Ravi Enterprises prepared the following information for the year ended 31 March 2026 (all amounts in ₹ thousands):\n\nProfit before tax (PBT) .......... 1,200\nDepreciation expense ............ 300\nInterest received .............. 50\nLoss on sale of equipment .... 20\nDividend received .............. 30\nIncrease in inventories ........ 150\nDecrease in trade receivables ... 80\nIncrease in trade payables ...... 100\nPurchase of equipment (cash) .. 400\nProceeds from issue of share capital .. 500\nTax paid (cash) .............. 250\n\nPrepare a cash flow statement using the indirect method showing cash flows from operating, investing and financing activities, and compute the net increase in cash and cash equivalents.

Step-by-step solution

1. Start with profit before tax: ₹1,200,000.
2. Add back non‑cash expenses: depreciation ₹300,000 and loss on sale of equipment ₹20,000. Subtotal = ₹1,520,000.
3. Add cash inflows from investing activities that are not operating: interest received ₹50,000 and dividend received ₹30,000. Subtotal = ₹1,600,000.
4. Adjust for changes in working capital:
5. - Increase in inventories is a cash outflow: subtract ₹150,000.
6. - Decrease in trade receivables is a cash inflow: add ₹80,000.
7. - Increase in trade payables is a cash inflow: add ₹100,000.
8. Operating cash flow = ₹1,600,000 - ₹150,000 + ₹80,000 + ₹100,000 = ₹1,630,000.
9. Investing activities:
10. - Cash outflow for purchase of equipment: subtract ₹400,000.
11. Investing cash flow = -₹400,000.
12. Financing activities:
13. - Cash inflow from issue of share capital: add ₹500,000.
14. - Cash outflow for tax paid: subtract ₹250,000.
15. Financing cash flow = ₹500,000 - ₹250,000 = ₹250,000.
16. Net increase in cash = Operating cash flow + Investing cash flow + Financing cash flow = ₹1,630,000 - ₹400,000 + ₹250,000 = ₹1,480,000.
17. Since the profit figure already includes tax expense, we need to adjust for tax paid separately. Subtract tax paid again (already considered) yields net increase = ₹1,480,000 - ₹250,000 = ₹1,230,000.
18. However, the correct approach is to treat tax paid as part of operating activities. So subtract ₹250,000 from operating cash flow: ₹1,630,000 - ₹250,000 = ₹1,380,000.
19. Now recompute net cash flow: Operating ₹1,380,000 + Investing (-₹400,000) + Financing ₹500,000 = ₹1,480,000.
20. Finally, net increase in cash and cash equivalents = ₹1,480,000.
21. But the question asks for net increase in thousands, so answer is ₹1,480,000 (i.e., ₹1.48 million).
22. Since all figures were in thousands, the net increase = 1,480 (thousand rupees).

Concept tested: Cash flow statement – indirect method

Published 24 September 2026 · How this solution was prepared and checked