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M.60 Management Accounting (Section B)—ISC XII

Section B

9. (a) CASH FLOW FROM INVESTING ACTIVITIES
Particulars `
Purchase of Machinery (` 4,00,000 – ` 3,00,000) (1,00,000)
Purchase of 10% Investments (1,00,000)
Rent Received 30,000
Dividend Received from Investment in shares (10% of ` 1,50,000) 15,000
Sale of 10% Investments (WN 1) 60,000
Interest Income on 10% Investments 12,000
Sale of Patents (WN 2) 15,000
Cash Used in Investing Activities (68,000)

Working Notes:
1. Dr. 10% INVESTMENTS ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 1,50,000 By Bank A/c (Sale) (Balancing Figure) 60,000
To Bank A/c (Purchase) 1,00,000 By Balance c/d 2,00,000
To Statement of Profit and Loss (Profit on Sale) 10,000
2,60,000 2,60,000
2. Dr. PATENTS ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 80,000 By Statement of Profit and Loss (Written off) 10,000
By Bank A/c (Sale) (Balancing Figure) 15,000
By Statement of Profit and Loss (Loss on Sale) 5,000
By Balance c/d 50,000
80,000 80,000

3. Decrease in the book value of Goodwill by ` 15,000 indicates amortisation of Goodwill. It is adjusted while
calculating Cash Flow from Operating Activities and does not effect Cash Flow from Investing Activities.

(b) CASH FLOW FROM FINANCING ACTIVITIES
Particulars `
Proceeds from issue of Equity Share Capital [ ` 2,00,000 + ` 20,000 (Premium] 2,20,000
Proceeds from Issue of Debentures (` 5,00,000 – ` 4,00,000) 1,00,000
Redemption of 10% Preference Shares (1,00,000)
Payment of Preference Dividend (10% × ` 3,00,000) (30,000)
Payment of Equity Dividend (9% × ` 4,00,000) (36,000)
Interest paid on Debentures (10% × ` 5,00,000) (50,000)
Cash Flow from Financing Activities 1,04,000

Quick Assets ` 5,40,000
10. (a) (i) Liquid Ratio= = = 1.8 : 1.
Current Liabilities ` 3,00,000
Note: Quick Assets = Total Current Assets – Prepaid Insurance – Closing Inventory
= ` 6,00,000 – ` 10,000 – ` 50,000 = ` 5,40,000.