Preparation of Cash Flow Statement
There are two methods to prepare cash flow statement; they are:
(1) Direct method
(2) Indirect method
Both methods have three activities; they are:
(a) Operating activities
(b) Investing activities
(c) Financing activities
Keep in Mind (KIM)
Only operating activities are the difference between direct methods and indirect methods. |
Investing activities and financing activities are the same in both methods. |
It is based on non-current liabilities or long-term liabilities (liabilities side of balance sheet)
Issue of equity shares, preference shares and debentures; redemption of preference share and debentures; repayment of secured loan and unsecured loan; dividend paid etc are part of investing activities.
An increase in shares and debentures means the issue of shares and debentures.
It is a cash inflow. Decrease in preference share and debentures mean the redemption of preference shares and debentures. It is a cash outflow.
Issue of equity shares and premium
Issue of preference shares and premium
Issue of debentures and premium
Discount on redemption of debentures
A secured and unsecured loan
Bank loan
Dividend paid
Cash flow Statement
Direct Method
CASH FROM FINANCING ACTIVITES |
Amount |
Amount |
|
|
Cash inflow: |
|
|
|
Issue of equity shares |
|
xxxx |
|
Issue of preference shares |
|
xxxx |
|
Issue of debentures/bonds |
|
xxxx |
|
Long term loan taken |
|
xxxx |
|
Increase in share premium |
|
xxxx |
|
Cash outflow: |
|
|
|
Redemption of preference shares |
|
(xxx) |
|
Redemption of debentures with premium |
|
(xxx) |
|
Long term loan repaid |
|
(xxx) |
|
Dividend paid |
|
(xxx) |
Net cash from financing activities (C) |
|
± xxxx |
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|
Accounting for Share |
|
Share in Nepali |
|
Debentures |
|
Final Accounts: Class 12 |
|
Final Accounts in Nepali |
|
Work Sheet |
|
Ratio Analysis (Accounting Ratio) |
|
Fund Flow Statement |
|
Cash Flow Statement |
|
Theory Accounting Xii |
|
Theory: Cost Accounting |
|
Cost Accounting |
|
LIFO−FIFO |
|
Cost Sheet, Unit Costing |
|
Cost Reconciliation Statement |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3A
The following extracted balances are taken from ABC Company Ltd
Particulars |
31 Dec 2019 |
31 Dec 2020 |
|
Equity shares capital |
9,00,000 |
12,00,000 |
|
Share premium |
90,000 |
1,20,000 |
|
9% Debentures |
3,00,000 |
1,50,000 |
|
10% Preference shares capital |
4,00,000 |
3,00,000 |
|
Dividend paid |
|
1,20,000 |
|
Required: Cash from financing activities
[Answer: (Rs 40,000)
SOLUTION:
Cash flow Statement
Direct Method
CASH FROM FINANCING ACTIVITES |
Amount |
Amount |
|
|
Cash inflow: |
|
|
|
Issue of equity shares |
|
3,00,000 |
|
Increase in share premium |
|
30,000 |
|
Cash outflow: |
|
|
|
Redemption of debentures |
|
(1,50,000) |
|
Redemption of preference shares |
|
(1,00,000) |
|
Dividend paid |
|
(1,20,000) |
Net cash from financing activities (C) |
|
(40,000) |
Keep in Mind (KIM)
Equity shares never decrease viz cannot redeem. |
Increased equity shares mean the issue of shares viz cash inflow. |
Increased in share premium means cash inflow. |
Increase preference shares mean the issue of shares viz cash inflow. |
Increase debentures mean the issue of shares viz cash inflow.
|
Decreased in preference shares means the redemption of share viz cash outflow. |
Decreased in debentures means the redemption of debentures viz cash outflow. |
Premium on redemption of debentures means capital loss viz cash outflow. |
Dividend paid is always cash outflow. |
Debentures are issued by a limited company; bonds are issued by the government. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3B
The following extracted balances are taken from ABC Company Ltd
Particulars |
31 Dec 2019 |
31 Dec 2020 |
|
Equity shares capital |
9,00,000 |
12,00,000 |
|
Share premium |
90,000 |
1,20,000 |
|
9% Debentures |
3,00,000 |
1,50,000 |
|
10% Preference shares capital |
4,00,000 |
3,00,000 |
|
Retained earning |
6,00,000 |
7,80,000 |
|
Additional information:
(a) Net profit for the year was Rs. 300,000. (b) Debentures redeemed at 10% premium.
Required: Cash from financing activities
[Answer: (Rs 55,000)
SOLUTION:
Given and working note:
Retained Earnings Account
Particulars |
Amount |
Particulars |
Amount |
To Bank account (dividend paid) |
120,000 |
By Beginning balance |
600,000 |
To Ending balance |
780,000 |
By Profit and loss |
300,000 |
|
900,000 |
|
900,000 |
Now,
Cash flow Statement
Direct Method
CASH FROM FINANCING ACTIVITES |
Amount |
Amount |
|
|
Cash inflow: |
|
|
|
Issue of equity shares |
|
3,00,000 |
|
Increase in share premium |
|
30,000 |
|
Cash outflow: |
|
|
|
Redemption of debentures |
|
(1,50,000) |
|
Premium on redemption of debentures |
|
(15,000) |
|
Redemption of preference shares |
|
(1,00,000) |
|
Dividend paid |
|
(1,20,000) |
Net cash from financing activities (C) |
|
(55,000) |
#####
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3A
Following is the extracted information from MN Company Ltd:
|
Year 2019 |
Year 2020 |
Equity shares capital |
500,000 |
800,000 |
Share premium |
60,000 |
90,000 |
5% Preference shares |
300,000 |
500,000 |
6% Debentures |
300,000 |
200,000 |
Long-term loan |
150,000 |
70,000 |
Dividend paid during the year |
– |
50,000 |
Required: Net cash from financing activities
[Answer: Inflow Rs = 300,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3B
Following is the extracted information from ASD Company Ltd:
|
Year 2019 |
Year 2020 |
Equity shares capital |
600,000 |
800,000 |
8% Preference shares |
200,000 |
200,000 |
5% Debentures |
300,000 |
150,000 |
Retained earnings |
70,000 |
90,000 |
Net profit during the year |
– |
50,000 |
Additional information:
Equity shares are issued at 10% premium
Debentures are redeemed at 5% premium
Required: Net cash from financing activities
[Answer: Inflow Rs = 32,500]* Dividend paid = Rs 30,000]
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