 Namaste. In the last session we were discussing case number 2 of cash flow statement. Those of you who have missed it I will request you to see the session also take the print out of the case which we were solving. We were halfway through so we will continue from there but just we will look at the case once again. So this is a we are asked to prepare cash flow statement for cash of limited. Now profit or loss account for March 2020 was given then the balance sheet was given for last year and this year or opening balances and closing balances. So this is liability as assets and now based on this figure information we were asked to prepare cash flow statement. Now as a process of preparing it or as a working node what I had asked you to do was take every item of balance sheet then P and L mark the change and mark it as O, I or F. Once that marking is done the rest of the work is very simple actual preparation of cash flow. So we have done marking last time just have a look once again. So we started with balance sheet liabilities these were the markings. So profit and loss account was marked as O, debenture being a financing item F, craters CACL, deferred tax liability O, assets, equipment and long-term investments were I and sundry data CACL, bank balance. This is a cash and cash equivalent item so it should be marked as C. It will not be shown as a flow in the cash flow statement. Now P and L, P and L items like sales or revenue from services are not to be shown in cash flow. So I have written here as no adjustment or you can say no item of cash flow. For items like profit on sale of investments there will be two adjustments. Now this is related to investment so it is I profit here so money is coming in so it is plus but it has a second effect in O keep in mind. O because it is already added in P and L we want to remove it from P and L it is not a regular day to day activity. So we will reduce it from O that is why I have marked it as I and O and plus and minus. This plus and minus etc is not to be written in cash flow but it will help us in making the cash flow getting it. Now all these are expense items in P and L. So day to day items like consumption, manufacturing, wages, general expenses are NA but depreciation it is a non-cash expense so O plus discount on issue of debentures, O F plus taxation O O because it will come under operating items twice plus and minus interim dividend F O plus and minus. If you have still not understood it please read it 2, 3 times it is very important once that is done remaining job is simple. Now based on this we went for preparation of cash flow statement the first part is operating activities there is a specific format. So please go through the format 2, 3 times we calculate net profit after tax, net profit before tax and then do adjustments for certain items. Now to calculate NPAT we started with retain earnings, add interim dividend, add taxes provided we got NPBT then depreciation and discount and debentures was added. Keep in mind these are non-cash items they do not bring in cash but because we do not pay cash for it we are adding it that is a indirect method. Then profit on sale of investment is to be reduced. So we get fund from operations 34,600 to this we will make adjustment for working capital items or CA and CL items. Now sundry daters had gone down reduction of sundry daters means they have paid us money. So it is added creditors have also gone down. Now to creditors for them to go down we pay them money. So reduction in creditors is in bracket so it is outflow. So CA and CL is bit tricky keep track of it I will once again just remind what I had told you last time. For CL it is simple addition to CL that is current liability is also addition to cash. Reduction of CL is reduction of cash I think you keep that in mind. For even more simple you can remember that cash and CL they will go together whereas cash and CA are competing they would go opposite just CL opposite moment is for current assets. Now after adjusting daters and creditors we get cash generated from operations but before tax. So I have marked it as BT which is 29,300. Now the income tax paid is to be reduced that is 1000. Now from where you got 1000? 1000 was not given anywhere but we had 2 figures. We will go to PNL you can see here in PNL the taxes provided was 6000. Actual payment work in a we do not know but that much of tax was charged in PNL of that we had to go to balance sheet now. If you see balance sheet in the liability there is a item called deferred tax liability and it has increased from 7 to 12 that means there is a increase of 5000 these are taxes provided but not paid. Do you remember what is deferred tax? As the name suggest deferred means this is this times item but to be paid later on. Any tax which is not to be paid in the current year if it is to be paid in current year it is called current tax. If it is not to be paid in current year but can be paid after 2, 3, 4 years it is called as a deferred tax. Now the deferred tax liability has gone up by 5000. We have marked it as O. So out of the total taxes of 6000 for the year as you can see from PNL 5000 are deferred that means they would be paid later on they are not to be paid now. So 6 minus 5 remaining 1000 is paid in the current year. Are you getting me? Here I have shown in bracket 6 minus 5 or you can say 6000 minus 5000. So it is 1000. Getting it so tax you have to keep in mind always it will come 2 times. Subsepaile net profit after tax may tax provided add Hoga because this is charged in the year and what is actually paid is to be deducted that is why taxes are to be shown twice in the cash flow because what is provided is not paid. It is to be added and what is actually paid is to be deducted because it represents outflow. And government also wants to keep track on provisions and actual payments. That is also one reason why in the format specifically these items are to be shown twice. You cannot show net effect. You have to add 6 and reduce 1. Getting it so this was the last item this gives us net cash flow from operating activities which is 28300 positive that means that much cash we have got from our normal business activities. Now this was bit complicated remaining is very simple. Next is cash flow from investing activities. Now go to balance sheet. We had marked many items as I. So just take those items I means investing and put them here. So now we will go back to balance sheet. Balance sheet if you remember there was investment long term. It was marked as I minus 2000. Minus means from 5000 it has gone down to 3000. So we have sold investment and we have received 2000. But we cannot directly write this 2000 in cash flow because there will be some profit or loss on sale of investment. Getting it so this 2000 plus in P&L there was one item called as profit on sale of investment 2000. We had marked it as IO plus minus. See in I it is plus. So 2000 rupees is a cost of investment plus 2000 rupees of profit total sale value is 4000. You were not given the sale value we have to calculate the sale value. So sale of investment 2000 plus 2000 4000 is the inflow for the year. Getting it? Okay. Next is purchase of equipment. If you go to balance sheet there was equipment 21000 increasing to 55600. So 34600 of increase we had marked it as I. This represents purchase. Getting it? But this may not be the actual amount of purchase. Increase UI means kuchto purchase UI. But it is reducing because of depreciation. So we have to consider both the effect of purchase and that is addition and reduction due to depreciation. And the net effect will be this 34600. So let us calculate the purchase amount. Getting it? I have worked out 39600. How it is worked out? Can you guess? See the net effect is 34600 and if you go to P&L there was a depreciation of 5. So 34 plus 5 you get 39600. I have also shown equipment account here. Those of you are familiar with laser accounts have a look at the account. The opening balance was 21, closing balance was 55. Reduction due to depreciation is 5. We know that there is an overall increase of 34600 plus 5000. That means there is a cash bank or purchase of 39600. So either you make an account like I have made it here or you can make a working note. But arrive at this amount of 39600 it is in bracket because it is a minus. It is a reduction in cash flow. Are you getting? So two item in investing plus 4000 and minus 39600 net cash flow from investing activity is 35600. Are you getting? So from operating there was a addition or positive figure of 28300 that is cash generated from operating activities. This is the cash invested in investing activities 35600 in minus. Now the third heading is financing activity. So go to balance sheet, look at F type of items. Balance sheet normally you have to go to liabilities because that is where you will get F items. You can see there is only one item. Debencher, 10,000 was opening, 27 was closing, increase of 17 F. So it represents what? A financing inflow. So we have got cash and we have given debentures. Getting it? So inflow is 17 but do not write 17 directly in cash flow because there could be some item in PNL. If you remember in PNL there was one item called as discount on issue of debentures. We had marked it as OF plus. Getting it? It is F because it is a financing item of 3000. It is related to issue of debenture. That means debentures of the face value of 17 are issued at discount. Company did not receive 17. Company received 17 minus 3 that is 14. That is your inflow of from debentures. Getting it? So I have written it here as issue of debenture 17 minus 3, 14,000. Got it? So only one item was there in the balance sheet but there was one item in PNL that is this interim dividend. We had marked it as FO minus plus. What is F because dividend is always a financing activity. We have issued shares and we are giving dividend to the shareholders. During the same year it is given so it is called interim. That means it is declared and paid. See the amount is 5000. That 5000 we added here in operating and we will reduce it in financing. Got it? So in financing there are only 2 items. Issue of debentures and interim dividend pay. Plus 14 minus 5. So net cash flow from financing activity is 9. So we have got all the 3 headings now. 28, 300 plus minus 35, 600 plus 9,000. So net increase in cash. This is a total of O plus I plus F that is 1,700. Are you getting it? Now this can be cross checked with the balances in the balance sheet. So to this we add cash and cash equivalents at the beginning which is 5000. Cash and cash equivalents at the end are 6,700. So has it talent? Now from where we got this 5 and 6,700 we will go back to balance sheet. Decay balance sheet make an item the bank which we had marked as C and we had discussed that this 1,700 is not in flow or out flow. This is the change of balance. In fact we are calculating whole cash flow statement to see whether our total matches with the changes in the cash flow in the cash and cash equivalent. So all other changes together was 1,700. It matches with the change in the bank that means our statement is correct. It is telling. Are you getting? So 1,700 plus 5000 you get 6,700. Now there is something more also. Now go to cash and cash equivalent. We have to make a reconciliation statement. Show the cash and cash equivalent at the beginning and at the end. This problem only has one item but sometimes there can be 2, 3 items of cash and cash equivalent. So show them take the total. So bank opening 5 closing 6,700 the total is same 5 and 6,700 and equipment was a working note. So for the whole cash flow statement as for the format start with operating items show them here then go for investing, go for financing, add opening, less closing and also show the reconciliation of cash flows of cash and cash equivalent. Then our cash flow statement is over. Is it clear? Now also we would discuss just a bit from the financing angle. What are your comments? Is it a good cash flow statement for the company? Does it represent sound and well-running company? What do you feel from these 3 totals? Operating activity is a positive figure. Is it a good sign? Of course, yes cash will arrive. What is bad in it? We are able to generate 28,300 from our normal business. You can see here this is a very good sign. This shows the strength of business. Now we have a negative cash flow in investing. Is it a good sign? Is it a good sign? Some may feel it is not good sign. But actually it is a positive sign because unless we make investment how will business grow? So you can see here company cash generate 28,300 and they are investing in purchase of new equipment. So if you want a healthy growth of the company, company has to continuously make investments in new equipment, new software, new technology or at least in new investments. So you can see here they have sold some of the old investments at profit which is also a good sign. And all that money they have put in the new equipments that would give them coming years it will be good for generating more profits and more cash flows. So keep in mind negative cash flow of investing activity is not bad. In fact it should be negative. That means you are selling your existing asset which may not be good. It is good if new assets are getting created. So negative cash flow in investing activity is healthy. Next is financing. Financing is plus 9000. Is it good? Positive or negative? Actually both is fine in financing because sometimes it will be negative because of payments of dividend like here they have paid 5000, shareholders should get some money. So it is it is a positive sign. But company has to grow. So you can see here they have raised some new money by way of debentures. That 14000 is used to finance the purchase of investment partly. Partly it has come from the operating flows and partly from this. So no problem this 9000 can be either positive or negative. It is a healthy sign. Overall looking at the and also look at the cash and cash equivalents at the beginning and end it also shows a good sign. If you have too much of cash it is not good. If you have too little cash not even the money to pay regular activities that is also not sound. So you can see here company has slightly increased their balances but not too much of cash not too less of cash. So overall from the cash flow statement I am not looking at P&L and balance sheet. We will later on discuss the ratios and how to analyze the statements. But just by looking at the cash flow which we have made, overall comments if we make we can say that it is a healthy sign. Then they have generated a positive cash flow from operations. They have invested during the year. So negative cash flow from investing and a small positive from financing. So company has a healthy cash policy. They are able to have a good cash flow from operations. So I hope you have overall understood cash flow statement. Now we have already discussed balance sheet first then we discussed P&L. Today we have also discussed cash flow. I hope now the basic financial statements are clear to you. In coming sessions we will discuss some conceptual and theoretical aspects like corporate governance, like ethical part of accounting or like how to how was the accounting evolved? How are the entries recorded? And in last part of our course in last 4-5 sessions we will again go back to financial statements wherein we will go for preparation of balance sheet P&L and cash flow and we will also try to analyze them by way of ratios. But to do all that you need to do a lot of homework. Now that you have understood all the 3 statements please read the statements of various companies at least of your company and also try to prepare simple P&Ls and balance sheets. And maybe after 1 or 2 weeks we will go for preparation of some more statements. Okay. Thank you so much. Namaste. Thank you.