Study computation of net sales, cost of goods sold and interest expense etc. On Income Statement.

financial statement analysis Cash flow from Operating Activities

Cash received from customers; Cash received from sales on cash = Net Sales; Cash received from sales on credit/on account = Net sales – increase in Accounts Receivable or Net sales + decrease in Accounts Receivable. Increase/decrease in Accounts Receivable is observed from beginning and ending/closing balances, appearing on Balance Sheet.

(A1 No:1):

Cash received from customers = 900,000 – 30,000 = Rs.870,000

A1 No:2

Cash dividend received = Dividends Revenue =Rs.3,000: Divided Revenue is based on cash, so whatever Dividend Revenue is being received, that in cash Inflows.

Cash interest received=Interest Revenue + Decrease in Interest Receivable, or Interest Revenue

– Increase in Interest Receivable = 6000 + 1000 = 7000 Interest & Dividend received = 3,000 + 7,000 = 10,000

Cash Inflow from operating activities would be: Cash from customers + interest & dividends receivable = 870,000 + 10,000 = Rs. 880,000

CASH FLOW STATEMENT CONTD……… QUESTION # 1

You are given the Balance Sheet of ABC Limited as at June 30, 2001 and June 30, 2002 and its Profit and Loss Account for the year ended June 30 2002. Required You are required to prepare Cash Flow Statement for the given period. ABC Ltd

Balance Sheet As At June 30 2002
2002 Rs. 2001 Rs.
Rs. ‘000 Rs.
‘000
Building at Cost 181,000
140,000

Accumulated Depreciation 36,000 30,000
Written Down Value 145,000 110,000
Plant and Machinery cost 83,000 90,000
Accumulated Depreciation 36,000 35,000
Written Down Value 47,000 55,000
Total Fixed Assets at WDV 192,000 165,000
Long Term Investment 17,000 10,000
Current Assets
Debtors 30,000 21,000
Stock 25,000 40,000
Short Term Deposits 18,000 15,000
Cash and Bank 30,000 24,000
103,000
100,000
Current Liabilities
Creditors 15,000 12,000
Proposed Dividend 18,000 16,000
Tax Payable 9,000 8,000
42,000 36,000
Working Capital 61,000 64,000
Net Assets Employed 270,000 239,000
Financed By
Share Capital 180,000
160,000
Share Premium Account
17,000
12,000
General Reserve 23,000
20,000
Accumulated Profit and Loss 34,000 27,000
Share Holders’ Equity 254,000 219,000
Term Finance Certificates 16,000 20,000
Total 270,000 239,000

ABC Ltd Profit and Loss Account For the Year Ended June 30 2002

Sales Cost of Sales Gross Profit Other Income

Less: Administrative Expenses Director’s Remuneration Depreciation on Building Loss on Sale of Machinery Other Administrative Expenses

Less: Selling Expenses Less: Mark up on TFC

Profit for the Year Before Tax

Provision for tax Profit after tax Acc. Profit Brought Forward

Appropriation Transfer to Reserve Proposed Dividend

Accumulated Profit Carried Forward

Additional Information

1. Other income include dividend on Long Term Investment
Rs. ‘000
300,000
(231,000) 69,000 4,000
73,000
4,000 6,000 2,000 12,000
24,000 10,000 2,000
36,000
37,000
9,000 28,000
27,000
55,000
3,000 18,000
21,000
34,000
  1. Cost of goods sold includes depreciation for the year on machinery Rs. 5,000.
  2. Accumulated Depreciation on the machine disposed off amounts to Rs. 4,000.
SOLUTION

ABC Ltd

Cash Flow Statement For the Year Ended June 30 2002

Note Rs. ‘000
Net Profit Before Tax 37,000
Adjustment of Non Cash Items
Depreciation 11,000
Loss on Sale of Machinery 2,000
Markup on TFC 2,000
52,000
Less: Other Income (4,000)
Operating Profit Before Working
Capital Changes 48,000
Working Capital Changes
Reduction in Stock 15,000
Increase in Creditors 3,000
Increase in Debtors (9,000)
9,000
Cash Flow from Operations 57,000
Markup on TFC Paid (2,000)
Tax Paid 1 (8,000)
Net Cash Flow From Operating Activities 47,000
Cash Flow From Investing Activities
Dividend Received 4,000
Payment to Acquire Investments 2 (7,000)
Purchase of Fixed Assets (Building) 3 (41,000)
Receipt from Sale of Assets 4 1,000
Net Cash Flow From Investing Activities (43,000)
Cash Flow From Financing Activities
Issue of Ordinary Shares 20,000
Share Premium Account 5,000
Dividend Paid 5 (16,000)
Repayment of TFC 6 (4,000)
Net Cash Flow From Financing Activities 5,000
Net Increase / (Decrease) in Cash and
Cash Equivalents During The Year 9,000
O/B of Cash and Cash Equivalents 39,000
C/B of Cash and Cash Equivalents 48,000

Note # 1 Tax Paid

Provision for Tax Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Cash Balance c/f 8,000 9,000 Bal. B/F For the year 8,000 9,000
Total 17,000 Total 17,000

Note # 2 Payments to Acquire Investments

Investment Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Bal. B/F Cash 10,000 7,000 Bal. C/F 17,000
Total 17,000 Total 17,000

Note # 3 Purchase of Fixed Assets

Building Cost Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Bal. B/F Cash 140,000 41,000 Bal. C/F 181,000
Total 181,000 Total 181,000

Note # 4 Sale Proceed of Machinery Note # 5 Dividend Payable

Machinery at Cost Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Bal. B/F 90,000 Disposal A/c Bal. C/F 7,000 83,000
Total 90,000 Total 90,000
Disposal of asset Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Cost 7,000 Accumulated Dep. Loss on Sale Sale Proceed 4,000 2,000 1,000
Total 7,000 Total 7,000
Dividend Payable Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Cash C/B 16,000 18,000 O/B For the Year 16,000 18,000
Total 34,000 Total 34,000

Note # 6 Repayment of TFC Lesson-16

TFC Account Account Code ——–
Particulars Amount Dr. (Rs.) Particulars Amount Cr. (Rs.)
Cash C/B 4,000 16,000 O/B 20,000
Total 20,000 Total 20,000
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