Question

From the following Balance Sheet of Bose Ltd. as at 31st March, 2024, calculate ‘Cash Flows from Operating Activities’.

Hint:

In Cash Flow from Operating Activities (Indirect Method), always start with Net Profit as per Statement of Profit and Loss and adjust for depreciation, loss on assets, and working capital changes.

Answer 1

Operating Ratio Calculation

Step 1: Calculate Cost of Goods Sold (COGS)
COGS = Purchases + Carriage Inward – Increase in Inventory
= ₹12,00,000 + ₹20,000 – ₹50,000 = ₹11,70,000

Step 2: Calculate Operating Expenses
Operating Expenses = Salaries + Wages
= ₹1,45,000 + ₹85,000 = ₹2,30,000

Step 3: Calculate Operating Cost
Operating Cost = COGS + Operating Expenses
= ₹11,70,000 + ₹2,30,000 = ₹14,00,000

Step 4: Calculate Operating Ratio
Operating Ratio = (Operating Cost / Revenue from Operations) × 100
= (₹14,00,000 / ₹25,00,000) × 100 = 56%

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Cash Flow from Operating Activities (Indirect Method)

Step 1: Start with Net Profit before Tax
Change in Statement of Profit and Loss = Closing – Opening
= ₹5,00,000 – ₹12,00,000 = (₹7,00,000) (Net Loss)

Add: Non-cash and Non-operating Expenses
Depreciation = ₹5,00,000 – ₹3,00,000 = ₹2,00,000
Loss on sale of machinery = ₹70,000
Total Adjustments = ₹2,00,000 + ₹70,000 = ₹2,70,000

Adjusted Operating Loss before Working Capital Changes
= (₹7,00,000) + ₹2,70,000 = (₹4,30,000)

Step 2: Adjust for Changes in Working Capital
Inventories: No change = ₹0
Trade Receivables: ₹10,00,000 – ₹2,00,000 = ₹8,00,000 (Increase) ⇒ Decrease in cash
Trade Payables: ₹5,00,000 – ₹3,50,000 = ₹1,50,000 (Increase) ⇒ Increase in cash
Net change in working capital = –₹8,00,000 + ₹1,50,000 = –₹6,50,000

Cash used in Operating Activities
= (₹4,30,000) – ₹6,50,000 = –₹10,80,000

Final Answer: Net Cash used in Operating Activities = –₹10,80,000