Lecture on Cash Flow Statement Problems

hello viewers welcome to my channel I am Hashem Ali Khan now I am going to start the problems on cash flow statement previous three videos I&#39;ve completely explained the theory regarding cash flow statement last video I have explained the format so according to the format all the cash flows will be divided into three categories operating activity investing activity and financing activity and what are the items to be taken under each activity already have explained now the problems are based completely on that theory so if you have not watched those Theory I suggest you go to the playlist of my channel select the subject accounting for management selling the videos cash flow statement watch the first three videos be aware be clear about the concept how to make the cash flow statement now in this video two problems I am going to explain you so before explaining I expect my viewers to have a printout take the print out of the problems which I have given in the link under my description so always keep ready the problem without problem you cannot understand any solution so take the screenshot of all the points which I have written on the board then I&#39;ll explain all the points in detail come on see the first problem from the following details prepare a cash flow statement so here two balance sheets are given 2017 and 2018. no adjustments are given only balance sheet of two years are given now you have to make the balance sheet of the current year 2018. the last year is 2017. so two balance sheets side by side liabilities assets are given now see our share Capital last year 50 current year 50 no change then profit and loss account last year 80 current year one lakh 10 000 increase that depends last year it was not there but currently a thirty thousand debentures creditars bills payable other current liabilities a set site gross block this gross block is nothing but the fixed assets then less depreciation last year accumulated represent 40 000 currency of 55 000. then stock details bills receivable cash that&#39;s all this is a complete balance sheet given now how to proceed in making the cash flow statement see carefully cash flow statement for the year ended 2018. now particulars about among two columns at the extreme right hand side inner column to make the calculations and Order column now cash flow from operating activities first activity operating activity increase in profit and loss account the last year profit and loss record was 80 000 current year one lakh ten thousand so there is increase in the profit and loss account by 30 000 so here increase in profit and loss second 30 000 First Call one lakh ten thousand minus eighty thousand to this we have to adjust a non-cash non-operating items in the first problem we have not given any adjustments and only depreciation is a non-cash expense last year it was 40 000 currently of 55 000. so how much is the increase in accumulated depreciation fifteen thousand fifty five thousand minus forty thousand the fifteen thousand is the increase in depreciation or depreciation provided during 2018 so this depreciation 55 minus 40 15 000. only one item we have in non-gas now you add up 30 plus 15 45 000. this is the operating profit for working capital changes now we have to adjust for working capital changes working capital changes means current assets and current liability the changes in current asset and current liability so already in the previous video I&#39;ve explained you the rule increase in current liability and decrease in current assets should be added the opposite should be directed that rule you have to remember increase in current liability and decrease in current assets should be added always while watching this video keep a notebook beside you and calculator pen so whenever I say something immediately you note it down then only you can be able to remember till examination so here creditors the first current liability is greater last year 20 000 current year 25 000. increase in creditor increase in current liability added so here increase in creditors add so how much is the increase 25 minus twenty five thousand five thousand we have to add similarly bills payable another current liability last year 20 000 current year five thousand decrease in current liability should be deducted decrease in current liability should be deducted so decrease in bills payable minus decrease in Bill&#39;s payable minus how much is decreased 20 000 minus five thousand fifteen thousand decreased so fifteen thousand in bracket bracket denotes minus subtraction and then other current liability last year it is 10 000 current year 15 000. increase in other current liability the increase in current liability will be added so increase in other current liability added how much is the difference five thousand five thousand added the three current liabilities we have checked now come to current assets stock last year 60 000 current year one lakh increase in stock or increase in current asset should be deducted increase in current assets should be deducted so increase in stock minus the difference is forty thousand one lakh minus 140 minus sorry uh stock one lakh minus sixty thousand is forty thousand so forty thousand subtract subtraction means minor bracket in bracket means we have to subtract now increase in debtors the next current asset is data last year 30 current year 40. so increase in debtors to increase in current asset should be deducted to increase in debtors minus 10 000. last one bills receivable last year bills receivable 10 000 currency or nil that means there is decrease in current asset the decrease in current asset should be added the decrease in bills receivable should be added that&#39;s so don&#39;t commit any mistake while which item to be added which item to be clear the detected be clear increase in current liability decrease in current assets should be added that point you are remember the opposite should be direct now 45 000 plus 5000 minus fifteen thousand plus five thousand minus forty thousand minus ten thousand plus ten thousand nil that means there is neither cash generated nor used no profit no loss all cash inflows and cash outflows both are same so no cash generated in operating activity no cash generated in operating activity nil now we&#39;ll come to the cash flow from investing activity investment we should take fixed assets the last year gross block one lakh current year one lakh forty thousand the 40 000 rupees fixed asset increased the purchase when fixed asset increases it will increase due to purchase the purchase of fixed asset when there is a purchase of fixed asset there is Cash outflow remember whenever we purchase something the cash will go out so purchase of fixed asset there is a cash outflow that&#39;s why I am writing in bracket bracket denotes cash output so take this 40 000 in the outer column this is in bracket so you should write on cash used if it is positive cash generated if it is negative cash used in investing activity last one is cash flow from financing activity in financing activity compare the share Capital debenders Etc in our problem share Capital last year 50 currency or 50 no change ignore next one is debentures debentures last year nil current year 30 000 that means during the current year debentures are issued for thirty thousand when debentures are issued there is Cash inflow the issue of debentures thirty thousand without bracket bracket means outflow but when the debentures are issued the money is coming into the company so there is Cash inflow 30 000 take this thirty thousand order column no other financing activity is there only one so this cash generated from financing activity because this is positive here negative so cash you still investing activity that&#39;s all now you take the total in the second column second column 0 minus forty thousand plus thirty thousand so minus forty thousand plus thirty thousand you will get minus ten thousand this is the net decrease in cash and cash equivalent minus that&#39;s why I&#39;m writing degrees so decrease in cash and cash now last year cash balance last year cash balance is given in the problem twenty thousand last year balance sheet a set site cash 20 000 so this twenty thousand have taken now twenty thousand minus ten thousand you will get ten thousand and this is the cash and cash equivalent at the end of the year now you compare it in the problem cash of current year is ten thousand and we also got cash at the end of the year tenth house that means we have correctly prepared the cash flow statement whatever you get the answer here the same cash balance should be there during the current year so 10 000 is given in the balance sheet and we also got ten thousand that means a lot of cash flow statement is correct so this is the first problem on how to make the cash flow statement now second problem the summarized balance sheet of Kunal limited as a 31st December 2015 and 31st December 2016 are as follows the current year is 2016. last year is 2015. the two balance sheets are given share Capital four lakh fifty four lakh 50 no change General Reserve last year it was three lakh current year it is three lakh 10 000 that means during the current year 10 000 rupees transferred to General Reserve this is a non-cash non-operating item then PLL account is given last year 56 currency of 68. so this PR El account balance will take as the starting point in cash flow from operating activity then credit R is the current liability tax provision mortgage loan mod case loan is a Long Term Loan it will be taken under financing activity now fixed asset investment stock details Bank some additional details are given investment costing 8 000 was sold for eight thousand five hundred when information is given regarding investment in additional information prepare better you maker investment account so we make an investment account in the working Road and tax provision made during the year nine thousand so again we&#39;ll make one account provision for taxation account and during the year part of the fixtures at costing 10 000 was sold for twelve thousand so we make one more account fixed asset account then and the profit was included in profit and loss account you are required to prepare a cash flow statement now here this problem is little bit complicated compared to the previous Pro because some adjustments are clear so first of all you make the format of this cash flow statement format of this cash flow statement in working note we will make the accounts three accounts investment account provision for taxation account and fixed asset account see carefully first of all investment investment is an asset and asset will show developments all assets will show double values so first of all you take opening and closing balance of investment so here Investments are given opening balance 50 000 closing balance sixty thousand so to balance brought down here I have taken fifty thousand debit side opening balance and opposite side credit side closing balance buy balance carried down sixty dollars always you have to do like this only the opening balance debit side closing balance great side now investment costing eight thousand was sold for 8 000 finding the 500 rupees profit so when we sell the investment entry will be bank account debit investment account credit when we are selling the Investment Bank debited investment created the investment account created by Bank sale eight thousand financially 8 000 500 Investments are sold but in that eight thousand five hundred five hundred is the profit because cost of investment eight thousand sold for eight thousand five hundred so 500 rupees profit The Profit should be taken on debit side the entry will be investment account debit profit and loss account credit profit so debit side you take profit and loss account profit 500 that&#39;s all you have taken all the items now see uh is it tagging or any balance is there there is some balance credit side 60 plus 8568 final credit site total 68 fund debit Side 68 500 minus 50 000 minus 500 the balancing figure is eighteen thousand this eighteen thousand is the investment purchased during the year if debit side is less it denotes that during the year some more Investments are purchased entry will be investment account debit bank account credit so investment account debit side Bank purchased 18 000 now how you have to deal with this survey in the problem purchase of investment and sale of investment both should be taken under investing activity so here you can see investing activity investing activity purchase of investment 18 000 sale of investment eight thousand five so both purchase and sale should be taken under investment activity purchase is cash outflow so this 18 000 should be taken in bracket and eight thousand five hundred is the money received on sale of investment that is inflow so 8500 without bracket that&#39;s one account I have explained you investment the second account is provision for taxation the provision for taxation last year 75 000 current year 10 000. remember provision for taxation is a liability and all liability will show credit balance assets will show debit balance liability will show trade bars so provision for taxation credit side last year balance 75 000. and current year balance 10 000 to balance carried down ten dollars the opening balance credit side closing balance debit side now in the adjustment it is given provision tax provision made during the year nine thousand income tax provision made during the year is uh how much nine thousand the entry will be profit and loss account debit provision for taxation credit always write it down when you listen this lecture when you watch this lecture whatever points I am telling you immediately you should write it down otherwise you&#39;ll forget it so what is the entry for provision made during the year profit and loss account debit provision for taxation credit the credit site by PLL account provision made nine thousand that&#39;s all nine thousand now take the total on the trade side 75 plus 9 is 84 000. from 84 000 did at seventy four thousand oh sorry deduct ten thousand eighty four minus ten seventy four thousand is the tax paid during the year that is not given in the problem by making this account we come to know there&#39;s a payment of tax of seventy four thousand entry will be provision for taxation account data bank account credit provision for taxation debit bank account credit the provision for taxation debit side to bank tax paid seventy four thousand now how you want to deal with this in cash flow statement the tax paid will be deducted in operating income from operating activities here tax paid 74 000 when we pay the tax cash outflow so bracket right similarly provision made during the year provision for taxation made during the year nine thousand this will be taken under non-cash item provision for taxation made during the year 9000 should be taken under non-cash that point you are remember last one fixed asset the fixed asset we have opened the account because adjustment is given during the year a part of the fixed asset costing 10 000 was sold for 12 000. now first of all we have prepared a fixed asset account it is an asset so it will show debit balance opening balance debit side closing balance grade side so opening balance 4 lakh closing balance 3 lakh twenty thousand so debit side to balance brought down four lakh and credit site by balance carried down three lakh twenty thousand right now during the year a part of the fixed fixed asset costing ten thousand was sold for twelve thousand when we sell the fixed asset money will come so bank account debit fixed asset account credit the fixed asset account create site by Bank sale 12 000. 12 000 rupees we have taken on the credit side in that twelve thousand two thousand rupees are the profit because 10 000 worth of fixed as it was sold for twelve thousand that profit should be taken on the debit side entry will be fixed asset account debit profit and loss second credit 2000 that&#39;s all now you find out the balance 4 lakh plus two thousand four lakh two thousand is the total on the debit side from 4 lakh two thousand deduct three like twenty thousand and deduct twelve thousand the balancing figure is seventy thousand so credit side is less the reason is depreciation depreciation the balancing figure depreciation seventy thousand now how you take this one the depreciation is a non-cash item so it should be taken in non-operative non-cash non-operating atom 71st now during the year there is sale of fixed asset there is no purchase there is no purchase but there is sale the sale of extra such should be taken under investing activity so here investing activity is the sale of fixtures at 12 000. this 12 000 we have taken on the fixed distance that&#39;s all these three accounts I have explained in detail regarding investment provision for Taxation and fixed decision now formally we will start our cash flow statement December 2016 cash flow from operating activities first increase in profit and loss account the liability aside it is given profit and loss second last year 56 currency of 68. so 68 000 minus 56 00012 that is the increase in PLM account to this we have to add or less adjustment for non-cash non-operating item the first item is depreciation here depreciation we got 70 000 I have taken seventy thousand right now transfer to General Reserve transfer last year General Reserve three lakh current year three lakh ten thousand so ten thousand rupees transfer to General Reserve this ten thousand updated next is provision for taxation made during the year how much is the provision for taxation made during the year 9000 here you can see that 9 000 provision for taxation that&#39;s a non-cash item so this nine thousand I have taken now there&#39;s a profit on sale of investment and profit on sale of fixed asset those profits should be deducted because it is a non-cash profit that profit is included in the cash inflow when we sell the fixed asset the profit is included in the amount received when we sell the investment profit is included in the sale proceed so that profit we should deduct how much is the profit on sale of investment here 500 how much is a profit on sale or fixed asset 2000. so this 500 and 2000 should be deducted profit on sale of investment 500 and profit on sale of fixed asset two thousand both are deducted so bracket now you have to find out the totally twelve thousand plus seventy thousand plus ten thousand plus nine thousand minus five hundred minus two thousand you will get ninety eight thousand five hundred this ninety eight five hundred is the operating profit before working capital changes so now adjustment for working capital changes as usual increase in current liability decrease in current assets should be added that one rule you remember automatically second room you can easily remove the first one come to liabilities site creditor creditor last year 168 current year 134 decrease in creditor decrease in current liability should be deducted increase in current liability should be added decrease in current liability should be deducted the decrease in creditors minus decrease in creditor minus thirty four thousand it is minus that&#39;s why I am writing in bracket secondly uh tax provision already we have taken mortgage loan uh we will take it in a financing activity so only one current liability crater now asset site stock last year 210 current last year 240 current year 210 there is decrease in stock decrease in current assets should be added the decrease in stock should be added 30 000. the difference is 30 000 add 30 000. now after stock debtors increase in debtors increase in current assets should be subtracted minus so increase in debtors minus the difference 4 lakh fifty five thousand minus two lakh ten thousand two lakh forty five thousand miles that&#39;s one now you find out the total ninety eight thousand five hundred minus thirty four thousand plus thirty thousand minus two lakh forty five thousand so you will get operating loss before tax 1 lakh fifty thousand five this is the operating loss because in bracket negative I am getting negative income is loss minus tax paid how much is the income tax paid already we have calculated here 74 000 is the taxpay 74 000 tax paid deduct cash used to like 24 500 cash used in operating activity negative now cash flow from investing activity investing activity we consider only investment and fixed asset there is sale of investment 8500 sale a sale of investment 8500 positive purchase of investment eighteen thousand so there is Cash outflow on purchase of investment eighteen thousand bracket sale of investment sale of fixed asset sale of fixed asset twelve thousand so twelve thousand sale of fixed asset positive so twelve thousand minus eighteen thousand plus eight thousand five hundred two thousand five hundred is uh cash generated from investing activity now lastly cash flow from financing activity only one item is there mortgage loan share Capital no change at all no increase no decrease only mortgage loan last year nil current year 2 lakh seventy thousand so during the year the company has taken a mortgage loan so in a financing activity mortgage loan Taken 2 lakh seventy thousand there is Cash inflow when loan is taken cash inflow so 2 lakh seventy thousand this is the cash generated in financing activity all the three activities we have completed Now find the total minus 2 lakh twenty four five hundred plus two thousand five hundred plus two lakh seventy thousand you will get forty eight thousand positive net increase in cash and cash equivalent 48 000 increase positive to this you add cash and cash equivalent at the beginning of the year in the problem you see last year&#39;s column last year&#39;s column Bank column one lakh 49 000. the beginning of their cash and cash equivalent forty nine thousand you add up 48 000 plus 1 lakh forty nine thousand the total is one lakh ninety seven thousand we got one like ninety seven thousand cash and cash equivalent at the end of the year now compare it in the problem if it is same our answer is absolutely right see in the battleship the current year bank balance one lakh 97 000. so in the problem also one like 97 000 we also got one like ninety seven thousand that means all calculations are absolutely right so in this video two problems are explained in detail see here first time itself you may not be able to understand properly so my suggestion to you watch the video twice Thrice when you watch second time third time definitely you will get the command and if you understand the first to two three problems remaining problems will become very very easier for you so inshallah we will continue the next problem in the next video

hello viewers welcome to my channel I am Hashem Ali Khan now I am going to start the problems on cash flow statement previous three videos I&amp;#39;ve completely explained the theory regarding cash flow statement last video I have explained the format so according to the format all the cash flows will be divided into three categories operating activity investing activity and financing activity and what are the items to be taken under each activity already have explained now the problems are based completely on that theory so if you have not watched those Theory I suggest you go to the playlist of my channel select the subject accounting for management selling the videos cash flow statement watch the first three videos be aware be clear about the concept how to make the cash flow statement now in this video two problems I am going to explain you so before explaining I expect my viewers to have a printout take the print out of the problems which I have given in the link under my description so always keep ready the problem without problem you cannot understand any solution so take the screenshot of all the points which I have written on the board then I&amp;#39;ll explain all the points in detail come on see the first problem from the following details prepare a cash flow statement so here two balance sheets are given 2017 and 2018. no adjustments are given only balance sheet of two years are given now you have to make the balance sheet of the current year 2018. the last year is 2017. so two balance sheets side by side liabilities assets are given now see our share Capital last year 50 current year 50 no change then profit and loss account last year 80 current year one lakh 10 000 increase that depends last year it was not there but currently a thirty thousand debentures creditars bills payable other current liabilities a set site gross block this gross block is nothing but the fixed assets then less depreciation last year accumulated represent 40 000 currency of 55 000. then stock details bills receivable cash that&amp;#39;s all this is a complete balance sheet given now how to proceed in making the cash flow statement see carefully cash flow statement for the year ended 2018. now particulars about among two columns at the extreme right hand side inner column to make the calculations and Order column now cash flow from operating activities first activity operating activity increase in profit and loss account the last year profit and loss record was 80 000 current year one lakh ten thousand so there is increase in the profit and loss account by 30 000 so here increase in profit and loss second 30 000 First Call one lakh ten thousand minus eighty thousand to this we have to adjust a non-cash non-operating items in the first problem we have not given any adjustments and only depreciation is a non-cash expense last year it was 40 000 currently of 55 000. so how much is the increase in accumulated depreciation fifteen thousand fifty five thousand minus forty thousand the fifteen thousand is the increase in depreciation or depreciation provided during 2018 so this depreciation 55 minus 40 15 000. only one item we have in non-gas now you add up 30 plus 15 45 000. this is the operating profit for working capital changes now we have to adjust for working capital changes working capital changes means current assets and current liability the changes in current asset and current liability so already in the previous video I&amp;#39;ve explained you the rule increase in current liability and decrease in current assets should be added the opposite should be directed that rule you have to remember increase in current liability and decrease in current assets should be added always while watching this video keep a notebook beside you and calculator pen so whenever I say something immediately you note it down then only you can be able to remember till examination so here creditors the first current liability is greater last year 20 000 current year 25 000. increase in creditor increase in current liability added so here increase in creditors add so how much is the increase 25 minus twenty five thousand five thousand we have to add similarly bills payable another current liability last year 20 000 current year five thousand decrease in current liability should be deducted decrease in current liability should be deducted so decrease in bills payable minus decrease in Bill&amp;#39;s payable minus how much is decreased 20 000 minus five thousand fifteen thousand decreased so fifteen thousand in bracket bracket denotes minus subtraction and then other current liability last year it is 10 000 current year 15 000. increase in other current liability the increase in current liability will be added so increase in other current liability added how much is the difference five thousand five thousand added the three current liabilities we have checked now come to current assets stock last year 60 000 current year one lakh increase in stock or increase in current asset should be deducted increase in current assets should be deducted so increase in stock minus the difference is forty thousand one lakh minus 140 minus sorry uh stock one lakh minus sixty thousand is forty thousand so forty thousand subtract subtraction means minor bracket in bracket means we have to subtract now increase in debtors the next current asset is data last year 30 current year 40. so increase in debtors to increase in current asset should be deducted to increase in debtors minus 10 000. last one bills receivable last year bills receivable 10 000 currency or nil that means there is decrease in current asset the decrease in current asset should be added the decrease in bills receivable should be added that&amp;#39;s so don&amp;#39;t commit any mistake while which item to be added which item to be clear the detected be clear increase in current liability decrease in current assets should be added that point you are remember the opposite should be direct now 45 000 plus 5000 minus fifteen thousand plus five thousand minus forty thousand minus ten thousand plus ten thousand nil that means there is neither cash generated nor used no profit no loss all cash inflows and cash outflows both are same so no cash generated in operating activity no cash generated in operating activity nil now we&amp;#39;ll come to the cash flow from investing activity investment we should take fixed assets the last year gross block one lakh current year one lakh forty thousand the 40 000 rupees fixed asset increased the purchase when fixed asset increases it will increase due to purchase the purchase of fixed asset when there is a purchase of fixed asset there is Cash outflow remember whenever we purchase something the cash will go out so purchase of fixed asset there is a cash outflow that&amp;#39;s why I am writing in bracket bracket denotes cash output so take this 40 000 in the outer column this is in bracket so you should write on cash used if it is positive cash generated if it is negative cash used in investing activity last one is cash flow from financing activity in financing activity compare the share Capital debenders Etc in our problem share Capital last year 50 currency or 50 no change ignore next one is debentures debentures last year nil current year 30 000 that means during the current year debentures are issued for thirty thousand when debentures are issued there is Cash inflow the issue of debentures thirty thousand without bracket bracket means outflow but when the debentures are issued the money is coming into the company so there is Cash inflow 30 000 take this thirty thousand order column no other financing activity is there only one so this cash generated from financing activity because this is positive here negative so cash you still investing activity that&amp;#39;s all now you take the total in the second column second column 0 minus forty thousand plus thirty thousand so minus forty thousand plus thirty thousand you will get minus ten thousand this is the net decrease in cash and cash equivalent minus that&amp;#39;s why I&amp;#39;m writing degrees so decrease in cash and cash now last year cash balance last year cash balance is given in the problem twenty thousand last year balance sheet a set site cash 20 000 so this twenty thousand have taken now twenty thousand minus ten thousand you will get ten thousand and this is the cash and cash equivalent at the end of the year now you compare it in the problem cash of current year is ten thousand and we also got cash at the end of the year tenth house that means we have correctly prepared the cash flow statement whatever you get the answer here the same cash balance should be there during the current year so 10 000 is given in the balance sheet and we also got ten thousand that means a lot of cash flow statement is correct so this is the first problem on how to make the cash flow statement now second problem the summarized balance sheet of Kunal limited as a 31st December 2015 and 31st December 2016 are as follows the current year is 2016. last year is 2015. the two balance sheets are given share Capital four lakh fifty four lakh 50 no change General Reserve last year it was three lakh current year it is three lakh 10 000 that means during the current year 10 000 rupees transferred to General Reserve this is a non-cash non-operating item then PLL account is given last year 56 currency of 68. so this PR El account balance will take as the starting point in cash flow from operating activity then credit R is the current liability tax provision mortgage loan mod case loan is a Long Term Loan it will be taken under financing activity now fixed asset investment stock details Bank some additional details are given investment costing 8 000 was sold for eight thousand five hundred when information is given regarding investment in additional information prepare better you maker investment account so we make an investment account in the working Road and tax provision made during the year nine thousand so again we&amp;#39;ll make one account provision for taxation account and during the year part of the fixtures at costing 10 000 was sold for twelve thousand so we make one more account fixed asset account then and the profit was included in profit and loss account you are required to prepare a cash flow statement now here this problem is little bit complicated compared to the previous Pro because some adjustments are clear so first of all you make the format of this cash flow statement format of this cash flow statement in working note we will make the accounts three accounts investment account provision for taxation account and fixed asset account see carefully first of all investment investment is an asset and asset will show developments all assets will show double values so first of all you take opening and closing balance of investment so here Investments are given opening balance 50 000 closing balance sixty thousand so to balance brought down here I have taken fifty thousand debit side opening balance and opposite side credit side closing balance buy balance carried down sixty dollars always you have to do like this only the opening balance debit side closing balance great side now investment costing eight thousand was sold for 8 000 finding the 500 rupees profit so when we sell the investment entry will be bank account debit investment account credit when we are selling the Investment Bank debited investment created the investment account created by Bank sale eight thousand financially 8 000 500 Investments are sold but in that eight thousand five hundred five hundred is the profit because cost of investment eight thousand sold for eight thousand five hundred so 500 rupees profit The Profit should be taken on debit side the entry will be investment account debit profit and loss account credit profit so debit side you take profit and loss account profit 500 that&amp;#39;s all you have taken all the items now see uh is it tagging or any balance is there there is some balance credit side 60 plus 8568 final credit site total 68 fund debit Side 68 500 minus 50 000 minus 500 the balancing figure is eighteen thousand this eighteen thousand is the investment purchased during the year if debit side is less it denotes that during the year some more Investments are purchased entry will be investment account debit bank account credit so investment account debit side Bank purchased 18 000 now how you have to deal with this survey in the problem purchase of investment and sale of investment both should be taken under investing activity so here you can see investing activity investing activity purchase of investment 18 000 sale of investment eight thousand five so both purchase and sale should be taken under investment activity purchase is cash outflow so this 18 000 should be taken in bracket and eight thousand five hundred is the money received on sale of investment that is inflow so 8500 without bracket that&amp;#39;s one account I have explained you investment the second account is provision for taxation the provision for taxation last year 75 000 current year 10 000. remember provision for taxation is a liability and all liability will show credit balance assets will show debit balance liability will show trade bars so provision for taxation credit side last year balance 75 000. and current year balance 10 000 to balance carried down ten dollars the opening balance credit side closing balance debit side now in the adjustment it is given provision tax provision made during the year nine thousand income tax provision made during the year is uh how much nine thousand the entry will be profit and loss account debit provision for taxation credit always write it down when you listen this lecture when you watch this lecture whatever points I am telling you immediately you should write it down otherwise you&amp;#39;ll forget it so what is the entry for provision made during the year profit and loss account debit provision for taxation credit the credit site by PLL account provision made nine thousand that&amp;#39;s all nine thousand now take the total on the trade side 75 plus 9 is 84 000. from 84 000 did at seventy four thousand oh sorry deduct ten thousand eighty four minus ten seventy four thousand is the tax paid during the year that is not given in the problem by making this account we come to know there&amp;#39;s a payment of tax of seventy four thousand entry will be provision for taxation account data bank account credit provision for taxation debit bank account credit the provision for taxation debit side to bank tax paid seventy four thousand now how you want to deal with this in cash flow statement the tax paid will be deducted in operating income from operating activities here tax paid 74 000 when we pay the tax cash outflow so bracket right similarly provision made during the year provision for taxation made during the year nine thousand this will be taken under non-cash item provision for taxation made during the year 9000 should be taken under non-cash that point you are remember last one fixed asset the fixed asset we have opened the account because adjustment is given during the year a part of the fixed asset costing 10 000 was sold for 12 000. now first of all we have prepared a fixed asset account it is an asset so it will show debit balance opening balance debit side closing balance grade side so opening balance 4 lakh closing balance 3 lakh twenty thousand so debit side to balance brought down four lakh and credit site by balance carried down three lakh twenty thousand right now during the year a part of the fixed fixed asset costing ten thousand was sold for twelve thousand when we sell the fixed asset money will come so bank account debit fixed asset account credit the fixed asset account create site by Bank sale 12 000. 12 000 rupees we have taken on the credit side in that twelve thousand two thousand rupees are the profit because 10 000 worth of fixed as it was sold for twelve thousand that profit should be taken on the debit side entry will be fixed asset account debit profit and loss second credit 2000 that&amp;#39;s all now you find out the balance 4 lakh plus two thousand four lakh two thousand is the total on the debit side from 4 lakh two thousand deduct three like twenty thousand and deduct twelve thousand the balancing figure is seventy thousand so credit side is less the reason is depreciation depreciation the balancing figure depreciation seventy thousand now how you take this one the depreciation is a non-cash item so it should be taken in non-operative non-cash non-operating atom 71st now during the year there is sale of fixed asset there is no purchase there is no purchase but there is sale the sale of extra such should be taken under investing activity so here investing activity is the sale of fixtures at 12 000. this 12 000 we have taken on the fixed distance that&amp;#39;s all these three accounts I have explained in detail regarding investment provision for Taxation and fixed decision now formally we will start our cash flow statement December 2016 cash flow from operating activities first increase in profit and loss account the liability aside it is given profit and loss second last year 56 currency of 68. so 68 000 minus 56 00012 that is the increase in PLM account to this we have to add or less adjustment for non-cash non-operating item the first item is depreciation here depreciation we got 70 000 I have taken seventy thousand right now transfer to General Reserve transfer last year General Reserve three lakh current year three lakh ten thousand so ten thousand rupees transfer to General Reserve this ten thousand updated next is provision for taxation made during the year how much is the provision for taxation made during the year 9000 here you can see that 9 000 provision for taxation that&amp;#39;s a non-cash item so this nine thousand I have taken now there&amp;#39;s a profit on sale of investment and profit on sale of fixed asset those profits should be deducted because it is a non-cash profit that profit is included in the cash inflow when we sell the fixed asset the profit is included in the amount received when we sell the investment profit is included in the sale proceed so that profit we should deduct how much is the profit on sale of investment here 500 how much is a profit on sale or fixed asset 2000. so this 500 and 2000 should be deducted profit on sale of investment 500 and profit on sale of fixed asset two thousand both are deducted so bracket now you have to find out the totally twelve thousand plus seventy thousand plus ten thousand plus nine thousand minus five hundred minus two thousand you will get ninety eight thousand five hundred this ninety eight five hundred is the operating profit before working capital changes so now adjustment for working capital changes as usual increase in current liability decrease in current assets should be added that one rule you remember automatically second room you can easily remove the first one come to liabilities site creditor creditor last year 168 current year 134 decrease in creditor decrease in current liability should be deducted increase in current liability should be added decrease in current liability should be deducted the decrease in creditors minus decrease in creditor minus thirty four thousand it is minus that&amp;#39;s why I am writing in bracket secondly uh tax provision already we have taken mortgage loan uh we will take it in a financing activity so only one current liability crater now asset site stock last year 210 current last year 240 current year 210 there is decrease in stock decrease in current assets should be added the decrease in stock should be added 30 000. the difference is 30 000 add 30 000. now after stock debtors increase in debtors increase in current assets should be subtracted minus so increase in debtors minus the difference 4 lakh fifty five thousand minus two lakh ten thousand two lakh forty five thousand miles that&amp;#39;s one now you find out the total ninety eight thousand five hundred minus thirty four thousand plus thirty thousand minus two lakh forty five thousand so you will get operating loss before tax 1 lakh fifty thousand five this is the operating loss because in bracket negative I am getting negative income is loss minus tax paid how much is the income tax paid already we have calculated here 74 000 is the taxpay 74 000 tax paid deduct cash used to like 24 500 cash used in operating activity negative now cash flow from investing activity investing activity we consider only investment and fixed asset there is sale of investment 8500 sale a sale of investment 8500 positive purchase of investment eighteen thousand so there is Cash outflow on purchase of investment eighteen thousand bracket sale of investment sale of fixed asset sale of fixed asset twelve thousand so twelve thousand sale of fixed asset positive so twelve thousand minus eighteen thousand plus eight thousand five hundred two thousand five hundred is uh cash generated from investing activity now lastly cash flow from financing activity only one item is there mortgage loan share Capital no change at all no increase no decrease only mortgage loan last year nil current year 2 lakh seventy thousand so during the year the company has taken a mortgage loan so in a financing activity mortgage loan Taken 2 lakh seventy thousand there is Cash inflow when loan is taken cash inflow so 2 lakh seventy thousand this is the cash generated in financing activity all the three activities we have completed Now find the total minus 2 lakh twenty four five hundred plus two thousand five hundred plus two lakh seventy thousand you will get forty eight thousand positive net increase in cash and cash equivalent 48 000 increase positive to this you add cash and cash equivalent at the beginning of the year in the problem you see last year&amp;#39;s column last year&amp;#39;s column Bank column one lakh 49 000. the beginning of their cash and cash equivalent forty nine thousand you add up 48 000 plus 1 lakh forty nine thousand the total is one lakh ninety seven thousand we got one like ninety seven thousand cash and cash equivalent at the end of the year now compare it in the problem if it is same our answer is absolutely right see in the battleship the current year bank balance one lakh 97 000. so in the problem also one like 97 000 we also got one like ninety seven thousand that means all calculations are absolutely right so in this video two problems are explained in detail see here first time itself you may not be able to understand properly so my suggestion to you watch the video twice Thrice when you watch second time third time definitely you will get the command and if you understand the first to two three problems remaining problems will become very very easier for you so inshallah we will continue the next problem in the next video

Transcript for:Lecture on Cash Flow Statement Problems

Transcript for:
Lecture on Cash Flow Statement Problems