Question

From the following information, calculate ‘Cash Flows From Operating Activities’:
\[ \begin{array}{|l|r|} \hline \textbf{Particulars} & \textbf{Amount (\rupee)} \\ \hline Surplus i.e., Balance in Statement of Profit and Loss & 628,000 \\ \hline Provision for Tax & 150,000 \\ \hline Proposed Dividend for the Previous Year & 72,000 \\ \hline Depreciation & 140,000 \\ \hline Loss on Sale of Machinery & 30,000 \\ \hline Gain on Sale of Investments & 20,000 \\ \hline Dividend Received on Investments & 60,000 \\ \hline Increase in Current Liabilities & 161,000 \\ \hline Increase in Current Assets (Other than Cash) & 600,000 \\ \hline Decrease in Current Liabilities & 64,000 \\ \hline Income Tax Paid & 118,000 \\ \hline \end{array} \]

Hint:

1. Always add back non-cash expenses (e.g., depreciation) and losses and deduct non-operating incomes (e.g., dividend received) to calculate operating cash flows. 2. Adjust for changes in working capital: - Increase in current liabilities increases cash. - Increase in current assets reduces cash. 3. Deduct taxes paid to find the net cash flow.

Answer 1

Cash Flow from Operating Activities is calculated as: \[ \text{Net Profit Before Tax and Extraordinary Items} = 6,28,000 + 1,50,000 (\text{Provision for Tax}) = 7,78,000 \] Adjustments for non-cash and non-operating items: \[ \text{Add: Depreciation} = 1,40,000 \] \[ \text{Add: Loss on Sale of Machinery} = 30,000 \] \[ \text{Less: Gain on Sale of Investments} = (20,000) \] \[ \text{Operating Profit Before Working Capital Changes} = 7,78,000 + 1,40,000 + 30,000 - 20,000 = 9,28,000 \] Adjustments for working capital changes: \[ \text{Add: Increase in Current Liabilities} = 1,61,000 \] \[ \text{Less: Increase in Current Assets} = (6,00,000) \] \[ \text{Less: Decrease in Current Liabilities} = (64,000) \] \[ \text{Cash Generated from Operations} = 9,28,000 + 1,61,000 - 6,00,000 - 64,000 = 4,25,000 \] Adjustments for taxes and dividends: \[ \text{Less: Income Tax Paid} = (1,18,000) \] 

Net Cash Flow from Operating Activities = 4,25,000 - 1,18,000 = 3,07,000

Final Answer: Cash Flows from Operating Activities = 3,07,000