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Cash Flow Statement

CASH FLOW
The movement of cash into and out of a business is called cash flow. The cash receipts of a
business are known as cash inflows. The cash inflows arise from transactions such as sales of
merchandise, receipts from debtors for credit sales and sales of fixed assets. The cash payments
made by a business is known as cash outflows which arise from transactions such as purchase
of materials, directs labour costs, overheads, and payments of taxes and dividends.

CASH FLOW STATEMENT IAS 7


Cash flow statement is a statement showing the inflows and outflows of cash and cash
equivalents for a business over a financial period. The i nflows and outflows are classified under
the headings of operating activities, taxation, capital expenditure, and financial investments,
acquisitions and disposals, equity dividends paid, management of financing. Cash flow
statement consists of three parts
Cash flow from operating activities.
Cash flow from investing activities.
Cash flow from financing activities.

CASH FLOW FROM OPERATING ACTIVITIES


Cash flow from operating activities is the section of the statement of cash flow that reports the
cash tra nsactions affecting the determination of net income. The amount is computed by adding
back of net income the items on the income statement that did not result in an outflow of cash
and subtracting the items on the income statement that did not provide an i nflow of cash. Cash
flow operating activities includes:
Current assets.
o Except marketable securities.
Current liabilities.
Revenue and expenses (includes interest expense, revenue, and dividends received).
CASH FLOW FROM INVESTING ACTIVITIES
Cash flow from investing activities is the section of the cash flow statement that reports cash
flows from transactions affecting investments in fixed assets. Cash flow from investing activities
may include:
Interest received.
Dividend received.
Sale of fixed assets.
Purchase of fixed assets.
Purchase of marketable securities.
Sale of marketable securities.

CASH FLOW FROM FINANCING ACTIVITIES


Cash flow from financing activities is the section of the cash flow statement that reports cash
flows from transactions affecting the equity and debts of the business. Cash flow from financing
activities may include:
Issues of shares.
Issue of debentures/loans.
Repayment of debentures/loans.
Dividend paid.

CASH
Cash means cash on hand (including overdrafts) and on demand deposits.
The figures below are the adjustments necessary to convert the profit figure to the cash flow for
the period:

Depreciation: Added back to profit because it is a non cash expense.

Added back because it is not part of cash generated from


Interest Expense:
operations (the interest actually paid is deducted later).

Deducted because this is part of the profit not yet realized


Increase in Accounts Receivable:
into cash but tied up in receivables.

Added on because the decrease in inventories liberates


Decrease in Inventory:
extra cash.

Added on because the cash has been collected from


Decrease in Accounts Receivable:
customers.

Deducted because the decrease in inventories shows


Increase in Inventory:
outflow of cash.

Deducted because the reduction in payables must reduce


Decrease in Accounts Payable:
cash.

Added on because this is part of the expense not yet paid


Increase in Accounts Payable:
into cash but tied up in payables.

Dividends Paid: These are the amounts actually paid in the year.

Income Tax Paid: These are the amounts actually paid in the year.

INTERPRETATION USING THE CASH FLOW STATEMENT


The cash flow statement reveals:
Whether the overall activities reveal a positive cash flow.
Whether the operating activities yield a positive cash flow.
The manner in which capital expenditure has been financed (for example, whether it has
come from internally-generated resources, borrowings, issue of shares or from cash
balance).

Cash flow statements allow users to evaluate:


How the enterprise generates and uses cash and cash equivalents.
Changes in net assets, financial structure (including liquidity and solvency) and the
ability of the enterprise to adapt to changing circumstances.
The ability of the enterprise to generate cash.
Forecasts of future cash flows.
The accuracy of past assessments of future cash flows.
FORMAT OF CASH FLOW STATEMENT
Name of Company
Cash Flow Statement
For the Period Ended ______
Cash Flow from Operating Activities:
Profit before interest and tax XXX
Adjustments:
Add: Depreciation expense XXX
Add: Amortization of intangible fixed assets XXX
Add: Loss on sale of fixed assets XXX
Less: Gain on sale of fixed assets (XXX)
Investment Income:
Less: Dividend income (XXX)
Less: Interest income (XXX)
Profit before changes in working capital XXX
Add/Less: Decrease/Increase in inventory XXX/(XXX)
Add/Less: Decrease/Increase in accounts receivable XXX/(XXX)
Add/Less: Increase/Decrease in accounts payable XXX/(XXX)
Cash generated from operation XXX
Less: Finance cost paid (XXX)
Less: Income tax paid (XXX)
Net cash flow from operating activities XXX/(XXX)
Cash Flow from Investing Activities:
Purchases of fixed assets (XXX)
Purchases of long-term investments (XXX)
Sale of fixed assets XXX
Sale of long-term investments XXX
Interest income received XXX
Dividend income received XXX
Net cash flow from investing activities XXX/(XXX)
Cash Flow from Financing Activities:
Issue of shares XXX
Issue of loans/debentures XXX
Repayment of loans/debentures (XXX)
Dividend paid (XXX)
Net cash flow from financing activities XXX/(XXX)
Net increase/decrease in cash and cash equivalents XXX/(XXX)
Add: Opening cash and cash equivalents balance XXX/(XXX)
Closing cash and cash equivalents balance XXX/(XXX)
ILLUSTRATION # 1: (CASH FLOW STATEMENT)
XYZ Ltd. balance sheet as on December 31, 2001 & 2002 are given below:
Assets 31 December 2002 31 December 2001
Cash 200,000 50,000
Accounts receivable 340,000 230,000
Merchandise inventory 210,000 240,000
Equipment 310,000 280,000
Total assets 1,060,000 800,000
Equities 31 December 2002 31 December 2001
Accounts payable 270,000 250,000
Debentures payable 240,000 120,000
Allowance for depreciation Equipment 40,000 30,000
Ordinary share capital 400,000 300,000
Retained earnings 110,000 100,000
Total equities 1,060,000 800,000
Cash dividend of Rs.150,000 was declared and paid during 2002. Net income for the year 31
December 2002 Rs.160,000.
REQUIRED
Prepare Cash Flow Statement on 31 December 2002.

SOLUTION :
XYZ Ltd.
Cash Flow Statement
For the Period Ended 31 December 2002
Cash Flow from Operating Activities: Rs. Rs.
Profit before tax 160,000
Adjustments:
Add: Depreciation expense (40,000 30,000) 10,000
Profit before changes in working capital 170,000
Add: Decrease in inventory (240,000 210,000) 30,000
Less: Increase in accounts receivable (340,000 230,000) (110,000)
Add: Increase in accounts payable (270,000 250,000) 20,000
Net cash flow from operating activities 110,000
Cash Flow from Investing Activities:
Purchases of equipment (30,000)
Net cash flow from investing activities (30,000)
Cash Flow from Financing Activities:
Issue of shares (400,000 300,000) 100,000
Issue of debentures (240,000 120,000) 120,000
Dividend paid (150,000)
Net cash flow from financing activities 70,000
Net increase/decrease in cash and cash equivalents 150,000)
Add: Opening cash and cash equivalents balance 50,000
Closing cash and cash equivalents balance 200,000

CASH GENERATED FROM OPERATION


There are two methods of calculating cash generation from operation:
Direct method.
Indirect method.
CASH GENERATED FROM OPERATION DIRECT METHOD
Cash sales XXX
Add: cash received from customers XXX
XXX
Less: Cash purchases (XXX)
Less: Cash paid to suppliers (XXX)
Less: Expenses paid (XXX)
Cash generated from operation XXX/(XXX)

CASH GENERATED FROM OPERATION INDIRECT METHOD


Profit before tax XXX
Adjustments:
Add: Depreciation expense XXX
Add: Amortization of intangible fixed assets XXX
Add: Loss on sale of fixed assets XXX
Less: Gain on sale of fixed assets (XXX)
Investment Income:
Less: Dividend income (XXX)
Less: Interest income (XXX)
Profit before changes in working capital XXX
Add/Less: Decrease/Increase in inventory XXX/(XXX)
Add/Less: Decrease/Increase in accounts receivable XXX/(XXX)
Add/Less: Increase/Decrease in accounts payable XXX/(XXX)
Cash generated from operation XXX

CASH FLOW STATEMENT

Cash Flow From Cash Flow From Cash Flow From


Operating Activities Investing Activities Financing Activities

Current Assets (Except Interest Received Issue of Shares


Marketable Securities)
Dividends Received Issue of Debentures /
Current Liabilities Bonds / Long Term
Purchase of Fixed Assets Liabilities
Revenue & Expenses
(Includes Interest Sale of Fixed Assets Repayment of
Expense, Revenue, & Debentures / Bonds /
Dividends Received) Long Term Liabilities
Purchase of Marketable
Securities
Payment of Cash
Dividend
Sale of Marketable
Securities
PRACTICE QUESTIONS
Question # 1:
The comparative balance sheet of Zubair Ltd. for the two years are produced below:
Debit Balances (in Rs.) Dec. 31, 11 Dec. 31, 10
Cash 87,500 105,000
Merchandise inventory 162,500 175,000
Prepaid rent 40,000 45,000
Accounts receivable 175,000 160,000
Plant assets 440,000 415,000
Total Rs. 905,000 900,000
Credit Balances (in Rs.) Dec. 31, 11 Dec. 31, 10
Ordinary share capital 605,000 570,000
Accounts payable 90,000 100,000
Debentures payable 90,000 125,000
Retained earnings 120,000 105,000
Total Rs. 905,000 900,000
Additional Data:
(1) Net income for the year 2011, Rs.90,000. (2) Declared cash dividend Rs.75,000.
REQUIRED
(1) Working capital for both the year. (2) Prepare cash flow statement.

Question # 2:
Muzammil Ltd. balance sheet as on December 31, 2005 & 2006 are given below:
Assets 31.12.2006 31.12.2005
Cash 35,000 37,000
Accounts receivable 70,000 68,000
Merchandise inventory 35,000 24,000
Plant 160,000 100,000
Total assets 300,000 229,000
Equities 31.12.2006 31.12.2005
Accounts payable 42,000 40,000
Bonds payable 30,000 ---
Allowance for depreciation 28,000 20,000
Ordinary share capital 135,000 100,000
Retained earnings 65,000 69,000
Total equities 300,000 229,000
Cash dividend of Rs.10,000 and stock dividend of Rs.20,000 were declared during 2006.
REQUIRED
(1) Compute net income or loss for 2006.
(2) Cash flow statement showing cash flows from operating, investing & financing activities.

Question # 3:
The following are the comparative balance sheets of Nadeem Ltd.
Debit Balances 31.12.2008 31.12.2009
Cash 90,000 126,000
Accounts receivables (Net) 150,000 248,000
Merchandise inventory 228,000 184,000
Machinery 510,000 390,000
Land 240,000 390,000
Patents 120,000 102,000
Total 1,338,000 1,440,000
Credit Balances 31.12.2008 31.12.2009
Accounts payable 180,000 145,000
Unpaid expenses 144,000 191,000
Debentures payable 240,000 120,000
Ordinary share capital 480,000 600,000
Share premium 120,000 150,000
Retained earnings 174,000 234,000
Total 1,338,000 1,440,000
At the end of 2009, declared cash dividend Rs.90,000 and stock dividend Rs.150,000.
REQUIRED
(a) A statement showing changes in working capital.
(b) Cash Flow Statement.

Question # 4:
The comparative balance sheets of Aamna Ltd. for the two years are produced below:
Debit Balances (in Rs.) Dec. 31, 2003 Dec. 31, 2002
Cash 87,500 105,000
Merchandise inventory 162,500 175,000
Prepaid rent 40,000 45,000
Accounts receivable 175,000 160,000
Plant assets 440,000 415,000
Total Rs. 905,000 900,000
Credit Balances (in Rs.)
Ordinary share capital 605,000 570,000
Accounts payable 90,000 100,000
Salaries payable 15,000 15,000
Unearned rent 15,000 10,000
Debentures payable 60,000 100,000
Retained earnings 120,000 105,000
Total Rs. 905,000 900,000
Additional Data: Net income for the year 2003, Rs.90,000.
Cash dividend declared Rs.75,000.
REQUIRED
(a) Statement showing changes in working capital.
(b) Statement of sources and application of fund.

Question # 5:
The comparative balance sheet of Sumera Ltd. are reproduced below:
Debit Balances (in Rs.) 2004 2003
Cash 175,000 210,000
Prepaid insurance 80,000 90,000
Accounts receivable 350,000 320,000
Merchandise inventory 325,000 350,000
Plant & machinery 880,000 830,000
Total Rs. 1,810,000 1,800,000
Credit Balances (in Rs.)
Paid up capital 1,200,000 1,130,000
Accounts payable 180,000 200,000
Salaries payable 60,000 50,000
Bonds payable 120,000 200,000
Retained earnings 250,000 220,000
Total Rs. 1,810,000 1,800,000
Additional Data:
(1) Net income for the year 2004, Rs.120,000.
(2) Declared cash dividend Rs.90,000.
REQUIRED
(a) Statement showing changes in working capital.
(b) Cash flow statement.

Question # 6:
The comparative balance sheet of Uzair Corporation at December 31, 1999 and 1998 is as
follows:
Debit Balances
Dec. 31, 1999 Dec. 31, 1998
Cash 21,000 15,000
Accounts receivable 42,000 25,000
Inventories 30,000 38,000
Machinery 65,000 85,000
Land 65,000 40,000
Patents 17,000 20,000
240,000 223,000
Credit Balances
Accounts payable 24,000 30,000
Accrued expenses 32,000 24,000
Bonds payable 20,000 40,000
Ordinary share capital 100,000 80,000
Share premium 25,000 20,000
Retained earnings 39,000 29,000
240,000 223,000
The corporation declared a cash dividend of Rs.15,000 and share dividend of Rs.25,000 during
1999.
REQUIRED
1) Define and determine working capital for both the years.
2) Statement of sources and uses of fund.
3) Prepare a cash flow statement for the year ended December 31, 1999.

Question # 7:
Net income reported on the income statement for the year 2010 was Rs.87,100. Depreciation
recorded on equipment and building amounted to Rs.32,250 for the year. Balance of the current
assets and current liabilities accounts at the beginning and end of the year are as follows:
End of the Year Beginning of the Year
Cash Rs.61,125 Rs.58,725
Accounts receivable 87,500 80,000
Inventories 110,000 95,000
Prepaid expenses 6,900 7,650
Accounts payable 77,200 72,700
Salaries payable 3,750 6,250
REQUIRED
Prepare the cash flows from operating activities section of the statement of cash flows.
Question # 8:
The comparative balance sheet of Uzair & Company for the two years ate shown below:
Debit Balances (in Rs.) Dec. 31, 2004 Dec. 31, 2003
Cash 56,000 25,000
Accounts receivable 120,000 75,000
Inventories 65,000 40,000
Marketable securities 30,000 38,800
Supplies 2,000 1,200
Building 200,000 140,000
Goodwill 20,000 25,000
Total Rs. 493,000 345,000
Credit Balances (in Rs.)
Accumulated depreciation (Building) 48,000 35,000
Accounts payable 62,000 45,000
Long term loan payable 50,000 ---
Share capital 250,000 200,000
Retained earnings 83,000 65,000
Total Rs. 493,000 345,000
During the year 2004 the company declared cash dividend of Rs.20,000 and stock dividend
Rs.35,000.
REQUIRED
(1) Compute working capital for both the year.
(2) Cash flow statement.

Question # 9:
The balances of the accounts of Multan Cement Co. Limited at end of 1998 and 1999 are as
follows:
December 31, 1998 December 31, 1997
Cash 60,000 100,000
Accounts receivable 150,000 175,000
Merchandise inventory 325,000 250,000
Land 75,000 ---
Plant & equipment 800,000 625,000
Patents 90,000 100,000
1,500,000 1,250,000
Accumulated depreciation 260,000 200,000
Accounts payable 155,000 75,000
Dividend payable 10,000 ---
Bonds payable 25,000 ---
Capital stock 1,000,000 875,000
Retained earnings 50,000 100,000
1,500,000 1,250,000
Cash dividends of Rs.10,000 were declared, but not paid.
REQUIRED
Prepare Cash Flow Statement.
Question # 10:
The accounting staff of Nasr & Company has presents the following information:
31.12.08 31.12.07
Cash 42,000 50,200
Accounts receivables 50,000 62,000
Office supplies 25,000 16,000
Accrued income 42,000 20,000
Plant & equipment 300,000 260,000
Accumulated depreciation (Plant & equipment) (38,000) (26,000)
Land & building 200,000 263,000
Investment in bonds 370,000 340,000

Accounts payables 18,000 23,000


Accrued utilities 24,000 20,000
Long term loans 170,000 242,200
Share capital 550,000 500,000
Retained earnings 229,000 200,000
During the year 2008 the company declared cash dividend Rs.32,000.
REQUIRED
Prepare Cash Flow Statement.

Question # 11:
The comparative balance sheet of Shaheen Ltd. as of December 31, 1995 and 1996 are as under:
Assets (in Rs.) Dec.31.1995 Dec.31.1996
Cash 30,000 36,000
Accounts receivable 80,000 85,000
Merchandise inventory 60,000 56,000
Equipment 50,000 60,000
220,000 237,000
Equities (in Rs.)
Accounts payable 23,000 20,000
Allowance for bad debts 4,000 3,000
Allowance for depreciation 5,000 10,000
Bonds payable 50,000 40,000
Share capital 100,000 120,000
Retained earnings 38,000 44,000
220,000 237,000
Cash dividend declared and paid during the year ended December 31, 1996 amounted to
Rs.45,000.
REQUIRED
Prepare cash flow statement for the year ended December 31, 1996.

Question # 12:
The following is the comparative list of balances taken from the balance sheets of Evergreen Ltd.
as of December 31, 1993 and December 31, 1992.
Debit Balances: 1993 (in Rs.) 1992 (in Rs.)
Cash 6,900 9,700
Accounts receivable 8,300 12,700
Merchandise inventory 36,000 40,000
Machinery 80,000 60,000
Total 131,200 122,400
Credit Balances: 1993 (in Rs.) 1992 (in Rs.)
Allowance for bad debts 350 1,200
Allowance for depreciation Machinery 24,050 16,000
Accounts payable 16,000 20,000
Bonds payable --- 20,000
Common stock 80,000 56,000
Retained earnings 10,800 8,400
Total 131,200 122,400
For the year 1993 net income of the company was Rs.22,400 and it had declared cash dividend
of Rs.20,000 during the year.
REQUIRED
Prepare cash flow statement for the year ended December 31, 1993.

Question # 13:
The balance sheet of Decent Products Ltd. for the years ended August 31, 1994 and 1995 are as
follows:
Debit Balances: 1994 (in Rs.) 1995 (in Rs.)
Bank balance 14,800 26,000
Accounts receivable 36,500 40,100
Inventories 22,100 28,000
Furniture 3,400 2,500
Machinery 35,600 58,300
Building 58,400 118,500
Credit Balances:
Accrued liabilities 33,500 38,400
Income tax payable 9,800 11,000
5% Debentures --- 28,000
Retained earnings 19,500 31,700
General reserve 6,000 9,000
Ordinary share capital 80,000 125,000
Share premium 22,000 30,300
Depreciation written off during the year 1995 was for machinery Rs.12,800 & furniture Rs.500.
REQUIRED
Prepare schedule of changes in working capital and cash flow statement.

Question # 14:
The comparative balance sheet data of Shah Ltd. as of June 30, 1991 and 1992, followed by
income statement data for the year ended June 30, 1992 is as under:
Assets June 30, 1991 (Rs.) June 30, 1992 (Rs.)
Cash 50,000 56,000
Accounts receivable 70,000 75,000
Merchandise inventory 80,000 76,000
Equipment 20,000 30,000
Total 220,000 237,000
Equities
Accounts payable 15,000 12,000
Allowance for bad debts 5,000 4,000
Allowance for depreciation 6,000 8,000
9% Bonds payable 60,000 50,000
Share capital 120,000 145,000
Retained earnings 14,000 18,000
Total 220,000 237,000
Income Statement Data June 30, 1992
Net sales Rs. 120,000
Cost of goods sold Rs. 57,000
Gross margin Rs. 45,000
Operating expenses (including depreciation expense Rs.3,000) Rs. 21,000
Net income Rs. 24,000
REQUIRED
(a) Prepare a statement showing changes in working capital during the year ended June 30,
1992.
(b) Prepare cash flow statement for the year ended June 30, 1992.

Question # 15:
The following data have been taken from the Income Statement and Balance Sheet of City
Corporation:
Dec.31, 1996 (Rs.) Jan. 1, 1996 (Rs.)
Net income 800,000
Depreciation expense 240,000
Amortization of intangible assets 80,000
Balance Sheets:
Accounts receivable 670,000 760,000
Inventory 1,006,000 1,150,000
Prepaid expenses 44,000 20,000
Accounts payable 758,000 820,000
Accrued expenses 360,000 310,000
REQUIRED
(a) Partial statement of cash flows for the year ended December 31, 1996 showing the
computation of net cash flow from operating activities.
(b) During the current year a company made cash sales of Rs.500,000 and credit sales of
Rs.980,000. During the year accounts receivable decreased by Rs.64,000.

Question # 16:
The following data are taken from the income statement and balance sheets of Shahdadpur Ltd.
Dec. 31, 1999 Dec. 31, 1998
Net income Rs.400,000
Depreciation expense 120,000
Amortization of intangible assets 40,000
Gain on sale of plant assets 80,000
Loss on sale of investments 35,000
Balance Sheets:
Cash Rs.107,000 Rs.45,000
Accounts receivable 335,000 380,000
Inventory 503,000 575,000
Prepaid expenses 22,000 10,000
Accounts payable (to merchandise supplies) 379,000 410,000
Accrued expenses 180,000 155,000
REQUIRED
(a) Prepare cash flow statement.
(b) Prepare a schedule showing changes in working capital during 1999.
Question # 17:
The selected data below are taken from income statement and balance sheets of Dilsoz
Company:
Income Statement 1992 (in Rs.) 1991 (in Rs.)
Net loss 25,000
Depreciation expense 40,000
Amortization of intangible assets 9,000
Un-insured fire damage to building 20,000
Gain on sale of plant assets 6,000
Amortization of premium of bonds payable 5,000
Loss on sale of investments 24,000
Amortization of discount on issue of shares 15,000
Balance Sheets:
Accounts receivable 380,000 370,000
Inventory 575,000 571,000
Prepaid expenses 22,000 23,000
Accounts payable (to merchandise suppliers) 410,000 385,000
Accrued expenses 180,000 162,000
Unearned commission 25,000 32,000
REQUIRED
Prepare cash flow statement.

Question # 18:
A comparative balance sheet data of Sun Rise Ltd. for 1995 and 1996 show the following
changes. Increases in assets are shown in debit column and their decreases in credit column.
Increases in equities are shown in credit column and decreases in debit column.
Debit (in Rs.) Credit (in Rs.)
Cash 14,000 ---
Other current assets 190,000 ---
Plant assets 360,000 ---
Allowance for depreciation Plant --- 50,000
Current liabilities --- 92,000
Long term bonds payable 40,000 ---
Share capital par --- 400,000
Retained earnings --- 62,000
Near the end of 1996 the company declared and paid a cash dividend of Rs.150,000.
REQUIRED
(a) Compute the net income on accrual basis for the year 1996.
(b) Prepare cash flow statement for 1996.

Question # 19:
A comparative balance sheet data of Commerce Enterprises Ltd. for 1988 and 1987 show the
following changes. Increases in assets are shown in debit column and their decreases in credit
column. Increases in equities are shown in credit column and decreases in debit column.
Debit (in Rs.) Credit (in Rs.)
Cash 7,000 ---
Other current assets 95,000 ---
Plant assets 180,000 ---
Allowance for depreciation Plant --- 25,000
Current liabilities --- 46,000
Long term bonds payable 20,000 ---
Share capital par --- 200,000
Retained earnings --- 31,000
Near the end of 1988, the company declared and paid a cash dividend of Rs.75,000.
REQUIRED
(a) Compute the net income on accrual basis for the year 1988.
(b) Prepare cash flow statement for 1988.

Question # 20:
During 2011, Manzoor Co. showed the following changes (Note increase in assets are shown in
debit column and increase in equities in the credit column and vice versa).
Debit Credit
Cash --- 8,750
Merchandise inventory --- 6,250
Prepaid rent --- 2,500
Accounts receivable 7,500 ---
Plant assets 20,000 ---
Accumulated depreciation --- 7,500
Share capital --- 17,500
Accounts payable 5,000 ---
Debentures payable 17,500 ---
Retained earnings --- 7,500
Additional Data:
Cash dividend of Rs.37,500 were declared and paid during 2011.
REQUIRED
Prepare Cash Flow Statement.

Question # 21:
On December 31, 2006 and 2007 balance sheet of Nizam Ltd. shows the following:
Assets 2007 2006
Cash 7,000 4,800
Accounts receivable 8,500 9,500
Merchandise inventory 32,500 33,200
Equipment 30,100 24,000
Total 78,100 71,500
Equities 2007 2006
Accumulated depreciation Equipment 6,100 4,800
Accounts payable 16,800 19,400
Mortgage payable 6,000 10,000
Share capital Rs.10 per share 30,000 25,000
Share premium 2,500 ---
Retained earnings 16,700 12,300
Total 78,100 71,500
Additional Information:
(1) A fully depreciated equipment that costs of Rs.800 was discarded and related accounts
were closed.
(2) Cash dividend of Rs.4,000 were declared and paid.
REQUIRED
Prepare a Cash Flow Statement showing Operating, Investing and Financing Activities.
Question # 22:
The accounting records of Kashif Ltd. showed the following balances at the end of year 2001
and 2002:
Debit Balances 2002 2001
Cash 112,000 100,000
Accounts receivable 150,000 140,000
Merchandise inventory 132,000 135,000
Equipment 60,000 40,000
Patents 20,000 25,000
Total 474,000 440,000
Credit Balance 2002 2001
Accounts payable 24,000 30,000
Allowance for bad debts 8,000 10,000
Accumulated depreciation (Equipment) 16,000 12,000
Bonds payable 100,000 120,000
Share capital (Paid up) 290,000 240,000
Retained earnings 36,000 28,000
Total 474,000 440,000
Additional Data:
(i) Fully depreciated equipment that cost Rs.10,000 was discarded and the related accounts
closed.
(ii) Cash dividends of Rs.40,000 were declared and paid.
REQUIRED
(a) Prepare cash flow statement for the year ended December 31, 2002.
(b) Assuming net purchases for the year 2002 to be Rs.175,000 compute the amount of cash
payments to supplier.

Question # 23:
The comparative balance sheet of Faisal Corporation at June 30, 2001 and 2002 are as follows:
Debit Balances 30.6.2002 30.6.2001
Cash 9,000 5,000
Accounts receivable 29,000 35,000
Merchandise inventories 50,000 57,500
Prepaid expenses 7,000 4,000
Machinery 100,000 90,000
Land 50,000 60,000
Goodwill 15,000 20,000
260,000 271,500

Credit Balance 30.6.2002 30.6.2001


Accounts payable 28,000 35,000
Accrued expenses 26,000 20,000
Accumulated depreciation Machinery 30,000 22,000
10% Bonds payable 40,000 50,000
Share capital 100,000 100,000
Retained earnings 36,000 44,500
260,000 271,500
The following additional data are given:
(a) Land costing Rs.10,000 was sold for Rs.20,000.
(b) Machinery costing Rs.20,000 was sold for Rs.9,000. At the time of sale the book value of
machinery was Rs.12,000.
(c) Cash dividend Rs.20,000 was paid during the year.
REQUIRED
(a) Prepare a cash flow statement for the year ended June 30, 2002.
(b) Assuming net sales for the year 2002 to be Rs.250,000, calculate the cash collection from
customers during 2002.

Question # 24:
Comparative balance sheets at the end of 2004 and 2005 of Oasis Limited appear below:
OASIS LIMITED
COMPARATIVE BALANCE SHEETS
Assets 31.12.04 31.12.05
Cash and bank balance 50,000 45,000
Marketable securities 40,000 25,000
Accounts receivable 320,000 330,000
Merchandise inventory 240,000 235,000
Plant & equipment (Net) 600,000 640,000
1,250,000 1,275,000
Liabilities & Shareholders Equity
Accounts payable 150,000 160,000
Accrued expenses 60,000 45,000
Mortgage loan (long term) --- 70,000
Debentures payable (due 2010) 500,000 350,000
Ordinary share capital 160,000 160,000
Retained earnings 380,000 490,000
1,250,000 1,275,000
Additional Information:
Net income for the year amounted to Rs.250,000.
Cash dividends of Rs.140,000 were declared and paid.
Depreciation of plant and equipment for the year was Rs.60,000.
Marketable securities costing Rs.15,000 were sold Rs.35,000 cash.
REQUIRED
Prepare a Cash Flow Statement using indirect method for the year ended December 31, 2006
showing the following clearly (a) Cash Flow from Operating Activities, (b) Cash Flow from
Investing Activities and (c) Cash Flow from Financing Activities.

Question # 25:
Accounting records of Waqar Ltd. showed the following balance at the end of year 1995 & 1996:
1996 (in Rs.) 1995 (in Rs.)
Cash 93,000 120,000
Accounts receivable 165,000 105,000
Merchandise inventory 285,000 450,000
Equipment 1,215,000 675,000
Land 240,000 105,000
Total 1,998,000 1,455,000
Allowance for depreciation Equipment 240,000 180,000
Accounts payable 131,000 55,000
Accrued liabilities 15,000 90,000
Long term bonds payable 300,000 240,000
Premium on bonds payable 4,000 5,000
Capital stock Rs.10 par 600,000 450,000
Premium on capital stock 240,000 150,000
Retained earnings 468,000 285,000
Total 1,998,000 1,455,000
Additional Information:
(a) Cash dividend of Rs.75,000 were declared and paid during 1996.
(b) Equipment costing Rs.75,000 was sold at Rs.40,000 and at the time of sale book value of
equipment was Rs.50,000.
REQUIRED
Prepare cash flow statement.

Question # 26:
The comparative balance sheet of Hamza Corporation at December 31, 2011 and 2012 are as
follows:
DEBIT BALANCES CREDIT BALANCES
December December December December
31,2011 31,2012 31,2011 31,2012
Cash 131,000 115,000 Accounts payable 24,000 30,000
A / receivable 42,000 25,000 Accrued expenses 32,000 24,000
Inventories 30,000 38,000 Bonds payable 120,000 40,000
Machinery 65,000 93,000 Ordinary share capital 100,000 180,000
Land 65,000 55,000 Share premium 25,000 28,000
Patents 17,000 20,000 Retained earnings 39,000 29,000
All. for 10,000 15,000
dep.(machinery)
350,000 346,000 350,000 346,000
The Corporation declared a cash dividend of Rs.15,000 and stock dividend of Rs.25,000 during
2012. Machinery sold for Rs.17,000 costing Rs.18,000 and at the time of sale its book value was
Rs.16,500.
REQUIRED
(a) Prepare a cash flow statement showing operating, investing and financing activities for
the year ended December 31, 2012.
(b) Determine working capital for both the years.

Question # 27:
Comparative balance sheet of Decent Products Ltd. on December 31, 2012 and 2013 follows:
2013 2012
Cash Rs.40,000 Rs.15,000
Accounts receivable 80,000 60,000
Allowance for bad debts (8,000) (6,000)
Inventories 150,000 120,000
Machinery 100,000 80,000
Accumulated depreciation (20,000) (16,000)
Accounts payable 75,000 95,000
5% Debentures payable 20,000 ---
Ordinary share capital 200,000 160,000
Ordinary share premium 20,000 10,000
Retained earnings 17,000 (12,000)
General reserve 10,000 ---
During the year cash dividend was declared and paid Rs.18,000 and a machine costing
Rs.10,000 with accumulate depreciation of Rs.1,000 was sold at a loss of Rs.2,000.
REQUIRED
Statement of cash flow showing cash flow from operating, inventing and financing activities.
Question # 28:
The following are balance sheet data of Anarkali Company Ltd.
Debit Balances 1997 Dec. 31 (Rs.) 1996 Dec. 31 (Rs.)
Cash 12,000 4,000
Accounts receivable 40,000 50,000
Merchandise inventory 95,000 130,000
Prepaid expenses 7,000 3,000
Land 65,000 75,000
Building 200,000 125,000
Equipment 18,000 10,000
Retained earnings 10,000 ---
447,000 397,000
Credit Balances 1997 Dec. 31 (Rs.) 1996 Dec. 31 (Rs.)
Allowance for bad debts 4,000 5,000
Allowance for depreciation Building 30,000 27,000
Allowance for depreciation Equipment 3,000 5,000
Accounts payable 50,000 63,000
Accrued expenses 10,000 7,000
Long term loans 100,000 80,000
Share capital (Rs.10 par) 250,000 200,000
Retained earnings --- 10,000
447,000 397,000
Additional Data:
During the year land costing Rs.10,000 was sold at a gain of Rs.5,000 for cash, and the old
equipment costing Rs.10,000 was sold for Rs.2,000 on credit.
REQUIRED
Prepare Cash Flow Statement.

Question # 29:
The comparative balance sheet of Abdullah Foods Ltd for June 30, 2004 and 2003 is as follows:
Assets June 30, 2004 June 30, 2003
Cash 93,400 57,800
Accounts receivable (Net) 125,000 123,500
Inventories 146,500 108,900
Investment --- 65,000
Land 145,000 ---
Equipment 367,600 278,600
Accumulated depreciation (110,900) (87,400)
Liabilities & Shareholders Equity June 30, 2004 June 30, 2003
Accounts payable 82,400 74,000
Accrued expenses 6,700 6,000
Dividend payable 18,400 15,700
Ordinary share capital Rs.10 100,000 70,000
Ordinary share premium 320,000 200,000
Retained earnings 239,100 180,700
The following additional information has been taken from the records of Abdullah Foods Ltd.
(a) Equipment and land were acquired for cash.
(b) The investments were sold for Rs.95,000 cash.
(c) The ordinary shares were issued for cash.
(d) Net income Rs.132,000.
(e) Cash dividend declared Rs.73,600.
REQUIRED
Prepare a Statement of Cash Flow for the year ended June 30, 2004.
Question # 30:
Pakistan Digitech Companys comparative balance sheets and income statement for the year
2006 follows:
PAKISTAN DIGITECH COMPANY
COMPARATIVE BALANCE SHEET
Assets: 2006 2005
Cash 140,000 100,000
Accounts receivable 210,000 150,000
Inventory 500,000 430,000
Prepaid expenses 20,000 60,000
Plant & equipment 1,900,000 1,400,000
Less: Accumulated depreciation 650,000 540,000
Long-term investment 700,000 900,000
Total 2,820,000 2,500,000
Liabilities & Equities:
Accounts payable 260,000 250,000
Accrued liabilities 100,000 120,000
Taxes payable 490,000 490,000
Debentures payable 500,000 400,000
Ordinary share capital 800,000 700,000
Retained earnings 670,000 540,000
Total 2,820,000 2,500,000
PAKISTAN DIGITECH COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006
Sales 2,300,000
Less: Cost of goods sold 1,200,000
Gross margin 1,100,000
Less: Operating expenses 700,000
Net operating profit 400,000
Gain on sale of long-term investment 50,000
Income before taxes 450,000
Less: Income taxes 140,000
Net income 310,000
Additional Information:
Dividends of Rs.180,000 declared and paid during the year. The gain on sale of long-term
investments was from the sale of investments for Rs.250,000 in cash. The investments had an
original cost of Rs.200,000. There was retirement or disposal of plant and equipment during the
year.
REQUIRED
Prepare a Cash Flow Statement using indirect method showing clearly:
(a) Cash flow from operating activities.
(b) Cash flow from investing activities.
(c) Cash flow from financing activities.

Question # 31:
The following trial balances have been taken from the books of Farooqui Ltd. Karachi:
2010 2009
Cash 150,000 210,000
Accounts receivable 240,000 200,000
Marketable securities 160,000 120,000
Inventories 350,000 360,000
Prepaid expenses 30,000 20,000
Land & building 1,000,000 1,000,000
Machinery & equipment 700,000 520,000
Discount on issue of bonds 10,000 20,000
Total 2,640,000 2,640,000
Allowance for bad debts 12,000 11,000
Allowance for depreciation (Building) 120,000 115,000
Allowance for depreciation (Machine) 110,000 90,000
Accounts payable 160,000 150,000
Accrued expenses 50,000 40,000
Bonds payable 450,000 650,000
Capital stock 825,000 425,000
Retained earnings 513,000 369,000
Reserve for plant extension 400,000 600,000
Total 2,640,000 2,640,000
Additional Information:
(1) Sold an old equipment costing Rs.20,000 having a book value of Rs.15,000 at Rs.10,000 on
credit.
(2) Cash dividend of Rs.150,000 was declared and paid.
(3) Stock dividend of Rs.100,000 was declared & issued required number of shares of Rs.10 par.
REQUIRED
Prepare Cash Flow Statement showing Operating, Investing and Financing Activities.

Question # 32:
The comparative financial data of Brothers Limited for the last two years are:
Assets 31.12.2005 31.12.2006
Cash 20,000 20,000
Accounts receivable 50,000 160,000
Merchandise inventory 100,000 75,000
Land and buildings 80,000 120,000
Plant and machinery 500,000 800,000
Total assets 750,000 1,715,000
Liabilities and Capital 31.12.2005 31.12.2006
Accounts payable 53,000 190,000
Bills payable 40,000 50,000
Outstanding expenses 7,000 5,000
Share capital 500,000 700,000
Retained earnings 100,000 160,000
General reserve 50,000 70,000
Total liabilities and capital 750,000 1,175,000
Additional Information:
(i) 10% Depreciation has been charged on plant and machinery during the year 2006.
(ii) A piece of machinery was sold for Rs.8,000 during the year 2006. It had cost Rs.12,000;
depreciation of Rs.7,000 had been provided on it.
REQUIRED
Prepare Statement of cash flow.
Question # 33:
The comparative balance sheet of M/s. Rehmat Ali (Pvt.) Ltd. as at June 30, 1993 and 1994 are
as follows:
Assets (in thousand rupees) June 30, 1994 June 30, 1993
Cash at bank 8,700 14,200
Accounts receivable 10,800 16,600
Merchandise inventory 49,550 52,000
Prepaid expenses 1,400 1,480
Plant assets 108,000 85,000
Accumulated depreciation Plant (32,000) (47,000)
Total 146,450 122,280
Equities (in thousand rupees) June 30, 1994 June 30, 1993
Accounts payable 23,450 11,140
Long term loan --- 25,000
Share capital (Ordinary share of Rs.10 each) 105,000 70,000
Discount of shares (7,000) ---
Retained earnings 25,000 16,140
Total 146,450 122,280
Other Information Taken from Ledger:
1) Net income for the year Rs.15,160
2) Depreciation expense for the year Rs.5,000.
3) Cash dividend declared during the year Rs.6,300
4) The loan was due in 1994, but as per agreement can be paid earlier without penalty.
5) Additional cost to building amounted to Rs.43,000.
6) Fully depreciated equipment costing Rs.20,000 was discarded with no salvage value.
7) During the year 3,500 shares were issued for cash at Rs.8/= each.
REQUIRED
(a) Prepare schedule to find changes in working capital.
(b) Prepare cash flow statement.

Question # 34:
Below are the Statements of Financial Position for Zita as at 31 Dec. 2009 and 31 December,
2008 and the Statement of Comprehensive Income for the year ended 31 December, 2009.
Assets 2009 (in Rs.) 2008 (in Rs.)
Non Current Assets:
Intangible assets 2,122,500 1,225,500
Tangible assets 1,248,000 1,021,500
Total non current assets 3,370,500 2,247,000
Current Assets:
Inventory 928,500 1,051,500
Receivables 786,000 738,000
Investments 594,000 187,500
Cash 25,500 121,500
Total current assets 2,334,000 2,098,500
Total assets 5,704,500 4,345,500
Equities & Liabilities
Equities:
Ordinary shares (Rs.10) 750,000 450,000
Share premium 468,000 426,000
General reserve 225,000 60,000
Retained earnings 2,418,000 1,815,000
Total equities 3,861,000 2,751,000
Non Current Liabilities:
5% Debentures payable 439,500 207,000
Current Liabilities:
Interest payable 150,000 45,000
Dividend payable 121,500 210,000
Tax payable 357,000 339,000
Accounts payable 775,500 793,500
Total current liabilities 1,404,000 1,387,500
Total equities and liabilities 5,704,500 4,345,500
Statement of Comprehensive Income
Revenue 2,641,500
Cost of sales (1,392,000)
Operating profit 1,249,500
Interest charge (165,000)
Profit before tax 1,084,500
Income tax expense (360,000)
Profit for the year 724,500
Additional Information:
1) Intangible non-current assets represent deferred development expenditure.
Amortization in 2009 amounted to Rs.64,500.
2) Tangible non-current asset additions totaling Rs.300,000 were made. Proceeds from the
sale of tangible non-current assets were Rs.154,500, on which Zita suffered a loss of
Rs.9,000.
3) Investments include treasury bills of Rs.48,000 acquired during 2009. Zita sees these as
cash equivalents.
REQUIRED
Prepare a Statement of Cash Flows for Zita for the year ended 31 December, 2009 in accordance
with IAS 7 (revised).

Question # 35:
Smithson Ltd.
Balance Sheet
As on 30 June 2000
Assets 2000 (in Rs.) 1999 (in Rs.)
Current Assets:
Cash 9,490 1,400
Accounts receivable 8,550 9,000
Inventory 6,100 4,320
Prepaid expenses 310 180
Total current assets 24,450 14,900
Fixed Assets:
Land 10,000 8,000
Building 30,000 30,000
Accumulated depreciation (B) (10,000) 20,000 (9,000) 21,000
Equipment 12,000 16,000
Accumulated depreciation (E) (7,100) 4,900 (8,500) 7,500
Goodwill (net of amortization) 4,000 4,500
Total fixed assets 38,900 41,000
Total assets 63,350 55,900
Equities & Liabilities 2000 (in Rs.) 1999 (in Rs.)
Current Liabilities:
Accounts payable 6,120 4,850
Dividend payable 3,000 1,500
Salaries payable 290 400
Total current liabilities 9,410 6,750
Long Term Liabilities:
Mortgage payable 8,000 10,000
Shareholders Equity:
Ordinary shares capital 29,000 23,500
Retained earnings 16,940 15,650
Total shareholders equity 45,940 39,150
Total equities and liabilities 63,350 55,900
Smithson Ltd.
Income Statement
For the Year Ended 30 June 2000
Sales revenue (net) 108,000
Cost of goods sold (46,410)
Gross profit 61,590
Operating Expenses:
Amortization of goodwill 500
Depreciation expense 2,500
Insurance expense 840
Miscellaneous expenses 960
Repairs and maintenance expense 1,370
Salaries expense 21,630
Telephone expense 1,850
Utilities expense 750
Total operating expenses (30,400)
Operating income 31,190
Interest expense (800)
Loss on sale of equipment (300)
Income before income taxes 30,090
Income tax expense (16,800)
Net income 13,290
Additional Information:
1) Equipment with a cost of Rs.4,000 and accumulated depreciation of Rs.2,900 was sold.
2) Dividends of Rs.12,000 were declared.
REQUIRED
Prepare a cash flow statement, using the indirect method.

Question # 36:
West-Man Industries Ltd.
Balance Sheet
As at 31 December 1998
Assets 1998 (in Rs.) 1997 (in Rs.)
Current Assets:
Cash 145,500 70,000
Accounts receivable 220,000 205,000
Inventory 110,000 130,000
Prepaid expenses 3,000 2,000
Total current assets 478,500 407,000
Fixed Assets:
Land 170,000 170,000
Building 700,000 600,000
Accumulated depreciation (B) (216,000) 484,000 (192,000) 408,000
Equipment 160,000 280,000
Accumulated depreciation (E) (48,000) 112,000 (64,000) 216,000
Patents 50,000 ---
Total fixed assets 816,000 794,000
Total assets 1,294,500 1,201,000
Equities & Liabilities
Current Liabilities:
Accounts payable 52,000 48,000
Unearned revenue 4,500 8,000
Dividends payable 10,000 20,000
Income taxes payable 25,000 20,000
Total current liabilities 91,500 96,000
Long Term Liabilities:
Bonds payable 500,000 400,000
Shareholders Equity:
Ordinary shares capital 330,000 500,000
Retained earnings 373,000 205,000
Total shareholders equity 703,000 705,000
Total equities and liabilities 1,294,500 1,201,000
West-Man Industries Ltd.
Income Statement
For the Year Ended 31 December 1998
Sales revenue 2,000,000
Cost of goods sold (1,100,000)
Gross profit 900,000
Operating Expenses:
Depreciation expense 40,000
Supplies expense 5,000
Other expenses 22,000
Salaries expense 400,000
Total operating expenses (467,000)
Operating income 433,000
Interest expense (20,000)
Loss on sale of equipment (45,000)
Income before income taxes 368,000
Income tax expense (140,000)
Net income 228,000
Additional Data:
(a) Building renovation costing Rs.100,000 were completed & paid for during the year.
(b) Equipment that initially cost Rs.120,000 and accumulated depreciation of Rs.32,000 was
sold.
(c) Dividends of Rs.60,000 were declared during the year.
(d) Ordinary shares were repurchased on the stock market for Rs.170,000 cash, an amount
equal to their book value.
REQUIRED
Prepare the statement of cash flow for 1998.