 Namaste, welcome everybody. We have been discussing about cash flow statement. I hope you have gone through the given notes and understood what is a cash flow statement. Please also have a look at cash flow statement for your own company. Today we will do second case on cash flow statement which will cover various aspects related to preparation of the statement. A small revision before that if you remember in the cash flow statement there are 3 sections. One is cash from operations, cash flows from operations, second is cash flows from investing activities and third is cash flows from financing activity. In the first part we calculate the cash generated from day to day activities of the business and normally it is done using indirect method. So we start with profit, then add back non-cash items or non-operating items, we make adjustment for some of the items which need to be deducted. So in short we can say that the depreciation should be added or items like loss or interest expenses are added while items like interest income or profit on sale of investments are reduced. That gives you funds from operations, then we also have to make adjustment for working capital items, we need to make adjustment for income tax that gives you cash flow from operating activities. Next one is pretty simple, all those items which are related to investment both inflows and outflows like purchase or sale of assets or interest received, they are all shown under the head investment investing activities. Another one is financing activities where we show all those items related to raising of funds by the business like issue of shares or issue of debentures or taking loan and the reverse of this that is redemption of share or redemption of debenture or repayment of loan, interest or dividend paid there on. So these are the three headings, then we take the total of the three and that we match with the increase or decrease of cash during that particular period. We have already done one case, now we will go for the second case. So with this introduction now, be prepared for the second case, it will be better if you take the print out of this particular case so that you can actually solve as I am also solving it. Now look at the given data, we have been given profit and loss account for year 31st March 2020. So sales, profit on sale of investment and revenue from services total is 98000. Now from this there are deductions like consumption of material, manufacturing expenses, wages, depreciation, general expenses, discount on issue of debentures, tax, interim dividend and we have got profit retained which is 17600. We have also been given two years figures of balance sheet for March 19 and March 2020. So again you can see certain items of liabilities and certain items of assets. Now using this information you are required to prepare cash flow statement. So how shall we go about? You all know that if there is a change in the balance sheet between the two years that should be considered as most likely item of impact on cash. So let us start with balance sheet, take every item of balance sheet and we will mark it as inflow or outflow and also as either as O, I or F if we feel that some movement has happened. So let us start with share capital, share capital you can see there is no movement, general reserve again no movement. For profit and loss account we do see increase from 8000 to 25600. Now this change is most likely to have some impact on cash flow. Now it is what type of item, I will just take you to the solution. So normally make 5 columns like this particular then 2 years figure change and YF. Now is there a change here in case of cash flow? Yes. Now we want to mark it as O, I or F. Now you all know that the change in the profit and loss account is due to the profit accumulated during the year and it is mainly the operating related item. So we have marked it as O. Now this is our working, this does not mean exact amount will go in cash flow statement but to start with we are going to mark every change, we will also have a look at P&L items and then after considering both we will go for preparation of cash flow. Now the next one is debentures. You can see debentures there is a increase from 10,000 to 27,000. So it is what type of item? You know that debenture is for raising of funds and from 10,000 it has increased to 27,000 so 17,000 increase that means new debentures are issued. So we will consider it as a what type of item O or I or F? It is a F type of item that is financing item. Next one is creditors. Creditors you can see 16 to 10 so it is a fall of 6000. Now it is what type of item? Is it operating, investing or financing or none of the above? Actually only three categories so none of the above does not exist but it is not investment, it is not finance also. And this is a item which is related to normal activities of the business. So we will mark it as O particularly it is a working capital item. So you can see here 16 to 10 so minus 6 and this is I have marked it as CA or CL that means I know it is a current liability but I have marked it as CSCL because it is something to do with current assets and liabilities. See how to treat it we will go in the next step. Next is deferred tax liability it has gone up from 7 to 12 so plus 5000 and taxation is a operating item so I have marked it as O. Are you clear? So like this for every item in balance sheet assign O, I or F or CSCL, CSCL is a part of O actually. Now this will help us for preparation of cash flow let us go to assets. Now in assets again there are changes. So land there is no change, equipment it has gone up from 21 to 55 600. Now it is what type of item? Is it F? Is it I? I think the answer is yes we have made investment in the equipment new equipments have been purchased so write the change here and mark that change as I item okay 34600 I. Next is investment long term you can see investment has gone down from 5000 to 3000 so minus 2000 it is investment so obviously it is a investing item it is a I category of item. Sundry debtors you can see has gone down from 15000 to 14300 so it is minus 700 what type of item it is? You know it is a current asset so it is marked as CACL. Next one is bank, bank has gone up from 5000 to 6700. So 1700 what type of item it is? O, I or F? I think many would have marked it as O because it is a current asset or you can mark it as CACL but in reality it is not be cautioned because bank balance is a part of your cash balance. So we are making a cash flow statement any change in the cash balance is not to be shown in a cash flow we will take it in the last part of cash flow statement as a reconciliation okay so what I have done is for convenience you can see here sundry debtors are marked as CACL and bank is marked as C, C means cash. So it is cash and cash equivalent kind of item good will there is no change so 0. I hope you are getting once again I am taking you to balance sheet liabilities have a look at all the items. You will realize that normally in the liability side there are F type of items or O type of items and normally in assets there will be I type of items because there will be investments like fixed assets or investments and there would be O type of items or CACL type of items are you getting? Now let us go back to PNL from profit and loss account have a look at those items which will have impact on cash flow. So suppose sales, sales is 90,000 will it have impact on cash flow? So we would have received 90,000 is it O, I or F type of receipt? Again many of you would have marked it as O but keep in mind that is not the correct answer then what type of item it is? Is it I or F? The answer is no because it is a normal day to day item and in the indirect method we do not show normal items related to operations. I will just take you to the actual calculation. So this is how I have made the format first is sales very tricky item because many times people feel that sales means cash has come in keep in mind we do not follow a direct method. So we are going to take profit and loss as a starting point and only we are going to mark three category of items items like depreciation which are non-cash items like profit on sale of investments which are related to not operation something else that is non-operating items and CACL type of items are you getting me? So in the sales the first item sales I have written it as no adjustment. The next is profit on sale of investments which is 2000 you all know that since this is a profit on sale of investment it is a investing flow. So I have marked it as I it will have one impact on operating flow as well because we have already considered it in PNL account we have already added it in profit so we will have to reduce it from profit that is why it is marked as both I and O. Remember balance sheet items have only one impact PNL items are going to have two impacts because balance sheet is already balanced PNL accounts are coming from outside in the cash flow statement so they will have two impacts on cash flow so they have been marked as two either it will not have any impact no adjustment or it will have two impacts so I and O in I it is plus plus means cash is coming in and in O it is minus this is just a working note for our understanding but it will ease our actual making of cash flow are you getting me? Next is revenue from services you know that any revenue earned is a day to day item it is just like sales, sales is from sale of goods they might have also provided some services for which they have earned 6000 this is not a cash flow item so I have marked it as no adjustment. Let us go to the next one so now consumption of material 40,000 where will it go OIF I will request you to mark all the items manufacturing wages, depreciation, general expenses and so on are you able to make up your mind even if it goes wrong no problem mark it and then we will go to the next step just mark whatever you feel so consumption of raw material materials will go as a O item maybe few of you have made mistake it is not a O item it is a no adjustment item so ignore it put a dash or write no adjustment manufacturing expenses again same thing it is a normal day to day item so no adjustment wages no adjustment depreciation again no adjustment no it has because it is a non-cash item though it is reduced from P and N it is not involving any cash outflow so we will mark it as O it will also have some impact on the equipment or the machinery account so in O that is in the operating flows it is going to be added so I have marked it as plus and in I that is in the machinery we will mark it as minus so depreciation OI plus and minus getting this will be true for all non-cash items they will be added in the cash flow statement general expenses no adjustment discount on issue of debentures will it involve any cash flow indirectly yes because when we issue debentures we should have got cash but to the extent of discount we will not receive cash it is a F type of item it will also have impact on operating flows because it is one of our expenses but it does not involve any cash okay so I have marked it as OF getting it in operations its plus and in F it will have minus tax 6000 I think most of you have judged it correct it is a O type of item but this 6000 does not mean it is cash tax paid this much of tax has been charged for the year we will have to look at the balance sheet item and then finally decide how much tax is paid okay so right now I have marked it as OO because it will come two times in the operating flows and marked it as plus and minus because again it comes two times exact amount we will determine later on interim dividend do you remember what is interim dividend dividend represents the share of profit which is paid to the shareholders if it is paid during the year it is called as interim dividend now interim dividend is a F type of item it is a financing outflow but it will have an impact on O because it is routed through P and L so I have marked it as F O minus and plus minus because it is an outflow in financing we will add it in O so I have written it as plus last item profit retained again it is O because it comes from day to day activities and we will mark it as plus if you remember the second effect of profit retained is there in the balance sheet so now we have marked all items of P and L we have also marked all items of balance sheet I hope you have understood it is very important for you to properly understand all these items once this is clear making of cash flow statement is really very simple are you getting all the items I will request you to practice a lot take two years balance sheet for any company calculate the cash flow statement and check it with their actual cash flow statement so now look at the answer now actual answer is very simple if you have really understood all these items you can easily write down the final answer now this is in front of you in final shot but I request you to properly solve it yourself now I will try to explain every item it start you know there is a particular format so we are starting with retained earnings 17600 from where we did you got this item actually it came from two sources first it was given in P and L it also had some impact on balance sheet because balance sheet we had transferred the balance of P and L which is an increase of 17600 it is only one item but it comes at two places okay so here retained earnings it is a inflow see if it is a outflow you should write in bracket if it is a inflow that means a positive figure so retained earnings 17600 to that add interim dividend paid now you know here we had written interim dividend 5000 as F and O so it is a financing item we are also going to add it for calculation of P and L so remember it is paid actually it is outflow but in P and L we add it because right now we are not showing it as outflow we are calculating it using it for calculation of profit so 17600 plus 5000 I get NPAT or net profit after tax which is 22600 then tax provided see in P and L we had got 6000 OO of which the first effect is this the tax was reduced from profit and loss account we will add it back we are going to take this item again but we will look at it later on right now just add back the tax we will get net profit before tax which is 28600 please try to solve with me so that you also get the practice next is depreciation you know here in P and L we had a item of 5000 O plus so we are this is a non-cash expense so we will add back 5000 same way there was a item discount on issue of debenture in P and L we had marked it as OF in any case this 3000 is to be added in O so discount on issue of debenture is added see this is only one effect the second effect we will see later on the effect related to operating activities we are looking right now next is profit on sale of investments if you remember in P and L we had added this 2000 to calculate the profit now we are going to reverse it so we will reduce 2000 because it is a negative figure we will write it in bracket are you getting so NPBT 28600 add 5000 add 3000 minus 2000 so we are getting 34600 this is called as funds from operations this is the money which we have generated from our operations or from our normal business that is why we have started with profit we have removed non operating type of items now which items are yet to be shown in operating activities do you remember items which were related to CA or CL or related to working capital they are yet to be treated so we start with funds from operations then make adjustment for debtor and creditor there are only two adjustments let us go to balance sheet to have a look at it so you know that in the liabilities there was a item creditors from 16000 it has reduced to 10,000 minus 6000 so I hope you understand that we have paid 6000 getting it that is why the creditors balance have come down we are going to reduce it from the cash flow as minus 6000 getting it but for debtors it is exactly opposite in the assets the debtors have gone down now debtors are going down means these are the balances with customers they have paid us we have got more money that is why their balance has gone down so this minus 7000 is going to be plus in the cash flow statement getting it I know it is slightly tricky keep in mind that it will be exactly opposite for debtors and traitors for creditor it is minus 6 for debtor there the figure was minus so we converted into plus or you can also remember it this way that whatever is the direction of movement in a current liability same will be for cash ok so current liability went down so cash also went down but for a debtor which is a current asset it competes with cash so debtors have gone down so cash has gone up ok so it is plus 700 so at this stage we get cash generated from operations which is 29300 so we will stop here we will continue this same assignment or the same case in the next session namaste then never