Question

The following information was obtained about the cash flows of XYZ Ltd. for the year ended 31st March, 2025: Cash inflows from operating activities Rs 28,000; cash used in investing activities Rs 32,000 and cash inflows from financing activities Rs 5,000. If the opening balance of cash and cash equivalents on 1st April, 2024 was Rs 25,000, the closing balance of cash and cash equivalents on 31st March, 2025 will be:

• A. Rs 90,000
• B. Rs 6,000
• C. Rs 26,000
• D. Rs 70,000

Hint:

Closing cash = opening Rs. 25,000 + 28,000 - 32,000 + 5,000.

Answer 1

The Correct Option is C

Step 1: Understand the question:
We are given cash flows of three activities and the opening cash balance. We must find the closing cash and cash equivalents.

Step 2: Recall the formula:
Closing cash and cash equivalents = Opening balance + Net cash from operating + Net cash from investing + Net cash from financing.
Cash used in investing activities is a negative figure.

Step 3: Do the calculation:
Operating activities: + Rs. 28,000.
Investing activities: - Rs. 32,000 (cash used).
Financing activities: + Rs. 5,000.
Net change in cash = 28,000 - 32,000 + 5,000 = Rs. 1,000 increase.
Closing balance = 25,000 + 1,000 = Rs. 26,000.

Step 4: Why the other options are wrong:
Option (A) Rs. 90,000 adds every figure as a positive: 25,000 + 28,000 + 32,000 + 5,000. The investing figure is a cash use, so it must be subtracted.
Option (B) Rs. 6,000 leaves out the opening balance and is not the net change of Rs. 1,000 either. It has no valid derivation.
Option (D) Rs. 70,000 is far above the opening cash plus a net increase of Rs. 1,000. It has no valid derivation.

Final Answer:
Closing cash and cash equivalents = Rs. 26,000. Option (C).