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Financial Accounting I – Cash flow statement
BBA | BBA-BI | BBA-TT | BCIS 1st
PU 2011 Fall Q. No. 5
Buddha Corporation has just completed another accounting year as a successful year. The income statement and comparative balance sheet is presented below to reflect it.
Buddha Corporation Income Statement
For the year ended Dec. 31st, 2008
| Particulars | Amount (in Rs.) |
| Sales revenue Cost of goods sold Gross profit Operating expenses Income before interest and taxes Interest expense Income before taxes Income taxes expenses | 12,50,000 7,00,000 5,50,000 1,50,000 4,00,000 25,000 3,75,000 1,50,000 |
| Net income | 2,25,000 |
Buddha Corporation
Comparative balance sheet
| Particulars | Dec. 31st, 2007 | Dec. 31st, 2008 |
| Cash Account receivable Inventory Prepayments Total current assets Land Plant and equipment Accumulated depreciation Total long-term assets | 52,000 1,80,000 2,30,000 15,000 4,77,000 7,50,000 7,00,000 (2,50,000) 12,00,000 | 90,000 1,30,000 2,00,000 25,000 4,45,000 6,00,000 5,00,000 (2,00,000) 9,00,000 |
| Total assets | 16,77,000 | 13,45,000 |
| Account payable Other accrued liabilities Income taxes payable Total current liabilities Long-term bank loan payable Common stock Retained earnings Total stockholder’s equity | 1,30,000 68,000 90,000 2,88,000 3,50,000 5,50,000 4,89,000 10,39,000 | 1,48,000 63,000 2,11,000 3,00,000 5,10,000 3,24,000 8,34,000 |
| Total liabilities and stockholder’s equity | 16,77,000 | 13,45,000 |
Other additional information is as follows:
Dividend of Rs. 3,90,000 were declared and paid during the year.
Operating expenses include Rs. 50,000 of depreciation for the year.
Land and plant and equipment were sold for cash, and same of its stock were repurchased for cash. A part of bank loan was paid.
Required:
Statement of cash flows for the year ended December 31st, 2008, using
Solution:
Buddha Corporation
Cash flow statement (direct method)
For the year ended Dec. 31st, 2008
| Particulars | Amount Rs. |
| 1. Cash flow from operating activities a. Cash sales and collection form customers Sales revenue | 12,50,000 50,000 |
| b. Cash paid to suppliers Cost of goods sold Decrease in inventory Increase in account payable | (7,00,000) 30,000 18,000 |
| c. Cash paid to employees and operating expenses Operating expenses (excluding depreciation) Increase in prepayment | (1,00,000) (10,000) (5,000) |
| d. Payment of interest Interest expense | (25,000) |
| e. Payment of tax Income tax expense Net cash flow from operating activities (a+b+c+d+e) | (1,50,000) (90,000) 2,68,000 |
| 2. Cash flow from investing activities Sale of land Sale of plant and equipment Net cash flow from investing activities | 1,50,000 1,00,000 2,50,000 |
| 3. Cash flow from financing activities Repayment of bank loan Redemption of common stock Dividend paid Net cash flow from financing activities | (50,000) (40,000) (3,90,000) (4,80,000) |
| Net changes in cash or cash equivalent (1+2+3) Add: Opening balance | 38,000 52,000 |
| Ending cash balance | Rs. 90,000 |
Working note:
Calculation of net accumulated depreciation
Net accumulated depreciation = Beginning accumulated depreciation + Depreciation for the year – Ending accumulated depreciation = 2,50,000 + 50,000 – 2,00,000 = Rs. 1,00,000
And,
Plant and equipment = Ending value of plant and equipment – Beginning value + Net accumulated depreciation = 5,00,000 – 7,00,000 + 1,00,000 = Rs. -1,00,000 (i.e. sale)