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.33
Q.7 From the following Balance Sheet of PP Ltd. as at 31st March, 2025, calculate Cash Flows from Operating Activities :
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES:
1. Shareholder’s Funds
(a) Share Capital (Equity Share Capital) 70,00,000 50,00,000
(b) Reserves and Surplus (Balance in the Statement of Profit and Loss) 10,00,000 8,00,000
2. Non-Current Liabilities: Long-term Borrowings (6% Debentures) 20,00,000 15,00,000
3. Current Liabilities: (a) Trade Payables 2,00,000 1,00,000
(b) Short-term Provisions (Provision for Tax) 50,000 80,000
Total 1,02,50,000 74,80,000
II. ASSETS:
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment (Land and Building) 65,00,000 40,00,000
(ii) Intangible Assets (Goodwill) 2,00,000 3,00,000
(b) Long-term Loans and Advances 10,00,000 15,00,000
2. Current Assets: (a) Inventories 6,00,000 7,00,000
(b) Trade Receivables 5,00,000 3,00,000
(c) Cash and Cash Equivalents 14,50,000 6,80,000
Total 1,02,50,000 74,80,000
Additional Information : ` 90,000 interest was paid on 6% debentures.
[Ans. `3,60,000]
Q.8 Calculate ‘Cash Flows from Operating Activities’ for the year ended 31st March, 2025:
Date Particulars L.F. 31.3.2025 (`) 31.3.2024 (`)
I. Equity and Liabilities:
1. Shareholders Funds
(a) Share Capital 7,50,000 7,00,000
(b) Reserves and Surplus (Balance in Statement of P&L) 1,25,000 55,000
2. Non-Current Liabilities
Long-term Borrowings 1,00,000 62,500
3. Current Liabilities
(a) Short-term Borrowings (Bank Overdraft) 6,000 5,000
(b) Trade Payables 7,500 41,500
(c) Short-term Provisions (Provision for Tax) 9,000 5,500
Total 9,97,500 8,69,500
II. Assets:
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets
(a) Property, Plant and Equipment 1 9,30,000 8,05,000
(b) Intangible Assets (Patents) 25,000 15,000
2. Current Assets
(a) Current Investments 4,000 2,500
(b) Inventories 18,500 29,500
(c) Trade Receivables 13,000 11,500
(d) Cash and Cash Equivalents 7,000 6,000
Total 9,97,500 8,69,500
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant and Equipment
Machinery 10,00,000 8,50,000
Less: Accumulated Depreciation (70,000) (45,000)
9,30,000 8,05,000
7.34 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Additional Information: Tax paid during the year amounted to `6,500.

[Ans. `74,000]
Q.9 From the following Balance Sheet of Dreams Converge Ltd. as at 31.3.2025 and 31.3.2024, Calculate Cash from
operating activities. Show your workings clearly.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITY
1. Shareholders’ Fund
a. Share Capital 7,00,000 5,00,000
b. Reserves and Surplus 3,50,000 2,00,000
2. Non-Current Liabilities
Long Term Borrowings 50,000 1,00,000
3. Current Liabilities
a. Trade Payables 1,22,000 1,05,000
b. Short term Provisions (Provision for tax) 50,000 30,000
Total 12,72,000 9,35,000
II. ASSETS
1. Non Current Assets:
a. Property, Plant & Equipment and Intangible Assets:
i. Property, Plant & Equipment 1 5,00,000 5,00,000
ii. Intangible Assets 2 95,000 1,00,000
b. Non-current Investments 1,00,000 Nil
2. Current Assets
a. Inventories 1,30,000 55,000
b. Trade Receivables 1,47,000 80,000
c. Cash and Cash Equivalents 3,00,000 2,00,000
Total 12,72,000 9,35,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1 Property, Plant & Equipment
Machinery 2,80,000 2,00,000
Less: Accumulated depreciation (1,00,000) (80,000)
Equipment 3,20,000 3,80,000
2 Intangible Assets
Goodwill 95,000 1,00,000
Additional Information: Machinery costing `80,000 (accumulated depreciation `20,000) was sold at a loss of `18,000.
[Ans. `1,68,000]
Q.10 From the following information, calculate cash flow from operating activities:
Statement of Profit and Loss for the year ended on March 31, 2025
Particulars Amount (`)
I. Revenue from operations 2,20,000
II. Expenses
Cost of materials consumed 1,20,000
Employees benefits expenses 30,000
Depreciation 20,000
Finance cost 8,000
Total expenses 1,78,000
III. Profit before tax (I – II) 42,000
IV. Income tax (10,000)
V. Profit after tax (III– IV) 32,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.35
Additional information:
Particulars 1.4.2024 (`) 31.3.2025 (`)
Trade receivables 33,000 36,000
Trade payables 17,000 15,000
Inventory 22,000 27,000
Outstanding employees benefits expenses 2,000 3,000
Prepaid insurance 5,000 5,500
Income tax outstanding 3,000 2,000
[Ans: ` 49,500]
Q.11 Calculate cash flows from operating activities from the following information.
Statement of Profit and Loss for the year ended March 31, 2025
Particulars Note No. Amount (`)
(i) Revenue from Operations 50,000
(ii) Other Income 1. 5,000
(iii) Total Revenue (i+ii) 55,000
(iv) Expenses:
Cost of Materials Consumed 15,000
Finance cost (Interest payments) 10,000
Depreciation and Amortisation Expenses 2. 7,000
Other Expenses 3. 13,000
Total Expenses 45,000
(v) Profit before Tax (iii–iv) 10,000
(vi) Less: Tax (8,000)
(vii)Profit after tax (v–vi) 2,00,000
Notes to Accounts:
Note No. Particulars Amount (`)
1. Other Income
Profit on sale on machinery 2,000
Income tax refund 3,000
5,000
2. Depreciation and Amortisation Expenses
Depreciation 5,000
Goodwill amortised 2,000
7,000
3. Other Expenses
Rent paid 10,000
Loss on sale of equipment 3,000
13,000
Additional Information:
Particulars 1.4.2024 (`) 31.3.2025 (`)
Provision for Taxation 10,000 13,000
Rent Payable 2,000 2,500
Trade Payables 21,000 25,000
Trade Receivables 15,000 21,000
Inventories 25,000 22,000
[Ans. `24,500]
7.36 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Cash Flows from Investing Activities E

Calculation of Cash Flows from Investing Activities
Particulars Details (`) Amount (`)
(i) Proceeds from Sale of Tangible Fixed Assets xxx
(ii) Proceeds from Sale of Non-Current Investments xxx
(iii) Interest received, Dividend received and Rent received xxx
(iv) Purchase of Fixed Tangible Assets and Fixed Intangible Assets like goodwill (xxx)
(v) Purchase of Non-Current Investments (xxx)
(vi) Capital Gain Tax paid (xxx)
Net Cash from (/used in) Investing Activities xxx/(xxx)

ILLUSTRATIONS — Cash flows from Investing Activities

ILLUSTRATION 8
Calculate Cash Flows from Investing Activities from the following information:
Particulars 31.3.2025 (`) 31.3.2024 (`)
Investments in Land 16,00,000 6,00,000
10% Long term Investments 2,50,000 4,00,000
Plant and Machinery 3,00,000 2,00,000
Goodwill 80,000 15,000
Additional Information: A machine costing `40,000 (depreciation provided thereon `12,000) was sold for `35,000.
Depreciation charged during the year was `60,000.

Solution: Calculation of Cash flows from Investing Activities:

Particulars Details (`) Amount (`)
Purchase of Land (10,00,000)
Sale of Long Term Investments 1,50,000
Interest on Long Term Investments 40,000
Purchase of Plant and Machinery (1,88,000)
Sale of Plant and Machinery 35,000
Purchase of Goodwill (65,000)
Net Cash used in investing activities (10,28,000)
Working Notes:
Dr. Plant and Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 2,00,000 By Bank A/c (sale) 35,000
To Statement of Profit and Loss 7,000 By Depreciation 60,000
(gain on sale) By Balance c/d 3,00,000
To Bank A/c (Purchase) (Bal. fig.) 3,46,000
3,95,000 3,95,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.37

Explanation
1. Book value of land is increase in from `6,00,000 to `16,00,000. It means land costing `10,00,000 purchased during
the year 2024-25, i.e. outflow of cash from investing activities.
2. Book value of 10% long-term investments is decreasing from `4,00,000 to `2,50,000. It means there was sale of long-
term investments `1,50,000 during the year, i.e. cash inflow from investing activities.
3. Since date of sale of 10% long-term investments is not given, we may assume that sale took place on 31 March, 2025
i.e. at the end of the current year. Therefore, balance of 10% long-term investments was `4,00,000 throughout the
year. Thus, interest received on long-term investments for the whole year (assuming that the whole amount of interest
income is received) = 10% of `4,00,000 = `40,000 which is cash inflow from investing activities.
4. Value of goodwill is increase in from `15,000 to `80,000, i.e. purchase of goodwill = `65,000 i.e. cash outflow from
investing activities.

ILLUSTRATION 9
From the following information calculate the Cash from Investing Activities
Particulars 31.3.2024 (`) 31.3.2025 (`)
Machinery (Cost) 20,00,000 28,00,000
Accumulated Depreciation 4,00,000 6,50,000
Additional Information:- (i) Machinery costing ` 50,000 (Book Value `40,000) was lost by fire and insurance claim

of `32,000 was received. (ii) Depreciation charged during the year was `3,50,000. (iii) A part of Machinery costing
`2,50,000 was sold at a loss of `20,000.
Solution: Cash Flow From Investing Activities
Sale of Machinery ` 1,40,000
Claim received from Insurance Company ` 32,000
Machinery Purchased ` (11,00,000)
Cash Outflow from Investing Activities ` (9,28,000)
Working Notes:
Dr. Accumulated Depreciation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Machinery A/c (accumulated depreciation 10,000 By Balance b/d 4,00,000
on machine damaged) By Depreciation A/c (Depreciation Charged 3,50,000
To Machinery A/c (accumulated depreciation 90,000 during the year)
on machine sold)
To Balance c/d 6,50,000
7,50,000 7,50,000
Dr Machinery A/c Cr
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 20,00,000 By Accumulated Depreciation A/c 10,000
To Bank A/c (Balancing figure) 11,00,000 By Insurance Company A/c 32,000
By Loss by Fire A/c 8,000
By Bank A/c 1,40,000
By Loss on Sale A/c 20,000
By Accumulated Depreciation A/c 90,000
By Balance c/d 28,00,000
31,00,000 31,00,000
7.38 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

ILLUSTRATION 10
Calculate Cash Flows from Investing Activities from the following information. Show your workings clearly.
Particular 31.3.2025 (`) 31.3.2024 (`)
Investments in shares of Miko Ltd. 18,00,000 8,00,000
12% Long Term Investments 1,50,000 5,00,000
Plant and Machinery 6,00,000 4,00,000
Goodwill 1,20,000 40,000
Additional information:
(i) 9% dividend was received from Miko Ltd.
(ii) A machine of book value `35,000 (depreciation provided thereon `15,000) was sold for `40,000. Depreciation charged
during the year was `55,000.
Solution: Calculation of Cash flows from Investing Activities:
Particulars Amount (`)
Sale of Plant and Machinery 40,000
Purchase of Plant and Machinery (2,90,000)
Sale of Long Term Investments 3,50,000
Interest received on Investments 60,000
Investments in Shares of Miko Ltd. (10,00,000)
Dividend received from Miko Ltd. 72,000
Goodwill purchased (80,000)
Net cash used in Investing Activities (8,48,000)
Working Notes: 1. Dr. Plant and Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 4,00,000 By Bank A/c (sale) 40,000
To Statement of Profit and Loss 5,000 By Depreciation 55,000
To Bank A/c (Purchase) (Bal. fig.) 2,90,000 By Balance c/d 6,00,000
6,95,000 6,95,000

Explanation
It is assumed that new investments in Shares of Miko Ltd. were made and Long Term Investments were sold on 31st March
2025. In that case, Interest on long-term investments received = 12% of `5,00,000 = `60,000.
Dividend received on shares of Miko Ltd. = 9% of `8,00,000 = `72,000

Competency Based Illustrations — Cash flows from Investing Activities

ILLUSTRATION 11
From the following Particulars of Bharat Gas Limited, calculate Cash Flows from Investing Activities. Show the workings
clearly by preparing the ledger accounts.
Balance Sheet of Bharat Gas Ltd., as on 31 March, 2024 and 31 March 2025 (an extract)
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
II. ASSETS
1. Non-current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 1 12,40,000 10,20,000
(ii) Intangible assets 2 4,60,000 3,80,000
(b) Non-current investments 3 3,60,000 2,60,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.39

Notes to accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant & Equipment
Machinery 12,40,000 10,20,000
2. Intangible Assets
Goodwill 3,00,000 1,00,000
Patents 1,60,000 2,80,000
4,60,000 3,80,000
3. Non-current Investments
10% long term investments 1,60,000 60,000
Investment in land 1,00,000 1,00,000
Shares of Amartex Ltd. 1,00,000 1,00,000
3,60,000 2,60,000
Additional Information:
(a) Patents were written-off to the extent of `40,000 and some Patents were sold at a profit of `20,000.
(b) A Machine of book value `80,000 (Depreciation provided thereon `60,000) was sold for `50,000. Depreciation charged
during the year was `1,40,000.
(c) On 1 April, 2024, 10% Investments were purchased for `1,80,000 and some Investments were sold at a profit of
`20,000. Interest on Investment was received on March 31, 2025.
(d) Amartax Ltd., paid Dividend @ 10% on its shares.
(e) A plot of Land had been purchased for investment purposes and let out for commercial use and rent received `30,000.
Solution: Calculation of Cash flows from Investing Activities:
Particulars Amount (`)
Proceeds from Sale of Patents 1,00,000
Payment of purchase of New Machinery (4,40,000)
Proceeds from sale of New Machinery 50,000
Proceeds from sale of 10% Long-term Investments 1,00,000
Payment for purchase of 10% Long-term Investments (1,80,000)
Interest received on 10% Long-term Investments 16,000
Dividend received on Shares of Amartex Ltd. 10,000
Rent received 30,000
Payment for purchase of goodwill (2,00,000)
Net cash used in Investing Activities (5,14,000)

Working Notes:
(i) Dr. Patents A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 2,80,000 By Amortization 40,000
To Statement of Profit & Loss 20,000 By Bank A/c (Sale of Patents) 1,00,000
(Profit on sale) By Balance c/d 1,60,000
3,00,000 3,00,000
(ii) Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Bal. b/d 10,20,000 By Depreciation 1,40,000
To Bank A/c (Purchase of new machine) 4,40,000 By Bank A/c (Sale) 50,000
By Statement of P & L (Loss on sale) 30,000
By Balance c/d 12,40,000
14,60,000 14,60,000
7.40 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

3. Dr. 10% Long-term Investments A/c Cr.

Particulars Amount (`) Particulars Amount (`)
To Bal. b/d 60,000 By Bank A/c (Sale) (80,000 + 20,000) 1,00,000
To Bank A/c (Purchase) 1,80,000 By Balance c/d 1,60,000
To Statement of Profit and Loss 20,000
(Profit on sale)
2,60,000 2,60,000

Explanation
1. On 31.3.2024, long-term investments were `60,000. On 1 April, 2024, new investments purchased `1,80,000 and
investments costing `80,000 were sold at a profit of `20,000. Therefore, value of investments throughout the year
remained at `1,60,000 (i.e. 60,000 + 1,80,000– 80,000). Thus, interest on investments received for the whole year @
10% p.a. will be `16,000.
2. Interest on Long-term Investment received = 10% of `1,60,000 = `16,000
3. Dividend received on shares of Amartex Ltd. = 10% of `1,00,000 = `10,000

ILLUSTRATION 12
Following is the extract of the Balance Sheet of a company as at 31.3.2025:
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
1. Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 1 21,40,000 17,00,000
Notes to Accounts
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant & Equipment
Machinery 25,40,000 20,00,000
Less : Accumulated Depreciation (4,00,000) (3,00,000)
21,40,000 17,00,000
Additional Information: During the year a piece of machinery costing `48,000 on which accumulated depreciation was
`32,000 was sold for `12,000.
Calculate cash flows from investing activities showing your workings clearly.
[Ans. Net cash used in Investing Activities = `5,76,000]
Solution: Calculation of Cash Flows from Investing Activities:
Particulars Details (`) Amount (`)
Purchase of machinery (5,88,000)
Sale of machinery 12,000
Net Cash used in investing activities (5,76,000)
Working Notes:
Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 20,00,000 By Bank A/c (sale) 12,000
To Bank A/c (purchase) 5,88,000 By Accumulated Depreciation 32,000
By Loss on sale of machinery 4,000
By Balance c/d 25,40,000
25,88,000 25,88,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.41
Dr. Accumulated Depreciation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Machinery A/c 32,000 By Balance b/d 3,00,000
To Balance c/d 4,00,000 By Statement of Profit & Loss 1,32,000
(depreciation provided during the year)
4,32,000 4,32,000

ILLUSTRATION 13
From the following Particulars, calculate cash flows from investing activities:
Particulars Purchased (`) Sold (`)
Plant 4,40,000 50,000
Investments 1,80,000 1,00,000
Goodwill 2,00,000 –
Patents – 1,00,000
Interest received on debentures held as investment `60,000. Dividend received on shares held as investment `10,000. A plot
of land had been purchased for investment purposes and was let out for commercial use and rent received `30,000.
Solution: Calculation of Cash Flows from investing activities:
Particulars Amount (`)
Purchase of Plant (4,40,000)
Sale of Plant 50,000
Purchase of investments (1,80,000)
Sale of investment 1,00,000
Purchase of goodwill (2,00,000)
Sale of patents 1,00,000
Interest received on debentures held as investment 60,000
Dividend received on shares 10,000
Rent received on plot of land 30,000
Net cash used in investing activities (4,70,000)

Multiple Choice Questions (MCQs) 7E

Q.1 Purchased (`) Sold (`)
Investments 2,00,000 1,80,000
Goodwill 3,00,000 —
From the above information, ‘Cash flows from investing activities’ will be:
(a) Inflow `3,20,000 (b) Outflow `3,20,000 (c) Outflow `20,000 (d) Inflow `20,000
Q.2 Which of the following transactions will result into cash outflow from investing activities?
(i) Acquired machinery for `2,50,000 paying 20% by cheque and executing a bond for the balance payable.
(ii) Paid `2,50,000 to acquire shares in Informa Tech. and received a dividend of `50,000 after acquisition.
(iii) Sold machinery of original cost `2,00,000 with an accumulated depreciation of `1,60,000 for `60,000.
(iv) The installment paid `73,000 in respect of a machinery acquired on deferred payment basis. The installment
includes `13,000 interest.
(a) Only (i) (b) Only (i) and (ii) (c) Only (i), (ii) and (iii) (d) Only (i), (ii) and (iv)
Q.3 Which of the following is not an investing cash flow?
(a) Purchase of marketable securities for `25,000 cash. (b) Sale of land for `28,000 cash.
(c) Sale of 2,500 shares (held as investment) for `15 each. (d) Purchase of equipment for `500 cash.
7.42 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Q.4 Which of the following transactions involve cash flows from investing activities?
(i) Trading commission received
(ii) Proceeds from sale of patents
(iii) Employee benefits expenses paid
(iv) Interest received on debentures held as investments by a financial enterprise
(a) Only (ii) (b) Only (iv) (c) Only (ii) and (iv) (d) Only (i), (ii) and (iv)
Q.5 M/s Mevo and Sons, a bamboo pens producing company, purchased a machinery for `9,00,000. It received dividend
of `70,000 on investment in shares. The company also sold an old machine of the book value of `79,000 at a loss of
`10,000. The Cash flow from Investing Activities will be:
(a) Net Cash outflow from Investing Activities `8,31,000 (b) Net Cash outflow from Investing Activities `7,61,000
(c) Net Cash inflow from Investing Activities `8,31,000 (d) Net Cash inflow from Investing Activities `7,61,000
Q.6 The following information is given for Nova Ltd.:
Particulars 31.3.2025 (`) 31.3.2024 (`)
Machinery (At cost) 5,00,000 3,00,000
Accumulated Depreciation on machinery 1,00,000 80,000
During the year, a machine costing `50,000 on which the accumulated depreciation was `35,000 was sold for `12,000.
What is the amount of new machinery purchased during the year?
(a) `2,00,000 (b) `2,35,000 (c) `2,50,000 (d) `2,47,000
Q.7 Surender Ltd. provides the following information:
Particulars 1.4.2024 (`) 31.3.2025 (`)
Machinery 50,000 60,000
Accumulated depreciation 25,000 15,000
A machine of book value `10,000 with accumulated depreciation `8,000 was sold for `13,000. Cash flows from
investing activities will be:
(a) Net cash used in investing activities `28,000 (b) Net cash used in investing activities `15,000
(c) Net cash from investing activities `13,000 (d) Net cash from investing activities `15,000
Q.8 Assertion (A): Fine Garments Ltd. is engaged in the export of ready made garments. The company purchased a
machinery of `10,00,000 for the use in packaging of such garments. The cash flow due to the purchase of machinery
will be cash flow from investing activities.
Reason (R): Fine Garments has bought the machinery for use in the business not for sale.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.9 Assertion (A): Finserve Ltd is carrying on a Mutual Fund business. It invested `30,00,000 in shares and `15,00,000
in debentures of various companies during the year. It received `3,00,000 as dividend and interest. Cash flows from
investing activities will be zero.
Reason (R): Cash flows from investing activities will be (`42,00,000).
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.

A NSWERS
1. (b) 2. (d) 3. (a) 4. (a) 5. (b) 6. (c) 7. (b) 8. (b)
9. (a)
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.43

Numerical Ques
Questions
tions (for Practice) 7E
Q.1 Calculate Cash Flows from Investing Activities from the following information:
Particulars 31-03-2025 (`) 31-03-2024 (`)
Plant and Machinery 4,10,000 3,00,000
Goodwill 1,80,000 80,000
Additional Information : A machine costing `85,000 (depreciation provided thereon `15,000) was sold for `62,000.
Depreciation charged during the year amounted to `48,000.
[Ans. `(2,66,000)]
Q.2 From the following Information, calculate cash flows from investing activities:
Particulars 31-03-2023 (`) 31-03-2024 (`)
Machinery at cost 5,00,000 9,00,000
Accumulated Depreciation 3,00,000 4,50,000
During the year 2023-24, a machine costing `2,00,000 was sold at a profit of `1,50,000. Depreciation charged on
machinery during the year amounted to `2,50,000.
[Ans. `(3,50,000)]
Q.3 Calculate Cash Flows from Investing Activities from the following information:
Particulars 31-03-2025 (`) 31-03-2024 (`)
Land 22,00,000 12,00,000
Long term Investments 5,00,000 8,00,000
Plant and Machinery 6,00,000 4,00,000
Goodwill 1,60,000 30,000
Additional Information: A machine costing `80,000 (depreciation provided thereon `24,000) was sold for `75,000.
Depreciation charged during the year was `90,000.
[Ans. `(11,01,000)]
Q.4 From the following Particulars of Ruparel Ltd., calculate ‘Cash Flow from Investing Activities’. Show your working clearly.
Particulars 31.03.2025 (`) 31.03.2024 (`)
Goodwill 3,00,000 1,00,000
Patents 1,60,000 2,80,000
Machinery 12,40,000 10,20,000
10% Investments 1,60,000 60,000
Additional Information:
(i) Patents of ` 1,20,000 were sold at book value.
(ii) Depreciation charged during the year on machinery was ` 1,40,000. A machine having a book value of ` 80,000
was sold for ` 50,000.
(iii) On 31.03.2025, 10% investments were purchased for ` 1,80,000 and some investments were sold at a profit of
` 20,000.
Interest received on investments was ` 6,000.
[Ans. `(5,44,000)]
Q.5 Calculate Cash Flows from Investing Activities from the following information:
Particulars 31-03-2025 (`) 31-03-2024 (`)
Investments in Shares of Delko Ltd. 26,00,000 16,00,000
11% Long term Investments 3,00,000 10,00,000
Plant and Machinery 12,00,000 9,00,000
Goodwill 1,40,000 2,00,000
Additional Information:
(i) 10% dividend was received from Delko Ltd.
(ii) A machine costing `70,000 (depreciation provided thereon `10,000) was sold for `60,000. Depreciation charged
during the year was `50,000.
[Ans. Net cash from Investing Activities = `6,20,000]
7.44 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Cash Flows from Financing Activities F

Calculation of Cash Flows from Financing Activities
Particulars Details (`) Amount (`)
(a) Proceeds from issue of Share Capital (both equity and preference shares) xxx
(b) Proceeds from Long-term Borrowings (e.g., debentures, bonds, long-term loan from xxx
bank, x% deposits)
(c) Securities Premium (Premium on issue of shares or debentures) xxx
(d) Proceeds from Bank Overdraft raised xxx
(e) Redemption of Debentures or Preference Shares (including premium on redemption) (xxx)
(f ) Repayment of Long-term Loan from Bank/x% Deposits (xxx)
(g) Buy Back of Equity Shares (xxx)
(h) Dividend Paid (both final dividend and interim dividend) (xxx)
(i) Interest on Long-term Borrowings Paid (e.g. interest on debentures, long-term loan (xxx)
from bank, x% deposits)
(j) Dividend Tax paid (xxx)
Net Cash from (/used in) Financing Activities xxx / (xxx)

ILLUSTRATION 14
From the following Information, calculate cash flows from financing activities:
Particulars 31-03-2024 (`) 31-03-2025 (`)
Equity Share Capital 35,00,000 45,00,000
Securities Premium – 1,00,000
Bank Loan 17,50,000 12,50,000

Solution: Cash flows from Financing Activities

Particulars Amount (`)
Proceeds from issue of equity shares 10,00,000
Securities Premium 1,00,000
Repayment of Bank Loan (5,00,000)
Net Cash from Financing activities 6,00,000

ILLUSTRATION 15
Calculate ‘Cash Flows From Financing Activities from the following information:
Particulars 31-03-2025 (`) 31-03-2024 (`)
Equity Share Capital 15,00,000 10,00,000
Bank Overdraft 90,000 1,20,000
Loan from bank 7,00,000 6,00,000
Additional Information : (i) Interest paid on bank loan amounted to `60,000. (ii) Dividend paid `1,10,000.
Solution: Cash Flow from Financing Activities
Particulars Amount (`)
Issue of Equity Share Capital 5,00,000
Bank Overdraft Repaid (30,000)
Loan taken from Bank 1,00,000
Interest Paid on Bank Loan (60,000)
Dividend Paid (1,10,000)
Net Cash Inflow from Financing Activities 4,00,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.45

ILLUSTRATION 16
From the following information, calculate cash flows from financing activities. Show your workings clearly.
Particulars 01-04-2024 (`) 31-03-2025 (`)
Equity Share Capital 10,00,000 8,00,000
Long-term Loans 2,00,000 2,50,000
During the year, the company repaid a loan of `1,00,000.
Solution: Calculation of Cash flows from Investing Activities:
Particulars Amount (`)
Buy Back of Equity Shares (2,00,000)
Proceeds from long-term loans raised 1,50,000
Repayment of long-term loans (1,00,000)
Net cash outflow from Financing Activities (1,50,000)
Working Notes:
Dr. Long-term Loans Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Bank A/c (loan repaid) 1,00,000 By Balance b/d 2,00,000
To Balance c/d 2,50,000 By Bank A/c (new loan raised) 1,50,000
3,50,000 3,50,000

ILLUSTRATION 17
From the following Information, calculate cash flows from investing and financing activities:
Particulars 31.3.2024 (`) 31.3.2025 (`)
Machinery at cost 5,00,000 9,00,000
Accumulated Depreciation 3,00,000 4,50,000
Equity Share Capital 35,00,000 45,00,000
Securities Premium – 1,00,000
Bank Loan 17,50,000 12,50,000
During the year 2024-25, a machine costing `2,00,000 was sold at a profit of `1,50,000. Depreciation charged on machinery
during the year amounted to `2,50,000.

Solution: Net cash used in Investing Activities = `3,50,000; Net cash from Financing Activities = `6,00,000
Cash flows from Investing Activities
Particulars Amount (`)
Proceeds from Sale of machine 2,50,000
Payments of purchase of new machine (6,00,000)
Net Cash used in Investing activities (3,50,000)
Working Notes:
Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 5,00,000 By Accumulated dep. A/c 1,00,000
To Statement of P & L 1,50,000 By Bank A/c 2,50,000
To Bank A/c (purchase) 6,00,000 By Balance c/d 9,00,000
12,50,000 12,50,000
7.46 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Dr. Accumulated Depreciation A/c Cr.

Particulars Amount (`) Particulars Amount (`)
To Machine A/c 1,00,000 By Bal. b/d 3,00,000
To Balance c/d 4,50,000 By Statement of P & L 2,50,000
5,50,000 5,50,000
Cash flows from Financing Activities:
Particulars Amount (`)
Proceeds from issue of equity shares 10,00,000
Securities Premium 1,00,000
Repayment of Bank Loan (5,00,000)
Net Cash from Financing activities 6,00,000

Multiple Choice Questions (MCQs) 7F

Q.1 Statement I: Financing activities relate to long term funds or capital of an enterprise.
Statement II: Separate disclosure of cash flows arising from financing activities is important because they represent the
extent to which expenditures have been made for resources intended to generate future income and cash flows.
(a) Both Statement I and Statement II are correct. (b) Both Statement I and Statement II are incorrect.
(c) Statement I is incorrect and Statement II is correct. (d) Statement I is correct and Statement II is incorrect.
Q.2 Equity and liabilities 31.3.2024 (`) 31.3.2025 (`)
12% Debentures 2,00,000 1,60,000
Interest on debentures is paid on half yearly basis on 30th September and 31st March each year. Debentures were
redeemed on 30th September 2024. How much amount will be shown in Financing Activity for Cash Flow Statement
prepared on 31st March 2025?
(a) Outflow `40,000 (b) Inflow `42,600 (c) Outflow `61,600 (d) Outflow `64,000
Q.3 Calculate ‘Cash Flows from Financing Activities’ for the year ended 31st March, 2025 from the extract of Balance Sheet
of Kamna Ltd. as at 31st March, 2025.
Particulars Note No. 31.3.2024 (`) 31.3.2025 (`)
I. Equity and Liabilities
1. Shareholders’ funds
(a) Share Capital 12,00,000 11,00,000
(b) Reserves and surplus 3,00,000 2,00,000
2. Non-Current Liabilities
Long-term borrowings 2,40,000 1,70,000
3. Current Liabilities
Trade payables 2,20,000 2,81,000
Total 19,60,000 17,51,000
(a) Outflow (`1,00,000) (b) Inflow `70,000 (c) Outflow (`1,70,000) (d) Inflow `30,000
Q.4 Pranjal Ltd. provides the information:
Particulars 1.4.2024 (`) 31.3.2025 (`)
Long-term loans 2,00,000 2,50,000
During the year 2024-25, the company repaid a loan of `1,00,000.
Cash flows from financing activities will be:
(a) Net cash used in financing activities `50,000 (b) Net cash used in financing activities `1,00,000
(c) Net cash from financing activities `50,000 (d) Net cash from financing activities `1,50,000

A NSWERS
1. (d) 2. (c) 3. (c) 4. (c)
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.47

Preparation of Cash Flow Statement G

Particulars Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit/Loss before Tax and Extraordinary Items
Add: Non-cash and non-operating expenses for which deductions already made in Statement of P&L
• Depreciation
• Intangible assets amortised e.g., Goodwill/Patents written-off
• Loss on sale of property, plant and equipment or non-current investments
• Finance Cost (i.e. Interest paid on Long-term Borrowings)
• Discount or loss on issue of debentures/Preliminary expenses written off
• Provision made for doubtful debts
• Premium on redemption of debentures or preference shares
Less: Non-operating incomes for which additions already made in Statement of P&L
• Interest received or Dividend received or Rent received
• Profit on sale of property, plant and equipment or non-current investments
• Excess provision for depreciation/doubtful debts written back
Operating Profit before working capital changes
Add: Decrease in current assets (other than current investments, cash and cash equivalents and short-term
loans and advances), and Increase in current liabilities (other than short-term borrowings and short-
term provisions)
Less: Increase in current assets (other than current investments, cash and cash equivalents and short-term
loans and advances), and Decrease in current liabilities (other than short-term borrowings and
short-term provisions)
Cash Generated from (or used in) Operating Activities before Tax and Extraordinary Items
Less: Income Tax paid (Tax on normal profits/operating profits)
Add: Income Tax Refund received
Cash Generated from (or used in) Operating Activities after Tax but before Extraordinary Items
+/– Effects of Extraordinary Items (+ Insurance proceeds from famine settlement/earthquake disaster
settlement – Loss of stock of goods due to theft/fire)
A. Net Cash from (or used in) Operating Activities
II. CASH FLOWS FROM INVESTING ACTIVITIES
(i) Proceeds from Sale of property, plant and equipment
(ii) Proceeds from Sale of Non-Current Investments
(iii) Interest received or Dividend received or Rent received
(iv) Purchase of property, plant and equipment and Intangible Assets
(v) Purchase of Non-Current Investments
(vi) Capital Gain Tax paid
B. Net Cash from (used in) Investing Activities
III. CASH FLOWS FROM FINANCING ACTIVITIES
(1) Proceeds from issue of Share Capital (both equity and preference)
(2) Proceeds from Long-term Borrowings (debentures, long-term loans, x% deposits)
(3) Securities Premium
(4) Proceeds from Bank Overdraft raised
(5) Redemption of Debentures/Preference Shares (including premium on redemption)
(6) Repayment of Long-term Loans/x% Long-term deposits
(7) Buy Back of Equity Shares
(8) Dividend Paid (both final dividend and interim dividend)
(9) Finance Cost (i.e. Interest paid on Long-term Borrowings)
(10) Dividend Tax paid
7.48 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

C. Net Cash from (used in) Financing Activities

NET INCREASE (OR DECREASE) IN CASH & CASH EQUIVALENTS (A+B+C)
Add: Cash and Cash Equivalents in the beginning
Cash in hand
Cash at bank
Current Investments (marketable securities)
Cash and cash Equivalents at the end of the year
Cash in hand
Cash at bank
Current Investments (marketable securities)

ILLUSTRATIONS — Preparation of Cash Flow Statement

ILLUSTRATION 18
From the following Balance Sheets of Xerox Ltd., prepare cash flow statement. Show your workings clearly.
Particulars Note No. 31-03-2025 (`) 31-03-2024 (`)
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) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 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) Current Investments 70,000 50,000
(b) Inventories 1,80,000 1,00,000
(c) Trade Receivables 2,00,000 1,50,000
(d) Cash and cash equivalents 3,05,000 2,90,000
Total 25,45,000 19,90,000
Notes to Accounts:
Particulars 31-03-2025 (`) 31-03-2024 (`)
1. Long-term borrowings:
(i) 10% Debentures – 2,00,000
(ii) Bank loan 1,00,000 –
1,00,000 2,00,000
2. Property, Plant & Equipment
(i) Land and building 6,50,000 8,00,000
(ii) Plant and machinery 3,60,000 4,00,000
10,10,000 12,00,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.49

Additional information:
1. Dividend paid during the year `1,50,000.
2. Income tax paid during the year includes `15,000 on account of dividend tax.
3. Land and building book value `1,50,000 was sold at a profit of 10%.
Solution: Cash Flow Statement of Xerox Ltd. for the year ending 31.3.2025
Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before Taxation and Extraordinary Items (Note 1) 3,95,000
Adjustments for non-cash and non-operating items:
+ Depreciation on plant and machinery 40,000
+ Goodwill written-off 20,000
– Profit on sale of land and building (15,000)
+ Interest on debentures (10% of `2,00,000) 20,000
= Operating profit before working capital changes 4,60,000
– Decrease in Trade Payables (10,000)
– Increase in Trade Receivables (50,000)
– Increase in Inventories (80,000)
= Cash generated from Operations before tax 3,20,000
– Income Tax Paid (Note 2) (65,000)
A. Net Cash from Operating Activities 2,55,000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Land and Building 1,65,000
Purchase of Non-Current Investments (6,00,000)
B. Net 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)
Interest on debentures paid (20,000)
Proceeds from raising Bank Loan 1,00,000
Dividend Paid (1,50,000)
Dividend Tax Paid (15,000)
C. Net Cash from Financing Activities 2,15,000
NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C) 35,000
Add: Cash and Cash Equivalents in the beginning
Current Investments 50,000
Cash and cash equivalents 2,90,000 3,40,000
Cash and Cash Equivalent at the end
Current Investments 70,000
Cash and cash equivalents 3,05,000 3,75,000
Working Notes: 1. Net profit before tax = Net profit earned during the year after tax and dividend + Provision for tax
+ Dividend paid = `1,50,000 + `95,000 + `1,50,000 = `3,95,000
2. Total tax paid during the year `80,000 – Dividend tax paid (cash outflow from financing activities) `(15,000) = Income
tax paid (cash outflow from operating activities) `65,000

Explanation
1. It is assumed that decrease in value of plant and machinery is due to depreciation `40,000.
2. It is assumed that 10% debentures were redeemed on 31.3.2025. So, interest paid = 10% of `2,00,000 = `20,000
7.50 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

ILLUSTRATION 19
From the following Balance Sheet of Mohan Ltd., prepare cash flow Statement. Show your workings clearly.
Balance Sheet of Mohan Ltd., as at 31st March 2024 and 31st March 2025
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Equity share capital 3,00,000 2,00,000
(b) Reserves and surplus 2,00,000 1,60,000
(Balance in Statement of Profit and Loss)
2. Non-current liabilities
(a) Long-term borrowings 1 80,000 1,00,000
3. Current liabilities
Trade payables 1,20,000 1,40,000
Short-term provisions 2 70,000 60,000
Total 7,70,000 6,60,000
II. ASSETS
1. Non-current assets
(a) Property, Plant & Equipment and Intangible Assets
– Property, Plant & Equipment 3 5,00,000 3,20,000
2. Current assets
(a) Inventories 1,50,000 1,30,000
(b) Trade receivables 90,000 1,20,000
(c) Cash and cash equivalents 30,000 90,000
Total 7,70,000 6,60,000
Notes to accounts:
Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Long-term borrowings
8% Debentures 80,000 1,00,000
2. Short-term provisions
Provision for Tax 50,000 45,000
Provision for doubtful debts 20,000 15,000
70,000 60,000
3. Property, Plant & Equipment
Plant and Machinery 6,00,000 4,00,000
Less: Accumulated Depreciation (1,00,000) (80,000)
5,00,000 3,20,000
Additional Information:
1. Machine costing `80,000 on which accumulated depreciation was `50,000 was sold for `20,000.
2. Debentures were redeemed on 31.3.2025 at a premium of 10%.
3. Interim dividend paid during the year `10,000
Solution: Cash Flow Statement of Mohan Ltd. for the year ending 31 March 2025
Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit before Taxation and Extraordinary Items (Note 2) 1,00,000
Adjustments for Non-Cash and Non-Operating Items
(+) Accumulated Depreciation (Note 1) 70,000
(+) Loss on sale of machinery 10,000
(+) Provision for doubtful debts (20,000 – 15,000) 5,000
(+) Interest on debentures paid (8% of `1,00,000) 8,000
(+) Premium on redemption of debentures (10% of `20,000) 2,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.51

= Operating Profit before working capital changes 1,95,000

(–) Decrease in Trade Payables (20,000)
(–) Increase in Inventories (20,000)
(+) Decrease in Trade Receivables 30,000
= Cash generated from operations before tax 1,85,000
Less: Income tax paid (45,000)
A. Net Cash from Operating Activities 1,40,000
II. CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of machinery 20,000
Purchase of plant and machinery (Note 1) (2,80,000)
B. Net Cash used in Investing Activities (2,60,000)
III. CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of equity shares 1,00,000
Redemption of debentures at premium (`20,000 + 2,000) (22,000)
Interest paid on debentures (8,000)
Interim Dividend paid (10,000)
C. Net Cash from Financing Activities 60,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (A+B+C) (60,000)
Add: Opening cash and cash equivalents 90,000
Closing cash and cash equivalents 30,000
Working Notes: 1.
Dr. Plant and Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 4,00,000 By Accumulated Depreciation A/c 50,000
To Bank A/c (Purchase) (Bal. fig.) 2,80,000 By Bank A/c (Sale of Machine) 20,000
By Statement of Profit & Loss 10,000
(Loss on sale of machine)
By Balance c/d 6,00,000
6,80,000 6,80,000

Dr. Accumulated Depreciation A/c Cr.

Particulars Amount (`) Particulars Amount (`)
To Fixed Assets A/c 50,000 By Bal. c/d 80,000
To Bal. c/d 1,00,000 By Statement of Profit & Loss (Bal. fig.) 70,000
1,50,000 1,50,000
2.
Net Profit before Tax: (`)
Net Profit after appropriations (2,00,000 – 1,60,000) 40,000
Add: Provision for Tax 50,000
Add: Interim dividend paid 10,000
1,00,000

Explanation
1. Premium on redemption of debentures is cash outflow from financing activities, but it resulted in decrease in net profit.
Therefore, while calculating cash flow from operating activities, it should be added back to net profit.
2. Provision for doubtful debts is not treated as current liability for calculating cash flow from operating activities. It is a
non-cash expense but it resulted in decrease in net profit. So it is added back to net profit while calculating cash flow
from operating activities because there was no cash outflow.
7.52 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

ILLUSTRATION 20
The following is the Balance Sheet of R.M. Ltd. as at 31st March, 2025. Prepare a Cash Flow Statement.
R.M. Ltd.
Balance Sheet as at 31st March, 2025
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES:
1. Shareholders’ Capital
(a) Share Capital 15,00,000 10,00,000
(b) Reserves and Surplus 7,50,000 6,00,000
(Balance in Statement of Profit and Loss)
2. Non-Current Liabilities 1 1,00,000 2,00,000
Long-term Borrowings
3. Current Liabilities 1,00,000 1,10,000
(a) Trade Payables 2 95,000 80,000
(b) Short-term Provisions
Total 25,45,000 19,90,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 3 10,10,000 9,00,000
(ii) Intangible Assets 4 2,80,000 2,00,000
(b) Non-Current Investments 5,00,000 –
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 5 3,75,000 6,40,000
Total 25,45,000 19,90,000
Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Long-term Borrowings
9% Debentures 1,00,000 2,00,000
2. Short-term Provisions
Provision for Tax 95,000 80,000
3. Property, Plant & Equipment
Plant and Machinery 12,10,000 11,40,000
Less: Accumulated Depreciation (2,00,000) (2,40,000)
10,10,000 9,00,000
4. Intangible Assets
Goodwill 2,80,000 2,00,000
5. Cash and Cash Equivalents
(i) Cash in Hand 70,000 3,50,000
(ii) Bank Balance 3,05,000 2,90,000
3,75,000 6,40,000
Additional Information:
(i) During the year, a machine costing `80,000 on which accumulated depreciation was `50,000 was sold for `30,000.
(ii) 9% Debentures were redeemed on 31st March, 2025.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.53

Solution: Cash Flow Statement of R.M. Ltd. As at 31st March, 2025

Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before Tax and extraordinary items (Note­‐1) 2,45,000
Add: Depreciation on Plant & Machinery 10,000
Add: Interest on Debentures (9% of `3,00,000) 18,000
Operating profit before the working Capital changes 2,73,000
Less: Increase in Trade Receivables (50,000)
Less: Increase in Inventories (80,000)
Less: Decrease in Trade Payables (10,000)
Cash generated from Operations before tax 1,33,000
Less: Tax Paid (80,000)
A. Net Cash From Operating Activities 53,000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Plant & Machinery 30,000
Purchase of Plant & Machinery (1,50,000)
Purchase of Goodwill (80,000)
Purchase of Non Current Investments (5,00,000)
B. Net Cash used in investing activities (7,00,000)
III. CASH FLOWS FROM FINANCING ACTIVITIES
Issue of shares 5,00,000
Redemption of Debentures (1,00,000)
Interest on Debentures paid (18,000)
C. Cash flows from Financing Activities 3,82,000
NET DECREASE IN CASH AND CASH EQUIVALENTS ( A + B + C) (2,65,000)
Add: Opening Balance of Cash and Cash equivalents
Cash in hand 3,50,000
Bank balance 2,90,000 6,40,000
Closing Balance of Cash and Cash equivalents
Cash in hand 70,000
Bank balance 3,05,000 3,75,000
Working Notes:
1. Net Profit before tax & Extraordinary items = Net profit during the year + Provision for tax
= 1,50,000 + 95,000 = `2,45,000

2. Plant and Machinery A/c

Particulars Amount (`) Particulars Amount (`)
To Balance b/d 11,40,000 By Accumulated Depreciation A/c 50,000
To Bank A/c (purchase) (Bal.Fig.) 1,50,000 By Bank A/c 30,000
By Balance c/d 12,10,000
12,90,000 12,90,000
Accumulated Depreciation A/c
Particulars Amount (`) Particulars Amount (`)
To Plant and Machinery A/c 50,000 By Balance b/d 2,40,000
To Balance c/d 2,00,000 By Statement of P & L (Bal. Fig.) 10,000
2,50,000 2,50,000
7.54 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

ILLUSTRATION 21
Following is the Balance Sheet of R.S. Ltd as at 31st March, 2025:
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital 9,00,000 7,00,000
(b) Reserves and Surplus 1 2,50,000 1,00,000
(2) Non-current Liabilities
Long-term borrowings 2 4,50,000 3,50,000
(3) Current Liabilities
(a) Short-term borrowings 3 1,50,000 75,000
(b) Short-term provisions 4 2,00,000 1,25,000
Total 19,50,000 13,50,000
II. ASSETS
(1) Non-current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 5 14,65,000 9,15,000
(ii) Intangible Assets 6 1,00,000 1,50,000
(b) Non-current Investments 1,50,000 1,00,000
(2) Current Assets
(a) Current Investments 40,000 70,000
(b) Inventories 7 1,22,000 72,000
(c) Cash and Cash Equivalents 73,000 43,000
Total 19,50,000 13,50,000
Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Reserves and Surplus
Surplus i.e. Balance in Statement of Profit and Loss 2,50,000 1,00,000
2. Long-term borrowings
12% Debentures 4,50,000 3,50,000
3. Short-term borrowings
Bank overdraft 1,50,000 75,000
4. Short-term provisions
Provision for tax 2,00,000 1,25,000
5. Property, Plant & Equipment
Machinery 16,75,000 10,55,000
Less: Accumulated Depreciation (2,10,000) (1,40,000)
14,65,000 9,15,000
6. Intangible Assets
Goodwill 1,00,000 1,50,000
7. Inventories
Stock in trade 1,22,000 72,000
8. Contingent Liability
Proposed dividend 70,000 50,000
Additional Information: (1) `1,00,000, 12% Debentures were issued on 31-3-2025. (2) During the year a piece of machinery
costing `80,000, on which accumulated depreciation was `40,000, was sold at a loss of `10,000.
Prepare a Cash Flow Statement showing your workings clearly.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.55
Solution: Cash flow statement of RS Ltd. for the year ended 31st March 2025 as per AS-3 (Revised)
Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before tax & extraordinary items (Note 1) 4,00,000
Add: Non cash and non-operating charges
Goodwill written off 50,000
Depreciation on machinery 1,10,000
Interest on debentures (12% of `3,50,000) 42,000
Loss on sale of machinery 10,000
Operating profit before working capital changes 6,12,000
Less: Increase in inventories (50,000)
Cash generated from Operating Activities before tax 5,62,000
Less: Tax paid (1,25,000)
A. Net cash from operating activities 4,37,000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of machinery (7,00,000)
Sale of machinery 30,000
Purchase of non current investments (50,000)
B. Net Cash used in investing activities (7,20,000)
III. CASH FLOWS FROM FINANCING ACTIVITIES
Issue of share capital 2,00,000
Issue of 12% debentures 1,00,000
Interest on debentures paid (42,000)
Dividend paid (50,000)
Bank overdraft raised 75,000
C. Net Cash from financing activities 2,83,000
Net increase/ decrease in cash & cash equivalents (A+B+C) Nil
Add: Opening balance of cash & cash equivalents
Current Investments 70,000
Cash and Cash Equivalents 43,000 1,13,000
Closing Balance of cash & cash equivalents
Current Investments 40,000
Cash and Cash Equivalents 73,000 1,13,000

Explanation
As per AS-4, previous year’s proposed dividend `50,000 is to be given effect. In other words, dividend paid during the
current year = `50,000. Current year’s proposed dividend `70,000 will be accounted for in the next year after it is declared/
approved by the shareholders. In other words, current year’s proposed dividend as given in notes to accounts under contingent
liabilities has to be ignored while preparing cash flow statement.
Working Notes:
1. Net Profit before tax = Net profit as per statement of Profit & Loss + Provision for tax + Dividend paid
= 1,50,000 + 2,00,000 + 50,000 = `4,00,000
2. Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 10,55,000 By Bank A/c (sale) 30,000
To Bank A/c (Purchase) (Bal figure) 7,00,000 By Statement of P/L (loss on sale) 10,000
By Accumulated Depreciation A/c 40,000
By Balance c/d 16,75,000
17,55,000 17,55,000
7.56 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Dr. Accumulated Depreciation A/c Cr.

Particulars Amount (`) Particulars Amount (`)
To Machinery A/c 40,000 By Balance b/d 1,40,000
To Balance c/d 2,10,000 By Statement of P/L (Bal. fig.) 1,10,000
2,50,000 2,50,000

Competency Based Illustrations — Preparation of Cash Flow Statement

ILLUSTRATION 22
Read the following hypothetical text and answer the given questions on the basis of the same:
Aashna, an alumnus of CBSE School, initiated her start up Smartpay, in 2020. Smartpay is a service platform that processes
payments via UPI and POS, and provides credit or loans to their clients. During the year 2024-25, Smartpay issued bonus
shares in the ratio of 5 : 1 by capitalising reserves. The profits of Smartpay in the year 2024-25 after all appropriations was
`7,50,000. This profit was arrived after taking into consideration the following items:
Particulars Amount (`)
Interim Dividend paid during the year 90,000
Depreciation on Machinery 40,000
Loss of Machinery due to fire 20,000
Insurance claim received for Loss of Machinery due to Fire 10,000
Interest on Non-Current Investments received 30,000
Tax Refund 20,000
Additional Information:
Particulars 31.3.2025 (`) 31.3.2024 (`)
Equity Share Capital 12,00,000 10,00,000
Securities Premium Account 3,00,000 5,00,000
General Reserve 1,50,000 1,50,000
Investment in Marketable Securities 1,50,000 1,00,000
Cash in hand 2,00,000 3,00,000
Machinery 3,00,000 2,00,000
10% Non-Current Investments 4,00,000 3,00,000
Bank Overdraft 2,50,000 2,00,000
Goodwill 30,000 80,000
Provision for Tax 80,000 60,000
Goodwill purchased during the year was ` 20,000. Proposed Dividend for the year ended March 31, 2024 was ` 1,60,000
and for the year ended March 31,2025 was `2,00,000.
You are required to: (i) Calculate Net Profit before tax and extraordinary items. (ii) Calculate Operating profit before working
capital changes. (iii) Calculate Cash flow from Investing activities. (iv) Calculate Cash flow from Financing activities.
(v) Calculate closing cash and cash equivalents.
Solution: (i) Net Profit before tax and extraordinary items
= Net Profit for the year+ Interim Dividend + Loss of assets due to fire + Provision for Tax + Proposed Dividend
– Insurance claim received for Loss due to Fire – Tax refund
= 7,50,000 + 90,000 + 20,000 + 80,000 + 1,60,000 – 10,000 – 20,000 = `10,70,000
(ii) Operating profit before working capital changes
= Net Profit before tax and extraordinary items + Adjustments for non-cash and non-operating expenses and
goodwill amortised – Adjustments for non-cash and non-operating incomes
= 10,70,000 + 40,000 + 70,000** – 30,000 = `11,50,000
** Goodwill amortised = Opening goodwill + Goodwill purchased – Closing goodwill
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.57
(iii) Cash flow from Investing Activities
= Interest on Non-Current Investments + Insurance claim for loss of assets due to fire – Purchase of Investments –
Purchase of Machinery – Goodwill purchased
= 30,000 + 10,000 – 1,00,000 – 1,60,000 – 20,000 = ` (2,40,000) Outflow
(iv) Cash flow from Financing Activities
= Raise of Bank overdraft – Interim Dividend Paid – Final Dividend paid
= 50,000 – 90,000 – 1,60,000 = ` (2,00,000) Outflow
 (v) Closing Cash and Cash Equivalents
= Cash in Hand + Investment in Marketable Securities = 2,00,000 + 1,50,000 = `3,50,000

ILLUSTRATION 23
From the following Balance Sheet of Yogeta Ltd., prepare cash flow statement. Show your workings clearly.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 4,00,000 2,00,000
(b) Reserve and surplus 1 2,00,000 1,00,000
2. Non-current Liabilities
Long-term borrowings (10% Bank loan) 1,50,000 2,20,000
3. Current Liabilities
(a) Short-term borrowings (Bank overdraft) 1,00,000 –
(b) Trade payables 70,000 50,000
(c) Short-term provision (Provision for tax) 50,000 30,000
Total 9,70,000 6,00,000
II. ASSETS
1. Non-current assets
(a) Property, Plant & Equipment and Intangible Assets 7,00,000 4,00,000
Property, Plant & Equipment (plant and machinery)
2. Current assets
(a) Inventories 1,70,000 1,00,000
(b) Trade Receivables 1,00,000 50,000
(c) Cash and cash equivalents – 50,000
Total 9,70,000 6,00,000
Notes to Accounts:
Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Reserves and surplus
Balance in Statement of Profit and Loss 1,50,000 80,000
General Reserve 50,000 20,000
2,00,000 1,00,000
Additional Information:
1. Net Profit for the year after charging depreciation on plant and machinery `50,000 was `1,50,000.
2. Tax Provision created during the year amounted to `60,000.
3. Bank loan was repaid on 1.4.2024 and Interim dividend was also paid.
Solution: Cash Flow Statement of Yogeta Ltd. for the year ending 31 March 2025
Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before Taxation and Extraordinary Items (Note 3) 2,10,000
Adjustments for Non-Cash and Non-Operating Items
(+) Depreciation on plant and machinery 50,000
(+) Interest on bank loan (10% of `1,50,000) 15,000
7.58 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

= Operating Profit before working capital changes 2,75,000

(–) Increase in Inventories (70,000)
(–) Increase in Trade Receivables (50,000)
(+) Increase in Trade Payables 20,000
= Cash generated from operations before tax 1,75,000
Less: Income tax paid (Note 1) (40,000)
A. Net Cash from Operating Activities 1,35,000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and machinery (Note 4) (3,50,000)
B. Net Cash used in Investing Activities (3,50,000)
III. CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 2,00,000
Repayment of bank loan (70,000)
Interest on bank loan (15,000)
Bank overdraft raised 1,00,000
Interim dividend paid (Note 2) (50,000)
C. Net Cash from Financing Activities 1,65,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (A+B+C) (50,000)
Add: Opening cash and cash equivalents 50,000
Closing cash and cash equivalents 0
Working Notes:
1. Dr. Provision for Tax A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Bank A/c (Tax paid) 40,000 By Balance b/d 30,000
To Balance c/d 50,000 By Statement of Profit & Loss 60,000
(tax provision made during the current year)
90,000 90,000
2. Calculation of Interim Dividend paid: (`)
Net Profit for the year (after tax) 1,50,000
Less: Transfer to General Reserve (30,000)
Less: Interim dividend paid (Bal. fig.) (50,000)
Net profit after appropriations (1,50,000 – 80,000) 70,000
3. Calculation of Net Profit before Tax: (`)
Net Profit after appropriations (1,50,000 – 80,000) 70,000
Add: Transfer to General Reserve (50,000 – 20,000) 30,000
Add: Interim dividend paid 50,000
2,10,000
Alternately, Net profit before tax = Net profit after tax + Provision for tax = 1,50,000 + 60,000 = `2,10,000
4. Dr. Plant and Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 4,00,000 By Depreciation 50,000
To Bank A/c (purchase) (Bal. fig.) 3,50,000 By Balance c/d 7,00,000
7,50,000 7,50,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.59

ILLUSTRATION 24
From the following Balance Sheet of Computer India Ltd., prepare cash flow statement.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 50,000 40,000
(b) Reserve and surplus 1 3,700 3,000
2. Non-Current Liabilities
Long-term borrowings (10% Debentures) 6,500 6,000
3. Current liabilities
(a) Short-term borrowings (bank overdraft) 6,800 12,500
(b) Trade payables 11,000 12,000
(c) Short-term provisions 2 10,000 8,000
Total 88,000 81,500
II. ASSETS
1. Non-current assets
(a) Property, Plant & Equipment and Intangible Assets 3
- Property, Plant & Equipment (Machinery) 25,000 30,000
2. Current assets
(a) Inventories 35,000 30,000
(b) Trade receivables 24,000 20,000
(c) Cash and cash equivalents–cash 3,500 1,200
(d) Short-term loans and advances 500 300
Total 88,000 81,500
Notes to Accounts:
Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Reserve and surplus
Statement of Profit and Loss 1,300 1,000
Less: Discount on issue of 10% debentures (100) –
1,200 1,000
General reserve 2,500 2,000
3,700 3,000

2. Short-term provisions
Provision for tax 8,000 5,000
Provision for doubtful debts 2,000 3,000
10,000 8,000
3. Property, Plant & Equipment:
Machinery 40,000 41,000
Less: Accumulated Depreciation (15,000) (11,000)
25,000 30,000
Additional Information: Interest paid on Debenture `600
7.60 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Solution: Cash Flow Statement of Computer India Ltd. for the year ending 31 March 2025
Particulars Details (`) Amount (`)
I. Cash Flows from Operating Activities:
Net Profit before Taxation and Extraordinary Items (Note 1.) 8,700
Adjustments for:
(+) Depreciation 4,000
(+) Interest paid on Debentures 600
(+) Discount on issue of 10% debentures written off 100
(–) Excess provision for doubtful debts written back (1,000)
= Operating Profit before working capital changes 12,400
(–) Decrease in Trade Payables (1,000)
(–) Increase in Inventories (5,000)
(–) Increase in Trade Receivables (4,000)
= Cash generated from Operations before tax 2,400
(–) Income tax paid (5,000)
A. Net Cash used in Operating Activities (2,600)
II. Cash Flows from Investing Activities:
Sale of Machinery 1,000
Short-term loans and advances given (500–300) 200
B. Net Cash from Investing Activities 800
III. Cash Flows from Financing Activities:
Interest paid on debentures (600)
Proceeds from issue of shares 10,000
Issue of Proceeds from 10% Debentures at a discount of 20% (500 – 100) 400
Repayment of Bank Overdraft (5,700)
C. Net Cash from Financing Activities 4,100
Net Increase in cash and cash equivalents (A+B+C) 2,300
(+) Opening cash and cash equivalents 1,200
Closing cash and cash equivalents 3,500

Workings Notes:
Calculation of Net Profit before Tax: (`)
Net Profit after appropriations (1,200 – 1,000) 200
Add: Transfer to General Reserve (2,500 –2,000) 500
Add: Provision for Tax 8,000
8,700

Explanation
1. For calculating cash flows from operating activities, short-term loans and advances given is not treated as current asset while
making adjustments related to working capital changes. Rather, it is cash flow from investing activities. Short-term loans
and advances given `200 (i.e. `500 – `300) will be cash outflow from investing activities .
2. Discount on issue of 10% debentures `100 has been written off in the same year out of Statement of Profit and Loss. It
will be added back to net profit for calculating cash flows from operating activities since it is a financing activity. While
calculating cash flow from financing activities net proceeds from issue of 10% debenture, i.e. `500 – `100 = `400 will be
shown as cash inflow.
3. Provision for doubtful debts is decreasing from `3,000 to `2,000, i.e. excess provision for doubtful debts written back
`1,000. It resulted in increase in net profit by `1,000. However, it is a Non-cash expense and did not result in any cash
inflow. Therefore, `1,000 will be deducted from net profit while calculating cash flow from operating activities.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.61

ILLUSTRATION 25
From the following Balance Sheet of Ajanta Limited as on March 31, 2025, prepare a Cash Flow Statement:
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Equity Share Capital 10,00,000 10,00,000
(b) Reserves and Surplus 1 2,40,000 1,20,000
(2) Non-Current Liabilities
Long-Term Borrowings (9% Debentures) 3,20,000 2,40,000
(3) Current Liabilities
(a) Trade Payables 2 1,80,000 2,40,000
(b) Other Current Liabilities 3 1,80,000 1,60,000
Total 19,20,000 17,60,000
II. ASSETS
(1) Non Current Assets
(a) Property, Plant & Equipment and Intangible Assets
– Property, Plant & Equipment 4 13,40,000 12,00,000
(b) Non-Current Investments 5 2,40,000 1,60,000
(2) Current Assets
(a) Inventories 1,20,000 1,60,000
(b) Trade Receivables 1,60,000 1,60,000
(c) Cash and Cash Equivalents 60,000 80,000
Total 19,20,000 17,60,000
Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1 Reserves and Surplus
Securities Premium 40,000 –
Balance in Statement of Profit & Loss 2,00,000 1,20,000
2,40,000 1,20,000
2 Trade Payables
Creditors 1,40,000 1,20,000
Bills Payable 40,000 1,20,000
1,80,000 2,40,000
3 Other Current Liabilities: Outstanding Rent 1,80,000 1,60,000
4 Property, Plant & Equipment
Plant & Machinery 14,40,000 13,50,000
Less: Accumulated Depreciation (1,00,000) (1,50,000)
13,40,000 12,00,000
5 Non-Current Investments
10% Bonds of Kohinoor Ltd. 2,40,000 1,60,000
Additional Information:
(a) During the year 2024-25, a machinery costing `50,000 and accumulated depreciation thereon `15,000 was sold for
`32,000.
(b) New 9% Debentures were issued on April 1, 2024 at 50% premium.
(c) New 10% bonds of Kohinoor Ltd. were purchased on 31.3.2025.
7.62 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Solution: Cash Flow Statement of Ajanta Limited for the year ended 31st March, 2025
Particulars Details (`) Amount (`)
I. CASH FLOW FROM OPERATING ACTIVITIES
Net profit before taxation and extraordinary items   (2,00,000 – 1,20,000) 80,000
Adjustments for Non-cash and Non-operating items:
(–) Excess provision for depreciation written back (Note 1) (35,000)
(+) Loss on sale of machinery 3,000
(+) Interest paid on debentures (9% of `3,20,000) 28,800
(–) Interest received on non-current investments (10% of `1,60,000) (16,000)
Operating Profit before changes in working capital 60,800
Add: Decrease in Inventories 40,000
Add: Increase in Outstanding Rent 20,000
Add: Increase in Creditors 20,000
Less: Decrease in Bills Payable (80,000)
A.  Net Cash from Operating Activities 60,800
II. CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Machinery (1,40,000)
Sale of Machinery 32,000
Purchase of non-current investments (9% Bonds of Kohinoor Ltd.) (80,000)
Interest received on non-current investments 16,000
B. Net Cash used in Investing Activities (1,72,000)
III. CASH FLOW FROM FINANCING ACTIVITIES
Issue of 9 % Debentures 80,000
Securities Premium (premium on issue of 9% debentures) 40,000
Interest on Debentures (28,800)
C. Net Cash from Financing Activities 91,200
Net decrease in cash and cash equivalents (A + B + C) (20,000)
Add: Opening Balance of Cash and Cash Equivalents 80,000
Closing Balance of Cash and Cash Equivalents 60,000
Working Notes: Plant & Machinery Account
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 13,50,000 By Bank A/c (sales) 32,000
To Bank A/c (purchase) (Bal. Fig.) 1,40,000 By Accumulated Depreciation A/c 15,000
By Statement of Profit & Loss 3,000
(loss on sale)
By Balance c/d 14,40,000
14,90,000 14,90,000
Accumulated Depreciation Account
Particulars Amount (`) Particulars Amount (`)
To Plant & Machinery Account 15,000 By Balance b/d 1,50,000
To Statement of Profit & Loss 35,000
 (excess provision for depreciation
written back) (Bal. Fig.)
To Balance c/d 1,00,000
1,50,000 1,50,000
Explanation
1. Instead of additional provision for depreciation, there was excess provision for depreciation made in the past `35,000,
which has been written back by the company resulting in increase in net profit by `35,000. However, there was no cash
inflow since depreciation is a non-cash expense. Therefore, excess provision for depreciation written back `35,000 will be
subtracted from net profit for calculating cash flow from operating activities.
2. 9% debentures balance increases from `2,40,000 to `3,20,000. Thus, `80,000 new 9% debentures were issued at 50%
premium. Therefore, Securities Premium = 50% of `80,000 = `40,000. In notes to accounts, balance of Securities Premium
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.63

is also increasing by `40,000, which is nothing but the premium on issue of new 9% debentures. Hence, proceeds from
issue of new 9% debentures (including Securities Premium) will be `1,20,000.
Alternately, issue of debentures `80,000 and Securities Premium `40,000 will be shown separately as cash inflows from
financing activities.
3. Non-current investments i.e. 10% Bonds of Kohinoor Ltd. is increasing from `1,60,000 to `2,40,000. Thus, purchase
of non-current investments `80,000. Since purchase was made on 31.3.2025 (i.e. last day of the financial year 2024‑25),
the balance of non-current investments throughout the year was `1,60,000. Therefore, interest received on non-current
investments = 10% of `1,60,000 = `16,000. Interest on non-current investments is cash inflow from investing activities.
However, it resulted in increase in net profit by `16,000. Therefore, while calculating cash flows from operating activities,
interest received on non-current investments will be subtracted from net profit. Also, it will be shown as cash inflow from
investing activities.

ILLUSTRATION 26
Following is the Balance Sheet of Solar Power Ltd. as at 31.3.2025
Balance Sheet as at 31.3.2025
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 1 24,00,000 22,00,000
(b) Reserves and Surplus 6,00,000 4,00,000
2. Non-Current Liabilities
Long-Term Borrowings 4,80,000 3,40,000
3. Current Liabilities
(a) Trade Payables 3,58,000 4,08,000
(b) Short-Term Provisions 1,00,000 1,54,000
Total 39,38,000 35,02,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 2 21,40,000 17,00,000
(ii) Intangible Assets 3 80,000 2,24,000
2. Current Assets
(a) Current Investments 4,80,000 3,00,000
(b) Inventories 2,58,000 2,42,000
(c) Trade Receivables 3,40,000 2,86,000
(d) Cash and Cash equivalents 6,40,000 7,50,000
Total 39,38,000 35,02,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Reserves and Surplus
Surplus (balance in Statement of Profit and Loss) 6,00,000 4,00,000
6,00,000 4,00,000
2. Property, Plant & Equipment
Machinery 25,40,000 20,00,000
Less: Accumulated Depreciation (4,00,000) (3,00,000)
21,40,000 17,00,000
3. Intangible Assets
Goodwill 80,000 2,24,000
80,000 2,24,000
Additional Information:
During the year a piece of machinery costing `48,000 on which accumulated depreciation was `32,000 was sold for `12,000.
Prepare Cash Flow Statement. Show your workings clearly.
7.64 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Solution: Cash flow statement of Solar Power Ltd.

for the year ended 31st March 2025 as per AS-3 (Revised)
Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before tax & extraordinary items (Note 1) 3,00,000
Add: Non cash and non-operating charges:
Goodwill written off 1,44,000
Depreciation on machinery 1,32,000
Loss on sale of machinery 4,000
Operating profit before working capital changes 4,80,000
Less: Increase in trade receivables (54,000)
Less: Increase in inventories (16,000)
Less: Decrease in trade payables (50,000)
Cash generated from Operating Activities before tax 4,60,000
Less: Tax paid (1,54,000)
A. Net cash from operating activities 3,06,000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of machinery (5,88,000)
Sale of machinery 12,000
B. Net cash used in investing activities (5,76,000)
III. CASH FLOWS FROM FINANCING ACTIVITIES
Issue of share capital 2,00,000
Money raised from long-term borrowings 1,40,000
C. Net Cash from financing activities 3,40,000
Net increase in cash & cash equivalents (A+B+C) 70,000
Add: Opening balance of cash & cash equivalents:
Current Investments 3,00,000
Cash & cash equivalents 7,50,000 10,50,000
Closing Balance of cash & cash equivalents:
Current Investments 4,80,000
Cash & cash equivalents 6,40,000 11,20,000
Working Notes: 1. Net profit before tax = Net profit after appropriations + Provision for tax = 2,00,000 + 1,00,000 = `3,00,000
2. Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 20,00,000 By Bank A/c 12,000
To Bank A/c (purchase) (Bal. fig.) 5,88,000 By Accumulated Depreciation A/c 32,000
By Statement of Profit and Loss 4,000
(Loss on sale of machinery) 25,40,000
By Balance c/d
25,88,000 25,88,000
Dr. Accumulated Depreciation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Machinery A/c 32,000 By Balance b/d 3,00,000
To Balance c/d 4,00,000 By Statement of Profit and Loss 1,32,000
(depreciation charged during the year)
4,32,000 4,32,000

Explanation
Short-term provision should be treated as ‘Provision for Tax’, if nothing is specified. However, if short-term provision is
treated as ‘Provision for Doubtful Debts’, the examinee will be given full credit in CBSE Accountancy XII Examinations.
In that case, excess provision for doubtful debts written back `54,000 would be subtracted from net profit while calculating
cash flow from operating activities. Net profit before tax would be `1,00,000 and operating profit before working capital
changes `4,26,000. However, net cash from operating activities would be the same, i.e. `3,06,000.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.65

ILLUSTRATION 27
Statement of Profit and Loss of Banjara Ltd. for the year ended 31 March, 2025
Particulars Note No. (` in Lakhs)
I. Revenue from operations 30,650
II. Other income 1 640
III. Total Revenue ( I + II) 31,290
IV. Expenses:
Cost of material consumed 26,000
Finance cost (interest expense) 400
Depreciation 450
Other expenses 910
Total expenses 27,760
V. Profit before tax (III – IV) 3,530
VI. Less: Tax (300)
VII. Profit after tax (V – VI) 3,230
Notes to Accounts:
Note No. Particulars (` in Lakhs)
1. Other Income
(i) Interest Income 300
(ii) Dividend Income 200
(iii) Insurance proceeds from earthquake disaster settlement 140
640
Balance Sheet of Banjara Ltd. as on 31.3.2025
Particulars Note No. 31.3.2025 31.3.2024
(` in Lakhs) (` in Lakhs)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 1,500 1,250
(b) Reserve and surplus (Surplus i.e. Balance in Statement of Profit and 3,410 1,380
Loss)
2. Non-current Liabilities 1,110 1,040
Long-term borrowings
3. Current Liabilities
(a) Trade payables 150 1,890
(b) Other current liabilities 1 230 100
(c) Short-term provisions (Provision for tax) 400 1,000
Total 6,800 6,660
II. ASSETS
1. Non-current assets
(a) Property, Plant and Equipment and Intangible Assets
– Property, Plant and Equipment 2 730 850
(b) Non-current investments 2,500 2,500
2. Current assets
(a) Current investments (Marketable securities) 670 135
(b) Inventories 900 1,950
(c) Trade Receivables 1,700 1,200
(d) Cash and cash equivalents 200 25
(e) Other current assets (Interest receivables) 100 –
Total 6,800 6,660
7.66 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Notes to Accounts:
Note No. Particulars 31.3.2025 31.3.2024
(` in Lakhs) (` in Lakhs)
1. Other Current Liabilities
Interest payable 230 100
2. Property, Plant and Equipment and Intangible Assets
Property, Plant and Equipment 2,180 1,910
Less: Accumulated depreciation (1,450) (1,060)
730 850
Additional Information: (i) Further `250 lakhs was raised from long-term borrowings during the year. (ii) Dividends paid
were `1,200 lakhs.
You are required to:
(a) Calculate Net Profit before tax and extraordinary items. (b) Calculate Operating profit before working capital changes.
(c) Calculate Cash flow from Operating activities. (d) Calculate Cash flow from Financing activities.
Solution:
(a) Net profit before tax and extraordinary items = Net Profit before tax as per Statement of Profit and Loss – Insurance proceeds
from earthquake disaster settlement = 3,530 – 140 = `3,390 Lakhs
OR
Particulars Amount
(` in lakhs)
Net profit after appropriations (3,410 – 1,380) 2,030
Add: Provision for tax 300
Add: Dividend paid 1,200
Net profit before tax 3,530
Less: Insurance proceeds from earthquake disaster settlement (140)
Net profit before tax and extraordinary items 3,390
(b)
Particulars Amount
(` in lakhs)
Net Profit before Taxation and Extraordinary Items 3,390
+ Depreciation 450
– Interest Income (300)
– Dividend Income (200)
+ Interest Expense 400
Operating Profit before working capital changes 3,740
(c)
Particulars Amount
(` in lakhs)
Operating Profit before working capital changes 3,740
– Increase in Trade Receivables (500)
– Decrease in Inventories 1,050
– Decrease in Trade Payables (1,740)
Cash generated from Operations before tax 2,550
Less: Income Tax paid (see working notes) (900)
Cash flow before Extraordinary Items 1,650
Add: Proceeds from earthquake disaster settlement 140
Net cash from Operating Activities 1,790
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.67
Working Notes:
Dr. Provision for Tax A/c Cr.
Particulars Amount Particulars Amount
(` in lakhs) (` in lakhs)
To Bank A/c (Tax paid) (Bal. fig.) 900 By Balance b/d 1,000
To Balance c/d 400 By Statement of Profit & Loss 300
1,300 1,300
(d)
Particulars Amount
(` in lakhs)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Share Capital 250
Proceeds from Long-term Borrowings 250
Repayment of Long-term Borrowings (see working notes) (180)
Interest Paid (100 + 400 – 230) (270)
Dividends Paid (1,200)
Net Cash used in Financing Activities (1,150)
Working notes:
Dr. Long-term Borrowings A/c Cr.
Particulars Amount Particulars Amount
(` in lakhs) (` in lakhs)
To Bank A/c (repayment of long-term 180 By Balance b/d 1,040
borrowings) (Bal. fig.) By Bank A/c (further long-term borrowings 250
To Balance c/d 1,110 raised)
1,290 1,290

Multiple Choice Questions (MCQs) 7G

Q.1 Statement-I: ‘Shree Ltd.’ was carrying on a business of packaging in Delhi and earned good profits in the past years.
The company wanted to expand its business and required additional funds. To meet its requirements the company
issued equity shares of ` 30,00,000. It purchased a computerized machine of ` 20,00,000. During the current year the
Net Profit of the company was ` 15,00,000. Cash flows from operating, investing and financing activities from the
above transactions will be ` 15,00,000: (` 20,00,000); ` 30,00,000 respectively.
Statement-II: The patents of X Ltd. increased from ` 3,00,000 in 2023-24 to ` 3,50,000 in 2024-25. It will be taken
as purchase of Patents of ` 50,000 and will be shown under Cash outflow from Investing Activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Only Statement-I is true. (d) Only Statement-II is true.
Q.2 “Paid `5,00,000 to acquire shares in Neligare Industries and received a dividend of `30,000 after acquisition.” This
transaction will result in:
(a) Cash outflow from financing activities `4,70,000 (b) Cash inflow from investing activities `4,70,000
(c) Cash inflow from financing activities `4,70,000 (d) Cash outflow from investing activities `4,70,000
Q.3 Sale of patents of ` 50,00,000 will result in:
(a) Cash inflow of ` 50,00,000 from financing activities (b) Cash outflow of ` 50,00,000 from financing activities
(c) Cash outflow of ` 50,00,000 from investing activities (d) Cash inflow of ` 50,00,000 from investing activities
Q.4 X Ltd. purchased furniture for ` 20,00,000 paying 60% by issue of equity shares of `10 each and the balance by a
cheque. This transaction will result in:
(a) Cash used in investing activities `20,00,000 (b) Cash generated from financing activities `12,00,000
(c) Increase in cash and equivalents `8,00,000 (d) Cash used in investing activities ` 8,00,000
7.68 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Q.5 Read the following Statements:

Statement I: Rent received by a real estate company is an operating activity.
Statement II: Dividend paid by a finance company is financing activity.
Statement III: Current Investment is considered as Cash and Cash Equivalents while preparing cash flow statement.
Choose the correct option:
(a) Only statement I and II are correct (b) Only statement II and III are correct
(c) Only statement I and III are correct (d) All statements are correct
Q.6 While preparing Cash Flow Statement, which of the following transactions will affect the cash flow from Investing
activities.
(a) Loss on issue of debentures written off from securities premium
(b) Goodwill purchased
(c) Building Purchased by issue of Debentures as consideration
(d) Issue of Bonus shares
Q.7 Statement I: Increase in provision for doubtful debts should be added back for calculating cash from operations.
Statement II: Dividend received is a Financing Activity.
(a) Statement I is correct and Statement II is incorrect (b) Statement I and II is correct
(c) Statement I and Statement II is incorrect (d) Statement I is incorrect, and Statement II is correct
Q.8 Decrease in Bank Overdraft is shown under which heading in a Cash Flow Statement?
(a) Operating (b) Financing (c) Investing (d) Cash and Cash Equivalent
Q.9 Insurance Claim received by Albert Co. Ltd. of ` 5,00,000 for Loss of Machinery due to theft will be recorded in Cash
Flow Statement in which of the following manner?
(a) Added under Operating Activities as Extraordinary Item and Subtracted from Operating Activities also.
(b) Subtracted under Operating Activities as Extraordinary Item and Added to Operating Activities also.
(c) Added under Operating Activities as Extraordinary Item and Outflow under Investing Activity also.
(d) Subtracted under Operating Activities as Extraordinary Item and Inflow under Investing Activities also.
Q.10 A company issued 20,000; 9% Debentures of `100 each at 10% Discount. These debentures were to be redeemed at
15% Premium at the end of 5 years. The balance in Securities Premium Account as on the date of Issue was `3,70,000.
How this transaction will be reflected in Cash Flow Statement?
(a) Added ` 1,30,000 under Operating Activities as Loss on Issue of Debentures written off and Inflow of ` 20,00,000 under
Financing Activities.
(b) Added ` 5,00,000 under Operating Activities as Loss on Issue of Debentures written off and Inflow of `18,00,000
under Financing Activities.
(c) Added ` 1,30,000 under Operating Activities as Loss on Issue of Debentures written off and Inflow of `18,00,000
under Financing Activities.
(d) Added `5,00,000 under Operating Activities as Loss on Issue of Debentures written off and Inflow of `20,00,000
under Financing Activities.
Q.11 Machinery was purchased for `10,00,000, paying 40% by issue of equity shares of `10 each and the balance by a
cheque. This transaction will result in:
(a) Cash used in investing activities `6,00,000. (b) Cash generated from financing activities `4,00,000.
(c) Decrease in cash and cash equivalents `10,00,000. (d) Cash used in investing activities `10,00,000.
Q.12 Assertion (A): PP Limited is Share Broker Company. GG Limited is engaged in manufacturing of packaged food. PP
Limited purchased 5,000 equity shares of `100 each of Savita Limited. GG Limited also purchased 10,000 equity shares of
`100 each of Savita Limited. For the purpose of preparing Cash Flow Statements, the purchase of shares will be classified
as Investing Activity by both PP Limited and GG Limited.
Reason (R): For PP Limited, the purchase of shares will be classified as Operating Activity; whereas for GG Limited, it will be
an Investing Activity.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.13 While preparing Cash Flow Statement, match the following activities and select the correct alternative:
I. Payment of cash to acquire debentures by an Investing Company (A) Financing activity
II. Purchase of Goodwill (B) Investing activity
III. Dividend paid by manufacturing company (C) Operating activity
(a) I-B; II-C; III-A (b) I-C; II-B; III-A (c) I-A; II-B; III-C (d) I-C; II-A; III-B
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.69
Q.14 Statement-I: While preparing Cash Flow Statement, ‘Payment of Cash to acquire Debentures by an Investment
company’ will be shown as investing activity.
Statement-II: In case of a financial enterprise (whose main business is lending and borrowing) , interest paid, interest
received and dividend received are classified as Operating activities while dividend paid is a Financing activity.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.15 Assertion (A): S.R. Ltd. purchased machinery on deferred payment basis. During the year ended 31.3.2023 the
company paid an instalment of `4,00,000 which included interest of `40,000. While preparing cash flow statement,
`4,00,000 will be shown as cash outflow from financing activities.
Reason (R): Cash outflows from Investing Activities will be `3,60,000 and Cash outflows from Financing Activities
`40,000.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.16 Statement-I: A mutual fund company invested `5,00,000 in shares of Prayag Ltd. and received dividend of `45,000
during the year. Dividend received will be shown as investing activities in the Cash Flow Statement.
Statement-II: If the net profits made during the year are `50,000 and the bills receivables have decreased by `10,000 during
the year then the cash flow from operating activities will be equal to `40,000.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.17 Statement-I: Royalties received and commission received are examples of cash inflows from investing activities.
Statement-II: If the net profits earned during the year is `50,000 and the amount of debtors in the beginning and the
end of the year is `10,000 and `20,000 respectively, then the cash from operating activities will be equal to `60,000.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.18 Statement-I: Expenses paid in advance at the end of the year are added to the profit made during the year for calculating
the cash flow from operating activities.
Statement-II: An increase in accrued income during the particular year is deducted from the net profit for calculating
the cash flow from operating activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.19 Statement-I: A plant having book value `80,000, accumulated depreciation being `20,000, is sold at a profit of `8,000.
Amount that will be shown as cash inflow under investing activities will be `1,08,000.
Statement-II: Provision for tax = `10,000 (on 1.4.2024) and `25,000 on 31.3.2025. Tax paid during the year ended
31 March, 2025 is `15,000. While calculating Net Profit before Tax and Extraordinary activities `15,000 will be
added.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.20 Statement-I: On 1.10.2024, Micro Ltd. issued 20,000, 8% debentures of ` 100 each and paid interest of ` 80,000 on
these debentures on 31st March, 2025. Cash flow from financing activities for the period ending 31st March,2025 will be
`19,20,000.
Statement-II: An investment normally qualifies as cash-equivalent only when from the date of acquisition it has a short
maturity period of one month or less.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.21 Statement-I: Gopal and Company Ltd. acquired machinery for `10,00,000 paying 10% immediately in cash and
accepting a draft for the balance in favour of the vendor, payable after three months. Cash outflow from investing activity
will be (`11,00,000).
Statement-II: An investment normally qualities as cash equivalents only when it has a short maturity, of say, two
months or less from the date of acquisition.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
7.70 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Q.22 Statement-I: ‘Unexpired insurance of `2,000 at the end of the year’ will increase cash flow from operating activities
while preparing ‘Cash Flow Statement’.
Statement-II: As per As - 3, ‘cash’ comprises Cash in hand and Demand deposits with banks.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.23 Read the following information:
31st March 2024 31st March 2025
Plant and Machinery (Cost) ` 20,00,000 ` 30,00,000
Accumulated Depreciation ` 4,80,000 ` 5,90,000
During the year a part of machinery book value ` 2,00,000 was sold for ` 1,10,000. Depreciation charged during
the year was ` 1,50,000. Determine the amount to be shown under non-cash and non-operating expenses while
preparing cash flow statement.
(a) ` 1,50,000 (b) ` 2,00,000 (c) ` 2,40,000 (d) ` 50,000

A NSWERS
1. (a) 2. (d) 3. (d) 4. (d) 5. (d) 6. (b) 7. (a) 8. (b)
9. (d) 10. (c) 11. (a) 12. (c) 13. (b) 14. (d) 15. (c) 16. (b)
17. (b) 18. (d) 19. (b) 20. (c) 21. (b) 22. (d) 23. (c)

Numerical Ques
Questions
tions (for Practice) 7G
Q.1 Following is the Balance Sheet of X Ltd. as at 31st March, 2025. Prepare a Cash Flow Statement. Show your workings
clearly.
Particulars Note No. 31.3.2025(`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 19,00,000 17,00,000
(b) Reserves and Surplus (Balance in Statement of Profit and Loss) 6,00,000 3,00,000
2. Non-current Liabilities
Long-term borrowings (12% Debentures) 5,00,000 4,00,000
3. Current liabilities
(a) Short-term Borrowings (Bank Overdraft) 1,70,000 1,75,000
(b) Short-term Provisions (Provision for Tax) 2,00,000 1,65,000
Total 33,70,000 27,40,000
II. ASSETS
1. Non-current assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 1 24,00,000 19,00,000
(ii)Intangible assets (Goodwill) 2,00,000 3,00,000
(b) Non-Current Investments 3,00,000 2,00,000
2. Current assets
(a) Current Investments 1,40,000 1,70,000
(b) Inventories 2,60,000 1,30,000
(c) Cash and Cash Equivalents 70,000 40,000
Total 33,70,000 27,40,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.71
Notes to Accounts:
Note No. Particulars 31.3.2025(`) 31.3.2024(`)
1. Property, Plant and Equipment: Machinery 26,00,000 20,00,000
Less: Accumulated Depreciation (2,00,000) (1,00,000)
24,00,000 19,00,000
Additional Information: (i) `1,00,000, 12% debentures were issued on 1 April, 2024. (ii) During the year, a piece of
machinery costing `80,000 on which accumulated depreciation was `40,000 was sold at a gain of `10,000.
[Ans. Cash Inflows from Operating activities `4,95,000; Cash used in Investing activities `(7,30,000); Cash Inflows
from Financing activities `2,35,000]
Q.2 From the following Balance Sheet of G Ltd. as at 31st March, 2025, prepare Cash Flow Statement:
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 8,00,000 6,00,000
(b) Reserves and Surplus (Balance in Statement of Profit and Loss) 3,30,000 2,20,000
2. Non-Current Liabilities
Long- term borrowings (10% Debentures) 1,60,000 1,00,000
3. Current Liabilities
(a) Trade Payables 1,65,000 1,95,000
Total 14,55,000 11,15,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets 1 9,50,000 6,05,000
(b) Non-Current Investments 1,35,000 1,00,000
2. Current Assets
(a) Current Investments 80,000 40,000
(b) Trade Receivables 90,000 2,00,000
(c) Cash and Cash Equivalents 2,00,000 1,70,000
Total 14,55,000 11,15,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant and Equipment:
Machinery (cost) 10,70,000 7,00,000
Accumulated Depreciation (1,20,000) (95,000)
9,50,000 6,05,000
Additional information: 10% Debentures 60,000 were issued on 1st April, 2024.
[Ans. Net Cash generated from Operating Activities `2,31,000; Net Cash used in investing activities `(4,05,000); Cash
flows from Financing Activities `2,44,000]
Q.3 There was ‘Nil’ net cash flow from operating activities of Ashok Ltd. during the year ending 31st March, 2025. From
the following Balance Sheet of Ashok Ltd. as at 31st March, 2025, prepare a Cash Flow Statement.
Particulars Note No. 31.3.2025 (`) 31.3.2024(`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 19,00,000 11,00,000
(b) Reserves and Surplus (Balance in the Statement of P&L) 1,60,000 2,00,000
2. Non-Current Liabilities
Long- term borrowings (8% Debentures) 1,00,000 4,00,000
3. Current Liabilities
(a) Short-Term Borrowings (Bank overdraft) 2,50,000 2,30,000
(b) Short-Term Provisions (Provision for Tax) 1,90,000 2,70,000
Total 26,00,000 22,00,000
7.72 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets: 1
(a) Property, Plant and Equipment 15,00,000 11,00,000
(b) Intangible Assets (Goodwill) 2,80,000 1,70,000
2. Current Assets:
(a) Current Investments 1,30,000 2,90,000
(b) Trade Receivables 3,90,000 4,10,000
(b) Cash and Cash Equivalents 3,00,000 2,30,000
Total 26,00,000 22,00,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant and Equipment:
Plant and Machinery 16,30,000 11,70,000
Accumulated Depreciation (1,30,000) (70,000)
15,00,000 11,00,000
Additional information: (i) A machinery of the book value of `60,000,(depreciation provided thereon `20,000) was
sold at a loss of `6,000.
(ii) 8% Debentures were redeemed on 1st July, 2024.
[Ans. Cash used in Investing activities `(5,96,000); Cash Inflows from Financing activities `5,06,000]
Q.4 From the following Balance Sheet of Gopal Ltd. and the additional information as at 31st March, 2025, prepare a Cash
Flow statement when cash flows from financing activities is ` 2,32,000.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 10,00,000 8,00,000
(b) Reserves and Surplus (Balance in statement of Profit and 4,00,000 (1,00,000)
Loss)
2. Non-Current Liabilities 9,00,000 9,00,000
Long- term borrowings (12% debentures)
3. Current Liabilities 2,40,000 1,00,000
(a) Short term Borrowing (Bank overdraft) 2,00,000 1,75,000
(b) Short term Provision (Provision for tax)
Total 27,40,000 18,75,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 1 20,00,000 14,42,000
(ii) Intangible Assets (Goodwill) 46,000 58,000
(b) Non-current Investments 1,00,000 45,000
2. Current Assets:
(a) Current Investments 2,00,000 1,20,000
(b) Inventories (Stock in trade) 2,14,000 90,000
(c) Cash and Cash equivalents 1,80,000 1,20,000
Total 27,40,000 18,75,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant and Equipment
Machinery 24,00,000 16,42,000
Less: Accumulated Depreciation (4,00,000) (2,00,000)
20,00,000 14,42,000
Additional Information: Tax `1,50,000 was paid during the year.
[Ans. Cash Inflows from Operating activities `7,21,000; Cash used in Investing activities `(8,13,000)]
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.73
Q.5 Net Cash outflow from operating activities of Starline Ltd. for the year ended 31.03.2025 was `18,000. The Balance
Sheet along with notes to accounts of Starline Ltd. as at 31.03.2025 is given below:
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds:
(a) Share Capital 18,00,000 10,00,000
(b) Reserves and Surplus (Balance in statement of profit & loss) 50,000 40,000
2. Non-Current Liabilities:
Long-term borrowings (8% debentures) 1,00,000 4,00,000
3. Current Liabilities:
Short-term provision (Provision for tax) 2,50,000 3,60,000
Total 22,00,000 18,00,000
II. ASSETS
1. Non-Current Assets:
Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 1. 14,00,000 10,00,000
(ii) Intangible Assets (Goodwill) 1,80,000 70,000
2. Current Assets:
(a) Current Investments 30,000 1,90,000
(b) Trade Receivables 2,90,000 3,10,000
(c) Cash and Cash equivalents 3,00,000 2,30,000
Total 22,00,000 18,00,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant and Equipment
Plant and Machinery 15,20,000 10,90,000
Less Accumulated depreciation (1,20,000) (90,000)
14,00,000 10,00,000
Additional information: A machinery of the book value of `40,000 (depreciation provided thereon `12,000) was sold at
a loss of `6,000. 8% debentures were redeemed on 1st July 2024.
Prepare Cash Flow Statement.
[Ans. Cash used in Investing activities `(5,58,000); Cash Inflows from Financing activities `4,86,000]
Q.6 Following is the Financial Statement of Garima Ltd., prepare cash flow statement.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 4,40,000 2,80,000
(b) Reserve and surplus (Surplus) 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
(a) Property, Plant & Equipment and Intangible Assets
- Tangible (plant and machinery) 3,64,000 2,00,000
2. Current assets
(a) Inventories 1,60,000 60,000
(b) Trade receivables 80,000 20,000
(c) Cash and cash equivalents 28,000 80,000
(d) Other current assets 16,000 8,000
Total 6,48,000 3,68,000
7.74 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Additional Information:
(i) Dividend paid during the year `4,000 (ii) Depreciation charged plant and machinery during the year `32,000
[Ans.: Net Cash used in Operating Activities `(12,000); Net Cash used in Investing Activities `(1,96,000); Net Cash
from Financing Activities `1,56,000]
Q.7 From the following Balance Sheet of Star Ltd., prepare cash flow statement for the year ended 31.3.2025.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 7,00,000 5,00,000
(b) Reserve and surplus (Balance in Statement of Profit and Loss) 4,70,000 2,50,000
2. Non-current Liabilities
Long-term borrowings (8% Debentures) 4,00,000 6,00,000
3. Current Liabilities
Trade payables 9,00,000 6,00,000
Total 24,70,000 19,50,000
II. ASSETS
1. Non-current assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment (Plant) 7,00,000 5,00,000
(ii) Intangible Assets (Goodwill) 1,70,000 2,50,000
2. Current assets
(a) Inventories 6,00,000 5,00,000
(b) Trade Receivables 6,00,000 4,00,000
(c) Cash and cash equivalents 4,00,000 3,00,000
Total 24,70,000 19,50,000
Additional Information
(i) Depreciation charged on Plant amounted to `80,000. (ii) Some 8% Debentures were redeemed on 31 March, 2025.
[Ans. A. Net Cash from Operating Activities `4,28,000; B. Net Cash used in Investing Activities `(2,80,000); C. Net
Cash from Financing Activities `(48,000)]
Q.8 From the following Balance Sheet of Mayur Ltd. and the additional information as at 31st March, 2025, prepare a
Cash Flow Statement:
Mayur Ltd.
Balance Sheet as at 31st March, 2025
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 30,00,000 20,00,000
(b) Reserves and Surplus 1 3,00,000 4,00,000
2. Non-Current Liabilities
Long-term Borrowings 2 4,00,000 3,00,000
3. Current Liabilities
(a) Trade Payables 1,70,000 2,50,000
(b) Short-term Provisions 3 76,000 64,000
Total 39,46,000 30,14,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 4 29,00,000 23,00,000
(ii) Intangible Assets 5 2,70,000 1,60,000
2. Current Assets
(a) Inventories 2,20,000 2,30,000
(b) Trade Receivables 1,10,000 1,30,000
(c) Cash and Cash Equivalents 4,46,000 1,94,000
Total 39,46,000 30,14,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.75

Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Reserves and Surplus
Surplus (Balance in Statement of Profit and Loss) 3,00,000 4,00,000
2. Long-term Borrowings
9% Debentures 4,00,000 3,00,000
3. Short-term Provisions
Provision for Tax 76,000 64,000
4. Tangible Assets
Machinery 36,00,000 28,00,000
Less: Accumulated Depreciation (7,00,000) (5,00,000)
29,00,000 23,00,000
5. Intangible Assets
Goodwill 2,70,000 1,60,000
Additional Information:
(i) During the year, a piece of machinery having book value of `3,27,000 on which accumulated depreciation was
`73,000 was sold for `3,10,000.
(ii) 9% Debentures of `1,00,000 were issued on 31st March, 2025.
[Ans. Net Cash from Operating Activities `1,79,000; Net Cash used in investing activities `(10,00,000)]
Q.9 From the following Balance Sheet of Axe Ltd. as at 31st March, 2025, prepare a Cash Flow Statement:
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 6,30,000 5,60,000
(b) Reserves and Surplus 1 3,80,000 1,82,000
2. Current Liabilities
(a) Trade Payables 2,08,000 1,82,000
(b) Other Current Liabilities 14,000 28,000
Total 12,32,000 9,52,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 2 3,92,000 2,80,000
2. Current Assets
(a) Inventories 1,26,000 1,82,000
(b) Trade Receivables 6,30,000 4,20,000
(c) Cash and Cash Equivalents 84,000 70,000
Total 12,32,000 9,52,000
Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Reserves and Surplus
Balance in the Statement of Profit and Loss 2,00,000 1,00,000
General Reserve 1,80,000 82,000
3,80,000 1,82,000
2. Property, Plant & Equipment
Machinery 4,50,000 3,60,000
Less: Accumulated Depreciation (58,000) (80,000)
3,92,000 2,80,000
7.76 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Additional Information: An old machinery costing `42,000, on which accumulated depreciation was `28,000 was sold
for `56,000.
[Ans. Net Cash from Operating Activities (A) `20,000; Net Cash used in Investing Activities (B) `(76,000); Net Cash
from financing activities (C) `70,000]
Q.10 Prepare Cash Flow Statement on the basis of information given in the Balance Sheets of Relga Ltd. as at 31st March,
2024 and 31st March, 2025:
Particulars Note No. 31.3.2024 (`) 31.3.2025 (`)
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital 2,00,000 2,50,000
(b) Reserves and Surplus 1 50,000 70,000
(2) Non-Current Liabilities
Long- term borrowings 2 1,00,000 80,000
(3) Current Liabilities
(a) Trade Payables 3 60,000 1,60,000
(b) Other Current Liabilities 4 25,000 20,000
Total 4,35,000 5,80,000
II. ASSETS
(1) Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 5 1,50,000 2,00,000
(ii) Intangible Assets 6 10,000 2,000
(b) Long-term Loans and Advances 1,00,000 1,30,000
(2) Current Assets
(a) Inventories 70,000 90,000
(b) Trade Receivables 40,000 60,000
(c) Cash and Cash Equivalents 65,000 98,000
Total 4,35,000 5,80,000
Notes to Accounts:
Note No. Particulars 31.3.2024 (`) 31.3.2025 (`)
(1) Reserves and Surplus
General Reserve 50,000 70,000
(2) Long-term borrowings
12% Debentures 1,00,000 80,000
(3) Trade Payables
Creditors 40,000 60,000
Bills Payable 20,000 1,00,000
60,000 1,60,000
(4) Other Current Liabilities
Outstanding Expenses 25,000 20,000
(5) Tangible Fixed Assets
Machinery 2,00,000 2,60,000
Less: Provision for Depreciation (50,000) (60,000)
1,50,000 2,00,000
(6) Intangible Assets
Goodwill 10,000 2,000
Additional Information:
(i) During the year a piece of machinery with a book value of ` 30,000; provision for depreciation on it ` 10,000 was
sold at a loss of 50% on book value.
(ii) Debentures were redeemed on 31st March 2025.
[Ans. Net Cash inflow from operating activities(A) 1,30,000; Net Cash used in investing activities(B) `(1,15,000); Net
Cash from financing activities(C) `18,000]
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.77
Q.11 Following are the Balance Sheets of Krishna Ltd. as on 31st March 2024 and 2025:
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share capital 14,00,000 10,00,000
(b) Reserves and Surplus 1 5,00,000 4,00,000
(2) Non Current Liabilities
Long term borrowings 5,00,000 1,40,000
(3) Current Liabilities
Trade Payables 1,00,000 60,000
Short term Provisions 2 80,000 60,000
Total 25,80,000 16,60,000
II. ASSETS
(1) Non Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 3 16,00,000 9,00,000
(ii) Intangible Assets 4 1,40,000 2,00,000
(2) Current Assets
(a) Inventories 2,50,000 2,00,000
(b) Trade Receivables 5,00,000 3,00,000
(b) Cash and Cash Equivalents 90,000 60,000
25,80,000 16,60,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1 Reserves and Surplus
Surplus (i.e. balance in Statement of Profit and Loss) 5,00,000 4,00,000
2 Short Term provisions
Provision for tax 80,000 60,000
3 Tangible assets
Machinery 17,60,000 10,00,000
Less: Accumulated depreciation (1,60,000) (1,00,000)
16,00,000 9,00,000
4 Intangible Assets
Goodwill 1,40,000 2,00,000
Additional Information: Tax paid during the year amounted to `70,000.
Prepare Cash Flow Statement.
[Ans. A. Net Cash inflow from operating activities `30,000; B. Net Cash used in investing activities `(7,60,000);
C. Net Cash inflow from financing activities `7,60,000]
Q.12 Following is the Balance Sheet of Thermal Power Ltd. as at 31-3-2025. Prepare Cash Flow Statement. Show your
workings clearly:
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholders Funds: (a) Share Capital 12,00,000 11,00,000
(b) Reserves and Surplus 3,00,000 2,00,000
(2) Non Current Liabilities: Long Term Borrowings 1 2,40,000 1,70,000
(3) Current Liabilities
(a) Trade Payables 1,79,000 2,04,000
(b) Short Term Provisions (Provision for doubtful debts) 50,000 77,000
Total 19,69,000 17,51,000
7.78 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

II. ASSETS
(1) Non-current Assets
(a) Property, Plant & Equipment and Intangible Assets:
(i) Property, Plant & Equipment 2 10,70,000 8,50,000
(ii) Intangible Assets 3 40,000 1,12,000
(2) Current Assets
(a) Current Investments 2,40,000 1,50,000
(b) Inventories 1,29,000 1,21,000
(c) Trade Receivables 1,70,000 1,43,000
(d) Cash and Cash equivalents 3,20,000 3,75,000
Total 19,69,000 17,51,000

Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Reserves and Surplus
Surplus (balance in Statement of Profit and Loss) 3,00,000 2,00,000
2. Tangible Assets
Machinery 12,70,000 10,00,000
Less: Accumulated Depreciation (2,00,000) (1,50,000)
10 ,70,000 8,50,000
3. Intangible Assets
Goodwill 40,000 1,12,000
Additional information: During the year a piece of machinery, costing `24,000 on which accumulated depreciation was
`16,000, was sold for `6,000.
[Ans. Net Cash from Operating Activities (A) `1,53,000; Net Cash used in investing activities (B) `(2,88,000); Net
Cash from financing activities (C) `1,70,000]
Q.13 Following is the Balance Sheet of Gaurav Ltd. as on 31st March, 2025:
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY & LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital 20,00,000 15,00,000
(b) Reserves and Surplus 1 5,00,000 3,00,000
(2) Non-current Liabilities
Long term borrowings 3,00,000 2,00,000
(3) Current Liabilities
(a) Trade payables 1,50,000 2,00,000
(b) Short term provisions 2 70,000 60,000
Total 30,20,000 22,60,000
II. ASSETS
(1) Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 3 19,00,000 15,00,000
(ii) Intangible assets 4 4,70,000 2,70,000
(2) Current Assets
(a) Inventories 2,50,000 1,60,000
(b) Trade Receivables 2,10,000 2,10,000
(c) Cash and Cash Equivalents 1,90,000 1,20,000
Total 30,20,00 22,60,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.79
Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Reserves and Surplus
Surplus (Balance in Statement of Profit and Loss) 5,00,000 3,00,000
2. Short term provisions
Provision for tax 70,000 60,000
3. Tangible Assets
Machinery 27,00,000 21,00,000
Less: Accumulated Depreciation (8,00,000) (6,00,000)
19,00,000 15,00,000
4. Intangible Assets
Goodwill 4,70,000 2,70,000
Prepare a Cash Flow Statement after taking into account the following adjustment: During the year a piece of machinery
costing `30,000 on which accumulated depreciation was `6,000, was sold for `20,000.
[Ans. Net Cash from Operating Activities `2,80,000; Net Cash used in Investing Activities (8,10,000); Net Cash from
financing activities ` 6,00,000]
Q.14 Following is the Balance Sheets of Shreshtha Ltd. as at 31-3-2025:
Particulars Note No. 2024-25 (`) 2023-24 (`)
I. EQUITY & LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital 15,00,000 14,00,000
(b) Reserves & Surplus 1 2,50,000 1,10,000
(2) Non-Current Liabilities
(a) Long Term Borrowings 2,00,000 1,25,000
(3) Current Liabilities
(a) Short term borrowings 2 12,000 10,000
(b) Trade Payable 15,000 83,000
(c) Short term provisions 3 18,000 11,000
Total 19,95,000 17,39,000
II. ASSETS
(1) Non-Current Assets
(a) Property, Plant & Equipment and Intangible Assets
Property, Plant & Equipment 4 18,60,000 16,10,000
Intangible assets 5 50,000 30,000
(2) Current Assets
(a) Current Investments 8,000 5,000
(b) Inventories 37,000 59,000
(c) Trade Receivables 26,000 23,000
(d) Cash & Cash Equivalents 14,000 12,000
Total 19,95,000 17,39,000
Notes to Accounts:
Note No. Particulars 2024-25 (`) 2023-24 (`)
1. Reserves and Surplus
Surplus (balance in Statement of Profit and Loss) 2,50,000 1,10,000
2. Short Term Borrowings
Bank overdraft 12,000 10,000
3. Short term provisions
Provision for Tax 18,000 11,000
4. Property, Plant & Equipment
Machinery 20,00,000 17,00,000
Less: Accumulated Depreciation (1,40,000) (90,000)
18,60,000 16,10,000
5. Intangible Assets
Patents 50,000 30,000
7.80 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Additional Information:
(i) Tax paid during the year amounted to `16,000.
(ii) Machine with a net book value of `10,000 (Accumulated Depreciation `40,000) was sold for `2,000.
Prepare Cash Flow Statement.
[Ans. A. Net Cash From Operating Activities `1,96,000; B. Net Cash used in Investing Activities `(3,68,000); C. Net
Cash from Financing Activities `1,77,000]
Q.15 From the following Balance Sheet of Tiger Super Steel Ltd., prepare cash flow statement. Show your workings clearly.
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 1,40,000 1,20,000
(b) Reserves and surplus 1. 38,400 26,400
2. Current Liabilities
(a) Trade payables (Bills payable) 21,200 14,000
(b) Other Current Liabilities (Outstanding expenses) 2,400 3,200
(c) Short-term Provisions (Provision for Tax) 12,800 11,200
Total 2,14,800 1,74,800
II. ASSETS
1. Non-current assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 2. 96,400 76,000
(ii) Intangible assets (Goodwill) 18,800 24,000
2. Current assets
(a) Inventories 31,200 34,000
(b) Trade Receivables 43,200 30,000
(c) Cash and cash equivalents 11,200 6,800
Total 2,14,800 1,74,800
Notes to Accounts:
Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Reserves and Surplus
General Reseve 12,000 8,000
Balance in Statement of Profit and Loss 26,400 18,400
38,400 26,400
2. Tangible Assets
Land and Building 20,000 40,000
Plant 76,400 36,000
96,400 76,000
Additional Information: Depreciation charged on land and building `20,000 and on Plant `10,000 during the year.
Proposed dividend for 2024-25 was `15,600 and for 2023-24 `11,200.
[Ans. A. Net Cash from Operating Activities `56,000; B. Net Cash used in Investing Activities `(60,400); C. Net Cash
from Financing Activities `8,800]
Q.16 Cash inflow the operating activities of Pinnacle Ltd. for the year ended 31st March, 2025 was `28,000. The Balance
Sheet along with notes to accounts of Pinnacle Ltd. as at 31st March, 2025 is given below:
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 9,00,000 5,00,000
(b) Reserves and Surplus 1 90,000 1,10,000
2. Non-Current Liabilities
Long-term borrowings 2 3,00,000 2,00,000
3. Current Liabilities
(a) Trade Payables 60,000 80,000
Total 13,50,000 8,90,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.81

II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets
(a) Property, Plant and Equipment 3 7,46,000 5,24,000
(b) Intangible Assets 4 36,000 76,000
2. Current Assets
(a) Current Investments 1,30,000 20,000
(b) Inventories 2,00,000 1,30,000
(c) Cash and Cash Equivalents 2,38,000 1,40,000
Total 13,50,000 8,90,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Reserves and Surplus
(Balance in Statement of Profit and Loss) 90,000 1,10,000
2. Long-term borrowings
9% Debentures 3,00,000 2,00,000
3. Property, Plant and Equipment:
Plant and Machinery 8,86,000 6,04,000
Accumulated Depreciation (1,40,000) (80,000)
7,46,000 5,24,000
4. Intangible Assets:
Goodwill 36,000 76,000
You are given the following additional information:
(i) A machinery of the book value of `90,000 (depreciation provided thereon was `23,000), was sold at a profit of
`12,000.
(ii) 9% debentures were issued on 1st April, 2024.
Prepare the Cash Flow Statement.
[Ans. Net Cash used in Investing activities (B) `(2,93,000); Net Cash Inflow from Financing activities (C) `4,73,000]
7.82 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

CASE STUDY Based Multiple Choice Questions (MCQs)

CASE STUDY 1:
Charles Ltd.,made a profit of `1,00,000 after charging depreciation of `20,000 on assets and a transfer to general reserve
of `30,000. The goodwill amortised was `7,000 and gain on sale of machinery was `3,000. Other information available to
you (changes in the value of current assets and current liabilities) are trade receivables showed an increase of `3,000; trade
payables an increase of `6,000; prepaid expenses an increase of `200; and outstanding expenses a decrease of `2,000.
Question no.1 & 2 are based on the above case:
Q.1 What is the amount of Operating Profit before working capital changes?
(a) `1,24,000 (b) `1,60,000 (c) `1,54,000 (d) `1,30,000
Q.2 Ascertain cash flow from operating activities and choose the correct answer:
(a) `1,24,800 (b) `1,60,800 (c) `1,54,800 (d) `1,30,800
ANSWERS
1. (c) 2. (c)
Explanation 1 & 2: Net profit before tax = Net profit (given) + Transfer to general reserve = 1,00,000 + 30,000 = `1,30,000
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items 1,30,000
Add: Depreciation 20,000
Add: Goodwill amortised 7,000
Less: Gain on sale of machinery (3,000)
Operating Profit before W.C. changes 1,54,000
Less: Increase in trade receivables (3,000)
Add: Increase in trade payables 6,000
Less: Increase in prepaid expenses (200)
Less: Decrease in outstanding expenses (2,000)
Net cash from operating activities 1,54,800
CASE STUDY 2: Statement of Profit and Loss of Yamuna Ltd. for the Year ended March 31, 2025:
Particulars Amount (`)
(i) Revenue from Operations 10,00,000
(ii) Expenses:
Cost of Materials Consumed 50,000
Purchases of Stock-in-trade 5,00,000
Depreciation 25,000
Other Expenses 2,75,000
Total Expenses 8,50,000
(iii) Profit before tax (i-ii) 1,50,000
Additional information: (i) Trade receivables decrease by `30,000 during the year. (ii) Prepaid expenses increase by `5,000
during the year. (iii) Trade payables increase by `15,000 during the year. (iv) Outstanding expenses payable increased by
`3,000 during the year.
Question no. 3 & 4 are based on the above case:
Q.3 What is the amount of Operating Profit before working capital changes?
(a) `1,50,000 (b) `1,75,000 (c) `1,25,000 (d) `1,00,000
Q.4 Ascertain cash flow from operating activities and choose the correct answer:
(a) `2,18,000 (b) `1,88,000 (c) `2,23,000 (d) `2,05,000
ANSWERS
3. (b) 4. (a)
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.83
Explanation 3 & 4:
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items 1,50,000
Add: Depreciation 25,000
Operating Profit before W.C. changes 1,75,000
Add: Decrease in trade receivables 30,000
Less: Increase in prepaid expenses (5,000)
Add: Increase in trade payables 15,000
Add: Increase in outstanding expenses 3,000
Net cash from operating activities 2,18,000
CASE STUDY 3: Welprint Ltd. has given you the following information.
Particulars Amount (`)
Machinery as on April 01, 2024 50,000
Machinery as on March 31, 2025 60,000
Accumulated Depreciation on April 01, 2024 25,000
Accumulated Depreciation on March 31, 2025 15,000

During the year, a Machine costing `25,000 with Accumulated Depreciation of `15,000 was sold for `13,000.
Question no.5 & 6 are based on the above case:
Q.5 What is the amount of new machinery purchased during the year?
(a) `10,000 (b) `38,000 (c) `30,000 (d) `35,000
Q.6 Calculate Cash flows from Investing Activities and choose the correct answer.
(a) Net cash inflow from Investing Activities `3,000 (b) Net cash outflow from Investing Activities `25,000
(c) Net cash outflow from Investing Activities `22,000 (d) Net cash outflow from Investing Activities `17,000
ANSWERS
5. (d) `35,000
Explanation: Dr. Accumulated Depreciation Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Machinery A/c 15,000 By Balance b/d 25,000
To Balance c/d 15,000 By Statement of Profit and Loss 5,000
30,000 30,000
Dr. Machinery Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 50,000 By Bank A/c (proceeds from sale of machine) 13,000
To Statement of Profit and Loss 3,000 By Accumulated Depreciation 15,000
To Bank A/c (new machinery purchased) 35,000 By Balance c/d 60,000
88,000 88,000
6. (c) Net cash outflow from Investing Activities `22,000
Explanation:
Particulars Amount (`)
Sale of Machinery 13,000
Purchase of Machinery (35,000)
Net cash used in Investing Activities (22,000)
CASE STUDY 4:
Anand Ltd., arrived at a net income of `5,00,000 for the year ended March 31, 2025. Depreciation for the year was `2,00,000.
There was a profit of `50,000 on assets sold which was transferred to Statement of Profit and Loss account. Trade Receivables
increased during the year `40,000 and Trade Payables also increased by `60,000.
7.84 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Question no.7 & 8 are based on the above case:

Q.7 What is the amount of Operating Profit before working capital changes?
(a) `7,00,000 (b) `6,50,000 (c) `4,50,000 (d) `7,50,000
Q.8 Ascertain cash flow from operating activities and choose the correct answer:
(a) `6,70,000 (b) `6,10,000 (c) `7,10,000 (d) `7,20,000
ANSWERS
7. (b) 8. (a)
Explanation 7 & 8:
Particulars Details (`) Amount (`)
Net Profit before Tax and Extraordinary Items 5,00,000
Add: Depreciation 2,00,000
Less: Profit on sale of assets (50,000)
Operating Profit before W.C. changes 6,50,000
Less: Increase in trade receivables (40,000)
Add: Increase in trade payables 60,000
Net cash from operating activities 6,70,000
CASE STUDY 5: Using the following information of Nova Ltd. answer question numbers 9 & 10:
Particulars 31.3.2025 (`) 31.3.2024 (`)
Machinery (At cost) 5,00,000 3,00,000
Accumulated Depreciation on machinery 1,00,000 80,000
Goodwill 1,50,000 1,00,000
Land 70,000 1,00,000
Additional Information: During the year, a machine costing `50,000 on which the accumulated depreciation was `35,000 was sold for `12,000.
Q.9 What is the amount of new machinery purchased during the year?
(a) `2,00,000 (b) `2,35,000 (c) `2,50,000 (d) `2,47,000
Q.10 Calculate Cash flows from Investing Activities:
(a) Net cash outflow from Investing Activities `2,50,000 (b) Net cash outflow from Investing Activities `2,58,000
(c) Net cash outflow from Investing Activities `2,08,000 (d) Net cash outflow from Investing Activities `2,88,000
ANSWERS
9. (c) 10. (b)
Explanation 9: Dr. Accumulated Depreciation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Machinery A/c 35,000 By balance b/d 80,000
To Balance c/d 1,00,000 By Statement of P & L (depreciation provided) 55,000
1,35,000 1,35,000
Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 3,00,000 By Bank A/c 12,000
To Bank A/c (Bal. fig) 2,50,000 By Accumulated Depreciation A/c 35,000
By Statement of P&L – Loss on Sale 3,000
By Balance c/d 5,00,000
5,50,000 5,50,000
Explanation 10:
Particulars Amount (`)
Purchase of Machinery (2,50,000)
Purchase of Goodwill (50,000)
Sale of Machinery 12,000
Sale of land 30,000
Cash used in Investing activities (2,58,000)
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.85

1 Cash Flow Statement Self Assessment Tests

Time allowed : 35 min. Maximum Marks : 15
Q.1 Assertion (A): The financial statements of a business enterprise include cash flow statement.
Reason (R): Cash flow statement summarises the causes for the changes in cash position of a business enterprise
between dates of two balance sheets. (1)
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.2 Which of the following statements is incorrect? (1)
(a) Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities
because in either case they represent Inventory specifically held for resale.
(b) Cash advances and loans made by financial enterprises are usually classified as operating activities since they relate to
main activity of financial enterprises.
(c) Assets acquired by issue of shares are not disclosed in cash flow statement
(d) While preparing cash flow statement, current year’s proposed dividend will be added to Net Profit under operating
activities and will be shown under financial activity.
Q.3 Anand Ltd., arrived at a net income of `5,00,000 for the year ended March 31, 2025. Depreciation for the year was
`2,00,000. There was a profit of `50,000 on assets sold which was transferred to Statement of Profit and Loss account.
Trade Receivables increased during the year `40,000 and Trade Payables also increased by `60,000. Ascertain cash flow
from operating activities and choose the correct answer: (1)
(a) `6,70,000 (b) `6,10,000 (c) `7,10,000 (d) `7,20,000
Q.4 (a) Under the indirect method of ascertaining cash flow from operating activities, why is it important to begin with
ascertaining the net profit or loss before taxation and extraordinary items? Explain your answer in context of the
given Statement of Profit and Loss Account. (6)
Statement of Profit and Loss Account for the year ended March 31, 2025
Particulars Note No. Figures in (`)
(i) Revenue from Operations 1,00,000
(ii) Other Income 1 2,000
(iii) Total Revenues (i + ii) 1,02,000
(iv) Expenses
Cost of Materials Consumed 30,000
Purchases of stock-in-trade 10,000
Employees Benefits Expenses 10,000
Finance Costs 5,000
Depreciation 5,000
Other Expenses 12,000
72,000
(v) Profit before Tax (iii – iv) 30,000
Note: Other income includes profit on sale of land.
(b) The profit of jova Ltd. for the year ended 31st March, 2025 after appropriation was `2,50,000.
Depreciation of Machinery `20,000
Goodwill written off `9,000
Loss on sale of Furniture `2,000
Transfer to General Reserve `22,500
7.86 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Particulars 31.3.2024 (`) 31.3.2025 (`)

Income Received in Advance 8,000 _
Inventory 12,000 8,000
(i) Calculate Operating Profit before working capital changes.
(ii) Calculate Net Cash generated from / used in Operating Activities.
Q.5 From the following Balance Sheet of Havels Ltd. as at 31-3-2025, you are required to prepare a Cash Flow Statement:
(6)
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholders Funds
(a) Share Capital 7,90,000 5,80,000
(b) Reserves and Surplus 1 4,60,000 1,20,000
(2) Non-Current Liabilities
Long term Borrowings 2 5,00,000 3,00,000
(3) Current Liabilities
(a) Short term borrowings 3 1,15,000 42,000
(b) Short term Provisions 4 1,18,000 46,000
Total 19,83,000 10,88,000
II. ASSETS
(1) Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 5 9,80,000 6,35,000
(ii) Intangible Assets 6 2,68,000 1,70,000
(2) Current Assets
(a) Current Investments 1,40,000 70,000
(b) Trade Receivables 4,40,000 1,50,000
(c) Cash and Cash Equivalents 1,55,000 63,000
Total 19,83,000 10,88,000
Notes to Accounts:

Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1 Reserve and Surplus
Surplus (Balance in statement of Profit & Loss) 3,20,000 60,000
General Reserve 1,40,000 60,000
4,60,000 1,20,000
2 Long-term Borrowing
12% Debentures 5,00,000 3,00,000
3 Short-term Borrowing
Bank Overdraft 1,15,000 42,000
4 Short-term Provisions
Provision for Tax 1,18,000 46,000
5 Plant and Machinery 11,00,000 7,50,000
Less: Accumulated Depreciation (1,20,000) (1,15,000)
9,80,000 3,35,000
6 Intangible Assets
Patents 2,68,000 1,70,000
Additional Information: 12% debentures were issued on 1st September, 2024.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.87

2 Cash Flow Statement Self Assessment Tests

Time allowed : 35 min. Maximum Marks : 15
Q.1 A cash flow statement shows the inflow and outflow of cash and cash equivalents from various activities of a company
during a specific period. Which of these is not a feature of a cash equivalent? (1)
(a) It should be difficult to sell in the market to buyers.
(b) It should be a short-term investment of less than three months.
(c) It should carry very little risk of change in value.
(d) It should be convertible to known amounts of cash.
Q.2 Which of the following statements is incorrect? (1)
(i) Purchase of shares is an investing activity for a share brokerage firm.
(ii) In case of a non-financial enterprise, interest paid is classified under operating activities.
(iii) Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from
a cash flow statement.
(iv) Cash flows associated with extraordinary items should be classified and disclosed separately as arising from operating,
investing or financing activities.
(a) Only (i) (b) Only (ii) (c) Only (i) and (ii) (d) Only (ii) and (iv)
Q.3 Read the following statements carefully and choose the correct alternative: (1)
Statement-I: ‘Unexpired insurance of `2,000 at the end of the year’ will increase the cash flow from operating activities
while preparing ‘Cash Flow Statement’.
Statement-II: Net increase in working capital other than cash and cash equivalents will increase cash flow from operating
activities.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.4 Prepare a Cash Flow Statement from the following Balance Sheets of Arya Ltd.: (6)
Particulars Note No. 31.3.2025(`) 31.3.2024(`)
I. Equity and Liabilities:
(1) Shareholders’ Funds:
(a) Share Capital 10,00,000 8,00,000
(b) Reserves and Surplus 1 6,40,000 5,40,000
(2) Non-Current Liabilities:
Long-term Borrowings 2 1,50,000 1,00,000
(3) Current Liabilities:
(a) Trade Payables 30,000 12,000
(b) Short-term Provisions 3 30,000 28,000
Total 18,50,000 14,80,000
II. Assets:
(1) Non-Current Assets:
(a) Property, Plant and Equipment and Intangible Assets:
  Property, Plant and Equipment 4 7,75,000 4,90,000
(b) Non-current Investments 90,000 50,000
(2) Current Assets
(a) Inventory 6,20,000 4,13,000
(b) Trade receivables 3,20,000 4,94,000
(c) Cash & Cash Equivalents 45,000 33,000
Total 18,50,000 14,80,000
7.88 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Notes to Accounts:
Particulars 31.3.2025 31.3.2024
1. Reserves & Surplus:
General Reserve 5,00,000 4,30,000
Capital Reserve 60,000 50,000
Surplus i.e. balance in statement of profit and loss 80,000 60,000
6,40,000 5,40,000
2. Long-term Borrowings:
10% Debentures 1,50,000 1,00,000
3. Short-term Provisions:
Provision for tax 30,000 28,000
4. Property, Plant and Equipment:
Plant and Machinery 7,75,000 4,90,000
Additional Information:
(i) Tax provided during the year is `17,000.
(ii) Depreciation charged on plant and Machinery during the year amounted to `1,20,000.
(iii) Non-current Investments costing `30,000 were sold for `40,000 during the year. Gain on sale of Investments was
credited to Capital Reserve.
(iv) Additional Debentures were issued on 31.03.2025.
Q.5 Calculate Cash Flows from Investing and Financing Activities: (6)
Balance Sheet of Pioneer Ltd., as on March 31, 2025
Particulars Note No. 31.3.2025 (`) 31.03.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital (equity share capital) 4,00,000 5,00,000
(b) Reserve and surplus 1 5,50,000 2,00,000
2. Non-current Liabilities
Long-term borrowings (Bank Loan) 50,000 1,00,000
3. Current Liabilities
(a) Short-term borrowings 1,40,000 50,000
(b) Trade payables 12,000 5,000
(c) Short-term provisions 2 1,20,000 80,000
Total 12,72,000 9,35,000
II. ASSETS
1. Non-current assets
(a) Property, Plant & Equipment and Intangible Assets
(i) Property, Plant & Equipment 3 5,00,000 5,00,000
(ii) Intangible assets 4 1,50,000 1,00,000
(b) Non-current investments 1,00,000 –
2. Current assets
(a) Inventories 75,000 50,000
(b) Trade receivables 1,20,000 80,000
(c) Cash and cash equivalents 3,27,000 2,05,000
Total 12,72,000 9,35,000
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.89
Notes to Accounts:
Particulars 31.3.2025 (`) 31.03.2024 (`)
1. Reserve and Surplus
Surplus, i.e. Balance in Statement of Profit and Loss 3,50,000 2,00,000
2. Short-term Provisions:
Provision for Taxation 1,20,000 80,000
3. Property, Plant & Equipment
Equipments 2,30,000 2,00,000
Furniture
2,70,000 3,00,000
4. Intangible Assets 5,00,000 5,00,000
Patents 1,50,000 1,00,000
During the year, equipment costing `80,000 was purchased. Loss on Sale of equipment `5,000. Depreciation of
`15,000 and `30,000 charged on equipments and furniture. Dividend paid during the year was `50,000

3 Cash Flow Statement Self Assessment Tests

Time allowed : 35 min. Maximum Marks : 15
Q.1 Statement I: Sale of Marketable Securities will result in no flow of cash. (1)
Statement II: Debentures issued as collateral security will result in inflow of cash.
(a) Both Statements are correct. (b) Both Statements are incorrect.
(c) Statement I is correct and Statement II is incorrect. (d) Statement I is incorrect and Statement I is correct.
Q.2 Which of the following statements is incorrect? (1)
(i) Cash management includes the investment of excess cash in cash equivalents.
(ii) Purchase of marketable securities which constitutes long-term investments is not considered while preparing cash flow
statement.
(iii) Cash flows from operating activities are primarily derived from the main activities of the enterprise.
(iv) Financing activities are the acquisition and disposal of long-term assets and other investments not included in cash
equivalents.
(a) Only (i) (b) Only (ii) (c) Only (ii) and (iv) (d) Only (i), (ii) and (iv)
Q.3 From the following information find out the inflow of Cash by sale of Office equipment: (1)
31st March, 2025 31st March, 2024
Office Equipment `2,00,000 `3,00,000
Additional Information: Depreciation for the year 2024-25 was `40,000. Office Equipment purchased during the year
`30,000. Part of Office Equipment sold at a profit of `12,000
(a) `1,00,000 (b) `1,02,000 (c) `90,000 (d) `1,12,000
Q.4 Read the following hypothetical text and answer the questions given below on the basis of the same: (6)
Aditi, initiated her start-up ‘Fizz Ltd.’ in 2021. ‘Fizz Ltd.’ is an organic juice extracting unit. Its profits are increasing
year-after-year because of the increasing awareness towards health.
Following information has been extracted from the Balance Sheet of ‘Fizz Ltd.’ for the year ended 31s March, 2025:
Liabilities 31.3.2025 (`) 31.3.2024 (`)
Equity Share Capital 90,00,000 60,00,000
11% Debentures 30,00,000 50,00,000
Machinery (at cost) 28,00,000 20,00,000
Accumulated Depreciation on Machinery 90,000 60,000
11,20,000 11,20,000
Additional Information:
(i) During the year, a machine costing `4,00,000 was sold at a gain of `30,000.
(ii) Depreciation charged on machinery during the year was `50,000.
(iii) Interest paid on 11% debentures amounted to `5,50,000.
7.90 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

(iv) Dividend of `3,00,000 was paid on equity shares.

(v) Debentures were redeemed at a premium of 10% on 3st March, 2025.
(a) Calculate cash flows of ‘Fizz Ltd.’ from ‘Investing Activities’ and ‘Financing Activities.’ Show your workings
clearly.
(b) Why is separate disclosure of cash flows from investing and financing activities important? Explain.
Q.5 Following is the Balance Sheet of Wind Power Ltd. as at 31.3.2025. Prepare Cash Flow Statement. Show your workings
clearly. (6)
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds:
(a) Share Capital 48,00,000 44,00,000
(b) Reserves and Surplus (Balance in Statement of Profit and Loss) 12,00,000 8,00,000
2. Non-Current Liabilities:
Long-Term Borrowings 9,60,000 6,80,000
3. Current Liabilities:
(a) Trade Payables 7,16,000 8,16,000
(b) Short-Term Provisions 2,00,000 3,08,000
Total 78,76,000 70,04,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 1 42,80,000 34,00,000
(ii) Intangible Assets (Goodwill) 1,60,000 4,80,000
2. Current Assets:
(a) Current Investments 9,60,000 4,48,000
(b) Inventories 5,16,000 4,84,000
(c) Trade Receivables 6,80,000 5,72,000
(d) Cash and Cash equivalents 12,80,000 16,20,000
Total 78,76,000 70,04,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1. Property, Plant and Equipment
Machinery 50,80,000 40,00,000
Less: Accumulated Depreciation (8,00,000) (6,00,000)
42,80,000 34,00,000
Additional Information: During the year a piece of machinery costing `96,000 on which accumulated depreciation was
`64,000 was sold for `24,000.

4 Cash Flow Statement Self Assessment Tests

Time allowed : 35 min. Maximum Marks : 15
Q.1 What will be the effect of issue of Bonus shares on Cash Flow Statement? (1)
(a) No effect (b) Inflow in Financing Activity
(c) Inflow in Operating activity (d) Inflow in Investing Activity
Q.2 Statement-I: The patents of Kirtika Ltd. increased from `3,00,000 in 2023-24 to `3,50,000 in 2024-25. It will be
taken as purchase of Patents of 50,000 and will be shown under Cash outflow from Investing Activities. (1)
Statement-II: Purchase of Goodwill, Purchase of Fixed assets and Sale of fixed assets are examples, which come under
investing activity for every type of enterprise.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.91
Q.3 A Ltd. provides the following information: (1)
Particulars 1.4.2024 (`) 31.3.2025 (`)
Machinery 50,000 60,000
Accumulated depreciation 25,000 15,000
A machine of book value `10,000 with accumulated depreciation `8,000 was sold for `13,000. Cash flows from
investing activities will be:
(a) Net cash used in investing activities `28,000 (b) Net cash used in investing activities `15,000
(c) Net cash from investing activities `13,000 (d) Net cash from investing activities `15,000
Q.4 Read the following hypothetical text and answer the given questions on this basis: (6)
Shobha started a small enterprise selling hand-knitted sweaters under ‘Skill India Scheme’. As the business grew, the
revenue started increasing. On 1st April 2022, she decided to form ‘Shobha Ltd.’ along with twelve other like-minded
persons. The Balance Sheet of Shobha Ltd. as at 31st March, 2025, is given below. From the figures given in the Balance
Sheet and additional information, calculate ‘Cash Flows from Investing Activities’ and ‘Cash Flows from Financing
Activities’.
Liabilities Note No. 31.3.2025 (`) 31.3.2024 (`)
I. Equity and Liabilities :
1. Shareholders’ Funds
(a) Equity Share Capital 8,00,000 6,00,000
(b) Reserves and Surplus 1 2,00,000 50,000
2. Non-Current Liabilities
Long-term Borrowings 2 4,00,000 3,00,000
3. Current Liabilities
(a) Trade Payables 40,000 45,000
(b) Bank Overdraft 1,00,000 85,000
(c) Short-term Provisions 3 30,000 20,000
Total 15,70,000 11,00,000
II. Assets :
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 4 6,00,000 5,00,000
(ii) Intangible Assets 5 50,000
2. Current Assets
(a) Inventories 5,00,000 4,00,000
(b) Trade Receivables 4,00,000 90,000
(c) Cash and Cash Equivalents 70,000 60,000
Total 15,70,000 11,00,000
Notes to Accounts:
Note No. Particulars 31.3.2025 (`) 31.3.2024 (`)
1 Reserve and Surplus
Surplus i.e. Balance in Statement of Profit and Loss 2,00,000 50,000
2 Long-term Borrowings
10% Debentures 4,00,000 3,00,000
3 Short-term Provisions
Provision for tax 30,000 20,000
4 Property, Plant and Equipment
Machinery 7,00,000 6,50,000
Less : Accumulated Depreciation (1,00,000) (1,50,000)
6,00,000 5,00,000
5 Intangible Assets
Goodwill – 50,000
7.92 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

Additional Information:
(i) A piece of machinery costing `1,60,000 was sold at a loss of `20,000. Depreciation charged during the year
amounted to `40,000.
(ii) `1,00,000, 10% debentures were issued on 31.3.2025.
Q.5 From the following Balance Sheet of SRS Ltd. and the additional information as on 31.3.2025, prepare a Cash Flow
Statement: (6)
Particulars Note No. 31-3-2025 (`) 31-3-2024 (`)
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital 4,50,000 3,50,000
(b) Reserves and Surplus (Surplus i.e. Balance in Statement of 1,25,000 50,000
Profit & Loss)
(2) Non-current Liabilities
Long-term borrowings (12% Debentures) 2,25,000 1,75,000
(3) Current Liabilities
(a) Short-term borrowings (Bank overdraft) 75,000 37,500
(b) Short-term provisions (Provision for tax) 1,00,000 62,500
Total 9,75,000 6,75,000
II. ASSETS
(1) Non-current Assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 1 7,32,500 4,52,500
(ii) Intangible Assets (Goodwill) 50,000 75,000
(b) Non-current Investments 75,000 50,000
(2) Current Assets
(a) Current Investments 20,000 35,000
(b) Inventories (Stock in trade) 61,000 36,000
(c) Cash and Cash Equivalents 36,500 26,500
Total 9,75,000 6,75,000
Notes to Accounts:
Note No. Particulars 31-3-2025 (`) 31-3-2024 (`)
1. Property, Plant and Equipment: Machinery 8,37,500 5,22,500
Less: Accumulated Depreciation (1,05,000) (70,000)
7,32,500 4,52,500
Additional Information: `50,000, 12% debentures were issued on 31.3.2025. During the year a piece of machinery
costing `40,000, on which accumulated depreciation was `20,000, was sold at a loss of `5,000. Proposed Dividend for
the year 2023-24 and 2024-25 were `20,000 and `30,000 respectively.

5 Cash Flow Statement Self Assessment Tests

Time allowed : 35 min. Maximum Marks : 15
Q.1 Statement-I: Naresh Limited is Share Broker Company. Vikas Limited is engaged in manufacturing of packaged food.
Naresh Limited purchased 5,000 equity shares of `100 each of Vijay Limited. Vikas Limited also purchased 10,000
equity shares of `100 each of Vijay Limited. For the purpose of preparing their respective Cash Flow Statements, the
purchase of shares will be classified as Operating Activity for Naresh Limited and Investing Activity for Vikas Limited.
Statement-II: Investing activities are the acquisition and disposal of long-term assets and other investments included in
Cash Equivalents.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.93
Q.2 Which of the following statements is incorrect? (1)
(i) Cash equivalents means short-term highly liquid investments that are readily convertible into known amounts of
cash and which are subject to an insignificant risk of changes in value.
(ii) An investment normally qualifies as cash equivalents only when it has a short maturity, of say, two months or less
from the date of acquisition.
(iii) A cash flow statement provides information about the historical changes in cash and cash equivalents of an enterprise
by classifying cash flows into operating, investing and financing activities.
(iv) Purchase of marketable securities or short-term investment which constitutes cash equivalents is not considered
while preparing cash flow statement.
(a) Only (ii) (b) Only (ii) and (iv) (c) Only (iv) (d) Only (ii), (iii) and (iv)
Q.3 Aditya Sunrise Ltd. provides you the following information: (1)
Particulars 31.3.2025(`) 31.3.2024(`)
10% Bank Loan Nil 1,00,000
Equity Share Capital raised during the year `3,00,000; 10% Bank Loan was repaid on 01.04.2024; Dividend received
during the year was `20,000; Dividend Proposed for the year 2023-24 was `50,000 but only `20,000 was approved by
the Shareholders.
Find out the cash flow from Financing Activities.
(a) ` 1,50,000 (b) ` 2,00,000 (c) ` 1,70,000 (d) ` 1,80,000
Q.4 Read the following hypothetical text and answer the given question on this basis: (6)
Madhav is a young entrepreneur. On 1st April, 2021, he formed a partnership firm with two of his friends, Mohan and
Sohan. They started their business of exporting dry fruits. Their business was a successful business. Now they wanted
to expand the business in many other countries. For meeting the financial requirements, they changed the form of
business organisation and formed Madhav Ltd. The Balance Sheet of Madhav Ltd. as at 31.3.2025 was as follows:
Balance Sheet of Madhav Ltd. as at 31st March, 2025
Particulars Note No. 31.3.2025 (`) 31.3.2024 (`)
I. Equity and Liabilities :
1. Shareholders’ Funds
(a) Share Capital 35,00,000 25,00,000
(b) Reserves and Surplus
(Statement of P & L) 12,50,000 10,00,000
2. Non-Current Liabilities
Long-term Borrowings
(10% Debentures) 12,50,000 3,50,000
3. Current Liabilities
(a) Short-term Borrowings 50,000 75,000
(Bank Overdraft)
(b) Trade Payables 2,50,000 1,50,000
(c) Short-term Provisions 1 1,50,000 75,000
Total 64,50,000 41,50,000
II. Assets :
1. Non-Current Assets
(a) Property, Plant and Equipment 2 40,00,000 22,50,000
(b) Intangible Assets (Goodwill) 3,50,000 5,00,000
2. Current Assets
(a) Inventories 6,25,000 5,00,000
(b) Trade Receivables 12,50,000 7,50,000
(c) Cash and Cash Equivalents 2,25,000 1,50,000
Total 64,50,000 41,50,000
Notes to Accounts:
Note No. Particulars 31.3.2025(`) 31.3.2024(`)
1 Short term Provisions
Provision for Tax 1,50,000 75,000
7.94 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

2 Property, Plant and Equipment

Plant and Machinery 44,00,000 25,00,000
Less Accumulated Depreciation (4,00,000) (2,50,000)
40,00,000 22,50,000
Additional Information:
(i) A part of the machine having book value `75,000 accumulated depreciation thereon being `50,000 was sold for
`45,000 during the year.
(ii) Interest of `1,25,000 was paid on Debentures.
Calculate cash flows from ‘Investing activities’ and ‘Financing activities’ of Madhav Ltd. from the information provided above.
Q.5 On the basis of information given by Aradhana Ltd., prepare Cash Flow Statement for the year ending 31st March,
2025: (6)
Balance Sheet as on 31st March, 2025
Particulars Note No. 31.3.2024 (`) 31.3.2025 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 5,00,000 7,30,000
(b) Reserves and Surplus 1 3,50,000 3,70,000
2. Non-Current Liabilities
Long-term borrowings 2 4,00,000 2,00,000
3. Current Liabilities
(a) Trade Payables 3 3,60,000 4,60,000
(b) Short-term Provisions 4 3,25,000 3,20,000
Total 19,35,000 20,80,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 5 4,50,000 5,00,000
(ii) Intangible Assets 6 3,10,000 3,02,000
(b) Long-term Loans and Advances 4,00,000 4,30,000
2. Current Assets
(a) Inventories 2,70,000 2,90,000
(b) Trade Receivables 2,40,000 2,60,000
(c) Cash and Cash Equivalents 2,65,000 2,98,000
Total 19,35,000 20,80,000
Notes to Accounts:
Note No. Particulars 31.3.2024 (`) 31.3.2025 (`)
1. Reserves and Surplus
(Balance in Statement of Profit and Loss) 3,50,000 3,70,000
2. Long-term borrowings
10% Debentures 4,00,000 2,00,000
3. Trade Payables
Creditors 2,40,000 2,60,000
Bills Payable 1,20,000 2,00,000
3,60,000 4,60,000
4. Short-Term Provisions
Provision for Tax 3,25,000 3,20,000
5. Property, Plant and Equipment
Machinery 5,50,000 6,60,000
Less: Provision for Depreciation 1,00,000 1,60,000
4,50,000 5,00,000
6. Intangible Assets
Patents 3,10,000 3,02,000
Additional Information: (i) Debentures were redeemed on 1st April, 2024. (ii) Tax paid during the year `2,80,000.
Chapter 7: Cash Flow Statement SUBHASH DEY (Shree Radhey Publications) 7.95

7
CHAPTER
SOLUTIONS — Exercises and Self Assessment Tests
Cash Flow Statement

(for Practice)
NUMERICAL QUESTIONS (for Practice) 7D Calculation of Net Profit before Tax and Extraordinary items:
Net Profit for the year ` 50,000
1. Net profit before tax = Net profit (given) + Transfer to general reserve = Add: Provision for Tax ` 25,000
1,00,000 + 30,000 = `1,30,000 Net Profit before Tax & Extraordinary items ` 75,000
Calculation of cash flow from operating activities: Working Notes:
Particulars Details (`) Dr. Accumulated Depreciation A/c Cr.
Net Profit before Tax and Extraordinary Items 1,30,000 Particulars (`) Particulars (`)
Add: Depreciation 20,000 To Machinery A/c 8,000 By Balance b/d 75,000
Less: Gain on sale of machinery (3,000) To Balance c/d 1,00,000 By Depreciation A/c 33,000
Operating Profit before working capital changes 1,47,000 (Balancing Fig.)
Less: Increase in trade receivables (3,000) 1,08,000 1,08,000
Less: Decrease in outstanding expenses (2,000) 5.
Net cash from operating activities 1,42,000 Cash Flows from Operating Activities:
Particulars (`)
2. Calculation of cash flow from operating activities:
Net loss before Tax (Note 2) (44,000)
Particulars (`)
Add: Depreciation on Machinery 25,000
Net Profit before Taxation and Extraordinary Items 10,000 Add: Interest on Loan (Note 3) 7,500
(+) Depreciation 2,000
Operating loss before the working Capital changes (11,500)
(+) Provision for Doubtful Debts 200
Add: Decrease in Trade Receivables 14,000
= Operating Profit before working Capital changes 12,200 Add: Decrease in Other Current Assets 4,000
(–) Increase in Inventories (3,000) Less: Decrease in Trade Payable (14,000)
(+) Increase in expenses payable 500 Less: Increase in Inventories (7,000)
(–) Increase in Accrued Income (1,000)
Cash used in Operations before tax (14,500)
(–) Decrease in Income received in advance (1,000)
Less: Tax Paid (53,000)
Net Cash from Operations 7,700
Net Cash used in Operating Activities (67,500)
3. Calculation of cash flow from operating activities: Working Notes:
Net Profit Before Tax 12,50,000 (i) Provision for Tax A/c
Add: Depreciation on Fixed Assets 25,000 Particulars (`) Particulars (`)
Goodwill written off 15,000
To Bank A/c (tax paid) 53,000 By Balance b/d 70,000
Loss on Sale of Machine 12,000
To Balance c/d 68,000 By Statement of P & 51,000
Operating Profit before Working Capital Changes 13,02,000 L (Bal. Fig.)
Add: Decrease in Bills Receivable 9,500
1,21,000 1,21,000
Less: Decrease in Expenses Outstanding (1,000)
(ii) Calculation of Profit before Tax: (`)
Cash flow from Operating Activities 13,10,500
4. Nishant Ltd. Net loss for the year (25,000 – 1,20,000) (95,000)
Cash flows from Operating Activities Add: Provision for tax 51,000
Net loss before tax (44,000)
Particulars (`) (`) (iii) Interest on long-term loan = (60,000 × 10/100 × 3/12) + (80,000 ×
Net Profit before Tax & Extraordinary items 75,000 10/100 × 9/12) = 1,500 + 6,000 = `7,500
Add: Depreciation on machinery 33,000 6. Cash Flows from Operating Activities:
Loss on sale of machinery 1,000 Particulars Details (`)
Interest on debentures 8,500 Net Profit before tax & extraordinary items 3,25,000
Goodwill written off 36,000 Add: Non cash and non–operating charges
Depreciation on machinery 62,500
Operating Profit before Working Capital changes 1,53,500
Interest on debentures (10% of 1,50,000) 15,000
Less: Decrease in Trade Payables (12,500)
Operating profit before working capital changes 4,02,500
Increase in Inventories (4,000) Less: Increase in Trade Receivables (50,000)
Increase in Trade Receivables (13,500) Cash Flows from Operations before tax 3,52,500
Cash generated from Operations 1,23,500 Less: Tax paid (1,25,000)
Less: Tax paid (38,500) Net Cash generated from Operating Activities 2,27,500
Net Cash Inflows from Operating Activities 85,000 Working Notes: Net profit before tax = Net Profit for the year + Provision
for tax = [1,00,000 – (–25,000)] + 2,00,000 = `3,25,000
7.96 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume III: Financial Statement Analysis

7. Calculation of ‘Cash Flows from Operating Activities’: Dr. Accumulated Depreciation A/c Cr.
Particulars (`) Particulars (`) Particulars (`)
*Net Profit before tax and extraordinary items 2,50,000
To Machinery A/c 20,000 By Balance b/d 80,000
Add: Goodwill written off 1,00,000 To Balance c/d 1,00,000 By Statement of Profit 40,000
Interest on Debentures 90,000 and loss account
Operating profit before working capital changes 4,40,000
1,20,000 1,20,000
+ Increase in Trade Payables 1,00,000
+ Decrease in Inventories 1,00,000 10. Calculation of cash flow from operating activities:
(–) Increase in Trade Receivables (2,00,000) Particulars (`)
Cash generated from operations 4,40,000 Net Profit before Tax and Extraordinary Items 42,000
Less : Tax paid (80,000) Add: Depreciation 20,000
Cash Flows from operating activities 3,60,000 Add: Finance cost (interest on long term debt) 8,000
*Net Profit before tax = Net Profit after appropriations + Provision for Tax = Operating Profit before working capital changes 70,000
2,00,000 + 50,000 = `2,50,000 Less: Increase in trade receivables (3,000)
8. Calculation of ‘Cash Flows from operating activities’: Less: Increase in inventories (5,000)
Particulars (`) Less: Increase in prepaid insurance (500)
Net profit before tax and extraordinary items 80,000 Add: Decrease in trade payables (2,000)
Add: Depreciation 25,000 Add: Increase in O/s employees benefit expenses 1,000
Operating profit before changes in working capital 1,05,000 Cash generated from Operations before Tax 60,500
Add: Decrease in Inventories 11,000 Less: Income Tax paid (11,000)
Less: Increase in Trade Receivables (1,500) Net cash from operating activities 49,500
Less: Decrease in Trade payables (34,000)
Working Notes:
Cash generated from operations 80,500
Dr. Provision for Tax A/c Cr.
Less: Tax paid (6,500)
Cash Flow from operating activities Particulars (`) Particulars (`)
Dr. Provision for Tax Cr. To Bank A/c 11,000 By Balance b/d 3,000
Particulars (`) Particulars (`) (Tax paid) (Bal. fig.) By Statement of Profit 10,000
To Bank A/c 6,500 By Balance b/d 5,500 To Balance c/d 2,000 and Loss (Tax
To Balance c/d 9,000 By Statement of Profit 10,000 provision of current
&loss year)
15,500 15,500
13,000 13,000
Working Notes : Net profit before tax = Net Profit + Provision for Tax
11.
= 70,000 + 10,000 = `80,000
Cash Flows from Operating Activities
9. Cash Flow Statement of X Ltd. for the year ended 31st March 2025
Particulars Details (`) Particulars (`)
I. CASH FLOWS FROM OPERATING Net profit before taxation and extraordinary items 7,000
ACTIVITIES 2,00,000 Adjustments for:
Net Profit before Tax and Extraordinary Items 40,000 + Finance cost (interest on debentures) 10,000
+ Depreciation on machinery 60,000 + Depreciation 5,000
+ Depreciation on equipment 18,000 + Loss on sale of equipment 3,000
+ Loss on Sale of Assets 5,000 + Goodwill amortised 2,000
+ Goodwill Amortised – Profit on sale of machinery (2,000)
Operating Profit before Working Capital 3,23,000
Operating Profit before Working capital changes 25,000
Add: Increase in Trade Payable 17,000
Less: Increase in Inventory (75,000) – Increase in Trade receivables (6,000)
Less: Increase in Trade Receivables (67,000) + Decrease in Inventories 3,000
Cash From Operating Activities before Tax 1,98,000 + Increase in Trade payables 4,000
Less: Tax Paid (30,000) + Increase in Rent payable 500
Net Cash Inflow from Operating Activities 1,68,000 Cash generated from operations 26,500
Working Notes: Net Profit before tax = Net Profit during the year + Less: Income Tax paid (5,000)
Provision for Tax = `1,50,000 + `50,000 = `2,00,000 Add: Income Tax refund 3,000
Dr. Machinery A/c Cr. Net Cash from Operating activities 24,500
Particulars (`) Particulars (`) Working Notes:
To Balance b/d 2,00,000 By Accumulated 20,000 1. Net profit before taxation = 10,000 – 3,000 (income tax refund) = `7,000
To Bank A/c 1,60,000 Depreciation 2. Dr. Provision for taxation Account Cr.
(Purchases) By Loss on sale of Fixed 18,000 Particulars (`) Particulars (`)
Asset To Bank A/c 5,000 By Balance b/d 10,000
By Bank A/c 42,000 (Income tax paid) By Statement of Profit 8,000
By Balance c/d 2,80,000 To Balance c/d 13,000 and Loss
3,60,000 3,60,000 18,000 18,000