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Model Test Papers M.173

23. (a) CASH FLOW FROM OPERATING ACTIVITIES

Particulars ` `
Net Profit before Tax and Extraordinary Items (WN) 41,000
Add: Non-cash and Non-operating items:
Depreciation on Machinery 18,000
Loss on Sale of Machinery (` 50,000 – ` 20,000 – ` 10,000) 20,000 38,000
Operating Profit before Working Capital Changes 79,000
Add: Increase in Current Liabilities:
Outstanding Expenses ( ` 14,600 – ` 10,000) 4,600
83,600
Less: Increase in Current Assets:
Inventory (` 12,000 – ` 4,000) 8,000
Trade Receivables (` 58,000 – ` 45,000) 13,000 21,000
Cash Flow from Operating Activities before Tax 62,600
Less: Tax paid 23,000
Cash Flow from Operating Activities after Tax 39,600
Working Notes:
1. Calculation of Net Profit before Tax and Extraordinary Items: `
Surplus, i.e., Balance in the Statement of Profit and Loss as on 31st March, 2018 71,000
Less: Surplus, i.e., Balance in the Statement of Profit and Loss as on 31st March, 2017 89,000
Net Loss during the year (18,000)
Add: Dividend Paid 36,000
Tax paid 23,000 59,000
Net Profit before Tax and Extraordinary Items 41,000

2. As the profit on sale of Non-current Investment ` 2,000 has not been transferred to Statement of Profit and Loss
but to Capital Reserve, it will not be adjusted while computing Operating Profit before Working Capital Changes.
(b) CASH FLOW FROM INVESTING ACTIVITIES
Particulars `
Purchase of Machinery (WN 1) (2,40,000)
Sale of Machinery 36,000
Cash Used in Investing Activities (2,04,000)

Working Notes:
1. Dr. MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 2,50,000 By Bank A/c (Sale Proceeds)* 36,000
To Gain (Profit) on Sale of Machinery A/c 6,000 By Accumulated Depreciation A/c 50,000
(Statement of Profit and Loss) By Balance c/d 4,10,000
To Bank A/c (Purchase)—Balancing Figure 2,40,000
4,96,000 4,96,000

`
*Book Value of Machinery on the date of Sale (` 80,000 – ` 50,000) 30,000
Add: Gain (Profit) on Sale of Machinery (20% of ` 30,000) 6,000
Sale Proceeds 36,000