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The following trial balance is extracted from the books of ABC Ltd. as on 31 March 2026 (all figures in Rs.): Profit & Loss Account (Credit) 2,00,000 Depreciation expense 40,000 Interest paid 15,000 Tax paid 25,000 Trade receivables – Opening 60,000, Closing 80,000 Trade payables – Opening 50,000, Closing 70,000 Inventories – Opening 1,10,000, Closing 90,000 Purchase of plant & machinery (cash) 1,20,000 Sale of equipment (cash) 30,000 (Cost 50,000, Accumulated depreciation 20,000) Proceeds from issue of share capital 50,000 Dividend paid 10,000 Opening cash & bank balance 20,000 Prepare a cash flow statement (indirect method) and determine the closing cash & bank balance.

hard 5 marks Class 12 · Accountancy · Cash Flow Statement
Answer
Rs. 2,90,000

The correct answer is Rs. 2,90,000 — Add opening cash balance Rs. 20,000 → Closing cash & bank balance = Rs. 2,90,000.

Step-by-step solution

  1. Compute cash flow from operating activities:
  2. Start with profit before tax (assumed equal to profit & loss credit) = Rs. 2,00,000.
  3. Add back depreciation = +Rs. 40,000 → Rs. 2,40,000.
  4. Adjust for working capital changes:
  5. Receivables increased by Rs. 20,000 (80,000‑60,000) → subtract Rs. 20,000 → Rs. 2,20,000.
  6. Payables increased by Rs. 20,000 (70,000‑50,000) → add Rs. 20,000 → Rs. 2,40,000.
  7. Inventories decreased by Rs. 20,000 (1,10,000‑90,000) → add Rs. 20,000 → Rs. 2,60,000.
  8. Subtract cash paid as interest = Rs. 15,000 → Rs. 2,45,000.
  9. Subtract cash paid as tax = Rs. 25,000 → Rs. 2,20,000.
  10. Thus cash flow from operating activities = Rs. 2,20,000.
  11. Compute cash flow from investing activities:
  12. Cash outflow for purchase of plant & machinery = –Rs. 1,20,000.
  13. Cash inflow from sale of equipment = +Rs. 30,000.
  14. Net investing cash flow = –Rs. 90,000.
  15. Compute cash flow from financing activities:
  16. Cash inflow from issue of share capital = +Rs. 50,000.
  17. Cash outflow for dividend paid = –Rs. 10,000.
  18. Net financing cash flow = +Rs. 40,000.
  19. Determine net increase in cash:
  20. Operating 2,20,000 + Investing (‑90,000) + Financing 40,000 = Rs. 2,70,000.
  21. Add opening cash balance Rs. 20,000 → Closing cash & bank balance = Rs. 2,90,000.
Common mistake: Omitting interest and tax paid while adjusting profit before tax

Concept tested: Full cash flow statement preparation

Published · How this solution was prepared and checked

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