Cash Flow Statement Page 18

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MODULE - 6A
Cash Flow Statement
Analysis of Financial Statements
sheet. In such a case the figure in the opening balance sheet is treated as
an outflow of cash while the figure in the closing balance sheet is treated
as a non-cash and non-operating expense and thus is added back to net
Income figure to find out the cash provided from operating activities.
Notes
Illustration 5
The comparative balance sheets of Bansal Private Limited at two different
dates provide the following information.
2006
2007
Assets
Amount (Rs)
Amount (Rs)
Plant and machinery
1350000
1440000
It is informed that depreciation amounting to Rs. 60,000 has been provided
during the year. Find the changes that have taken place in the asset and also
state their effect on cash flows.
Solution :
In order to identify the transaction affecting the asset account, the proper
procedure is to prepare the plant and machinery account as shown below:
Plant and machinery Account
Particulars
Amount Particulars
Amount
Balance b/d
1350000 Depreciation (given)
60,000
Bank A/c
150000 Balance c/d
1440000
(New machine purchased)
1500000
1500000
Note
– In the absence of specific information, it may be presumed that the
additional machinery was purchased for Rs.1,50,000.
– The amount spent on the plant and machinery represents a reduction
in the cash and its equivalent. It is, therefore, an example of outflow
of cash.
79
ACCOUNTANCY

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