Question

From the following information obtained from the books of 'Sawera 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 2,000 was Rs 5,40,000.

Additional Information:

Particulars	31.3.2024 (Rs)	31.3.2025 (Rs)
Commission received in advance	10,000	4,000
Accrued interest	60,000	80,000
Outstanding rent	40,000	30,000
Trade receivables	3,24,000	3,43,000
Trade payables	2,30,000	2,97,000
Inventories	54,000	79,000
Other current assets	27,000	24,700

Hint:

Operating profit before working capital changes is 5,40,000 + 82,000 = 6,22,000. Working capital adds 69,300 and deducts 80,000, so cash from operations is Rs. 6,11,300.

Answer 1

Step 1: What we are finding:
Cash from operations shows the cash produced by the day-to-day business. We begin with net profit and correct it for non-cash items and for changes in current assets and current liabilities.
The profit of Rs. 5,40,000 is after depreciation Rs. 80,000 and goodwill written off Rs. 2,000. It is taken as net profit before tax.

Step 2: Add back the non-cash charges:
Depreciation and goodwill written off did not take any cash out.
80,000 + 2,000 = Rs. 82,000.
Operating profit before working capital changes = 5,40,000 + 82,000 = Rs. 6,22,000.

Step 3: Current liabilities:
Trade Payables rose from Rs. 2,30,000 to Rs. 2,97,000. Purchases on credit saved cash, so add Rs. 67,000.
Commission Received in Advance fell from Rs. 10,000 to Rs. 4,000. Less advance cash arrived, so deduct Rs. 6,000.
Outstanding Rent fell from Rs. 40,000 to Rs. 30,000. We paid Rs. 10,000 more rent in cash, so deduct Rs. 10,000.

Step 4: Current assets:
Accrued Interest rose from Rs. 60,000 to Rs. 80,000. Deduct Rs. 20,000.
Trade Receivables rose from Rs. 3,24,000 to Rs. 3,43,000. Deduct Rs. 19,000.
Inventories rose from Rs. 54,000 to Rs. 79,000. Deduct Rs. 25,000.
Other Current Assets fell from Rs. 27,000 to Rs. 24,700. Cash was released, so add Rs. 2,300.

Step 5: Statement of cash from operations:

Particulars	Rs	Rs
Net Profit before Tax		5,40,000
Add: Non-cash and non-operating items
Depreciation on Machinery	80,000
Goodwill written off	2,000	82,000
Operating Profit before Working Capital Changes		6,22,000
Add: Increase in current liabilities and decrease in current assets
Increase in Trade Payables	67,000
Decrease in Other Current Assets	2,300	69,300
Less: Decrease in current liabilities and increase in current assets
Decrease in Commission Received in Advance	(6,000)
Increase in Accrued Interest	(20,000)
Decrease in Outstanding Rent	(10,000)
Increase in Trade Receivables	(19,000)
Increase in Inventories	(25,000)	(80,000)
Cash from Operations		6,11,300

Additions = 67,000 + 2,300 = 69,300. Deductions = 6,000 + 20,000 + 10,000 + 19,000 + 25,000 = 80,000.

Step 6: Check the total:
Net working capital effect = 69,300 - 80,000 = Rs. (10,700).
Cash from operations = 6,22,000 - 10,700 = Rs. 6,11,300.

Final Answer:
Cash from Operations of Sawera Ltd. for the year ended 31st March 2025 is Rs. 6,11,300.