Question

From the following information obtained from the books of 'Ajanta Ltd.', calculate Cash from Operations:

Net Profit for the year ended 31st March, 2025 after charging depreciation of Rs 80,000 and after writing off goodwill Rs 10,500 was Rs 4,90,000.

Additional Information:

Particulars	31.3.2024 (Rs)	31.3.2025 (Rs)
Inventories	1,00,000	1,50,000
Trade receivables	2,00,000	2,25,000
Prepaid insurance	20,000	15,000
Accrued interest	40,000	30,000
Other current assets	90,000	1,40,000
Trade payables	2,00,000	1,70,000
Outstanding expenses	12,000	8,500
Rent received in advance	-	10,000

Hint:

Add back depreciation 80,000 and goodwill 10,500 to reach 5,80,500. Working capital adds 25,000 and deducts 1,58,500, so cash from operations is Rs. 4,47,000.

Answer 1

Step 1: Starting point:
We begin with the net profit of Rs. 4,90,000. It is stated after charging depreciation of Rs. 80,000 and writing off goodwill of Rs. 10,500.
No tax is given, so this figure is taken as net profit before tax.

Step 2: Remove non-cash charges:
Depreciation and goodwill written off are book entries. No cash went out for them.
Total = 80,000 + 10,500 = Rs. 90,500.
Operating profit before working capital changes = 4,90,000 + 90,500 = Rs. 5,80,500.

Step 3: Items that add cash:
Prepaid Insurance fell from Rs. 20,000 to Rs. 15,000. Less cash is tied up, so we add Rs. 5,000.
Accrued Interest fell from Rs. 40,000 to Rs. 30,000. Rs. 10,000 of interest was received, so we add Rs. 10,000.
Rent Received in Advance rose from nil to Rs. 10,000. Cash came in early, so we add Rs. 10,000.
Total additions = Rs. 25,000.

Step 4: Items that take cash away:
Inventories rose from Rs. 1,00,000 to Rs. 1,50,000. Deduct Rs. 50,000.
Trade Receivables rose from Rs. 2,00,000 to Rs. 2,25,000. Deduct Rs. 25,000.
Other Current Assets rose from Rs. 90,000 to Rs. 1,40,000. Deduct Rs. 50,000.
Trade Payables fell from Rs. 2,00,000 to Rs. 1,70,000. We paid Rs. 30,000 more to creditors, so deduct Rs. 30,000.
Outstanding Expenses fell from Rs. 12,000 to Rs. 8,500. Deduct Rs. 3,500.
Total deductions = 50,000 + 25,000 + 50,000 + 30,000 + 3,500 = Rs. 1,58,500.

Step 5: Statement of cash from operations:

Particulars	Rs	Rs
Net Profit before Tax		4,90,000
Add: Non-cash and non-operating items
Depreciation	80,000
Goodwill written off	10,500	90,500
Operating Profit before Working Capital Changes		5,80,500
Add: Decrease in current assets and increase in current liabilities
Decrease in Prepaid Insurance	5,000
Decrease in Accrued Interest	10,000
Increase in Rent Received in Advance	10,000	25,000
Less: Increase in current assets and decrease in current liabilities
Increase in Inventories	(50,000)
Increase in Trade Receivables	(25,000)
Increase in Other Current Assets	(50,000)
Decrease in Trade Payables	(30,000)
Decrease in Outstanding Expenses	(3,500)	(1,58,500)
Cash from Operations		4,47,000

Step 6: Verify:
Net working capital effect = 25,000 - 1,58,500 = Rs. (1,33,500).
Cash from operations = 5,80,500 - 1,33,500 = Rs. 4,47,000.

Final Answer:
Cash from Operations of Ajanta Ltd. for the year ended 31st March 2025 is Rs. 4,47,000.