A Complete Cash Flow Statement, Worked
Chapter Fifty-Six
Syllabus topic 5, "Methods of Preparing Cash Flow Statement ( Indirect Method Only)"
Pages 156 to 158 of 162
The question
The balance sheets of Sunrise Industries Ltd as at 31 March 2026 and 2027 were:
| Liabilities | 2026, Rs | 2027, Rs |
|---|---|---|
| Equity share capital | 10,00,000 | 10,00,000 |
| 9 per cent preference share capital | 2,00,000 | 2,00,000 |
| Reserves and surplus | 1,40,000 | 3,00,000 |
| 10 per cent debentures | 4,00,000 | 4,00,000 |
| Creditors | 1,40,000 | 2,20,000 |
| Outstanding expenses | 32,000 | 38,000 |
| Provision for taxation | 78,000 | 1,02,000 |
| Total | 19,90,000 | 22,60,000 |
| Assets | 2026, Rs | 2027, Rs |
|---|---|---|
| Fixed assets, net | 13,00,000 | 14,00,000 |
| Non-current investments | 1,00,000 | 1,00,000 |
| Stock | 2,60,000 | 3,00,000 |
| Debtors | 1,60,000 | 2,40,000 |
| Cash and bank | 1,50,000 | 1,80,000 |
| Prepaid expenses | 20,000 | 40,000 |
| Total | 19,90,000 | 22,60,000 |
Additional information for the year ended 31 March 2027.
- Depreciation charged on fixed assets was Rs 1,00,000.
- A machine whose written down value was Rs 50,000 was sold for Rs 30,000.
- Interest of Rs 40,000 was paid on the debentures.
- Rs 40,000 of interest was received on the non-current investments.
- The provision for taxation charged for the year was Rs 1,02,000.
- A preference dividend of Rs 18,000 and an equity dividend of Rs 60,000 were paid during the year.
- The profit before tax for the year was Rs 3,40,000.
Prepare a cash flow statement for the year ended 31 March 2027 by the indirect method.
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The working notes
Working note 1: the fixed assets account, to find the purchases.
| Fixed assets account | Rs | Rs | |
|---|---|---|---|
| To balance b/d | 13,00,000 | By depreciation | 1,00,000 |
| To bank, purchases, balancing figure | 2,50,000 | By bank, sale proceeds | 30,000 |
| By loss on sale | 20,000 | ||
| By balance c/d | 14,00,000 | ||
| Total | 15,50,000 | Total | 15,50,000 |
So Rs 2,50,000 of fixed assets were bought, and the sale gave Rs 30,000 of cash against a written down value of Rs 50,000, a loss of Rs 20,000.
Working note 2: the provision for taxation account, to find the tax paid.
| Provision for taxation account | Rs | Rs | |
|---|---|---|---|
| To bank, tax paid, balancing figure | 78,000 | By balance b/d | 78,000 |
| To balance c/d | 1,02,000 | By profit and loss, this year's charge | 1,02,000 |
| Total | 1,80,000 | Total | 1,80,000 |
Working note 3: the changes in working capital.
| 2026, Rs | 2027, Rs | Change, Rs | Effect on cash | |
|---|---|---|---|---|
| Stock | 2,60,000 | 3,00,000 | 40,000 increase | Deduct |
| Debtors | 1,60,000 | 2,40,000 | 80,000 increase | Deduct |
| Prepaid expenses | 20,000 | 40,000 | 20,000 increase | Deduct |
| Creditors | 1,40,000 | 2,20,000 | 80,000 increase | Add |
| Outstanding expenses | 32,000 | 38,000 | 6,000 increase | Add |
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The cash flow statement
Sunrise Industries Ltd Cash flow statement for the year ended 31 March 2027, indirect method
A. Cash flows from operating activities
| Particulars | Rs |
|---|---|
| Net profit before tax and extraordinary items | 3,40,000 |
| Add: depreciation | 1,00,000 |
| Add: loss on sale of fixed assets | 20,000 |
| Add: interest paid | 40,000 |
| Less: interest received on investments | (40,000) |
| Operating profit before working capital changes | 4,60,000 |
| Less: increase in stock | (40,000) |
| Less: increase in debtors | (80,000) |
| Less: increase in prepaid expenses | (20,000) |
| Add: increase in creditors | 80,000 |
| Add: increase in outstanding expenses | 6,000 |
| Cash generated from operations | 4,06,000 |
| Less: income tax paid | (78,000) |
| Net cash from operating activities | 3,28,000 |
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