Question

On 31st March, 2024 following is the Balance Sheet of Bhavik Limited : 
Bhavik Ltd. 

Additional Information : 
(i) During the year a piece of machinery costing Rs 8,00,000 accumulated depreciation thereon Rs 50,000 was sold for Rs 6,50,000 
(ii) Debentures were redeemed on 31-03-2024. 
Calculate: 
(a) Cash flows from Investing Activities 
(b) Cash flows from Financing Activities 
 

Hint:

Cash Flow Statement Steps: 1. Compare B/S items to identify changes. 2. Prepare Ledger Accounts (Fixed Asset, Acc. Dep., Investment, Provision for Tax) if additional info is given, to find hidden items (purchases, sales, depreciation, tax paid). 3. Classify cash flows: * \textbf{Operating:} Core business activities, changes in current assets/liabilities (Indirect: Start PBT, adjust non-cash/non-operating items, WC changes, tax paid). * \textbf{Investing:} Purchase/Sale of non-current assets (PPE, Intangibles, Investments). * \textbf{Financing:} Transactions related to non-current liabilities and shareholders' funds (Issue/Redemption of Shares/Debentures, Loans raised/repaid, Dividends paid, Interest paid).

Answer 1

To solve the problem, we need to calculate the cash flows from investing and financing activities based on the provided information.

A) Cash Flow from Investing Activities

1. Sale of Machinery:
- Cost of Machinery Sold: ₹ 8,00,000
- Accumulated Depreciation: ₹ 50,000
- Book Value of Machinery Sold: ₹ 8,00,000 - ₹ 50,000 = ₹ 7,50,000
- Sale Price: ₹ 6,50,000
- Cash received from the sale of machinery: ₹ 6,50,000

2. Purchase of Plant and Machinery:
We need to calculate the actual cash outflow on the purchase of plant and machinery:
- Opening Plant and Machinery (Gross): ₹ 16,00,000
- Closing Plant and Machinery (Gross): ₹ 21,50,000
- Add: Cost of Machinery sold
- ₹ 16,00,000 + Purchase of Machinery - ₹ 8,00,000 = ₹ 21,50,000
- Purchase of Machinery = ₹ 21,50,000 - ₹ 16,00,000 + ₹ 8,00,000 = ₹ 13,50,000
- Cash used in the purchase of plant and machinery: ₹ 13,50,000

3. Purchase of Non-current Investment:
- Decrease in Non-current investment ₹4,00,000 - ₹3,00,000 = ₹1,00,000

Cash Flow from Investing Activities:
- Cash from sale of machinery: ₹ 6,50,000
- Purchase of Machinery: (₹ 13,50,000)
- Purchase of Non-current investment: ₹1,00,000
- Net Cash Used in Investing Activities: ₹6,50,000 - ₹13,50,000 - ₹1,00,000 = (₹8,00,000)

B) Cash Flow from Financing Activities

1. Increase in Share Capital:
- Increase in Share Capital: ₹ 12,00,000 - ₹ 10,00,000 = ₹ 2,00,000
- Cash received from the issue of share capital: ₹ 2,00,000

2. Redemption of Debentures:
- Decrease in Debentures: ₹ 10,00,000 - ₹ 6,00,000 = ₹ 4,00,000
- Cash used for the redemption of debentures: (₹ 4,00,000)

3. Increase in Reserves and Surplus:
- Increase in Reserves and Surplus: ₹ 4,00,000 - ₹ 3,00,000 = ₹ 1,00,000
- Cash received from the increase in reserves: ₹ 1,00,000

Cash Flow from Financing Activities:
- Cash received from the issue of share capital: ₹ 2,00,000
- Cash used for the redemption of debentures: (₹ 4,00,000)
- Cash received from the increase in reserves: ₹ 1,00,000
- Net Cash Used in Financing Activities: ₹2,00,000 - ₹4,00,000 + ₹1,00,000 = (₹1,00,000)

Answers:
- (a) Cash Flows from Investing Activities: (₹8,00,000)
- (b) Cash Flows from Financing Activities: (₹1,00,000)