Worked Solution
✓ VerifiedCash Flow Statement of M/s X Limited for the year ended 31st March, 2019
(As per AS-3 — Indirect Method)
A. Cash Flow from Operating Activities
Net Profit for the year: ₹2,50,000
Add: Provision for Income Tax: ₹80,000
Net Profit before Tax: ₹3,30,000
Adjustments for non-cash and non-operating items:
Add: Depreciation charged to P&L: ₹12,000
Add: Loss on sale of Plant & Machinery: ₹1,000
Less: Increase in Working Capital (excl. cash): (₹18,000)
Operating Profit before Working Capital Changes: ₹3,25,000
Less: Income Tax Paid: (₹65,000)
Net Cash from Operating Activities (A): ₹2,60,000
B. Cash Flow from Investing Activities
Proceeds from sale of Plant & Machinery (BV ₹4,500 − Loss ₹1,000): ₹3,500
Less: Purchase of Furniture & Fixtures: (₹1,11,000)
Less: Investment in Joint Venture: (₹40,000)
Net Cash used in Investing Activities (B): (₹1,47,500)
C. Cash Flow from Financing Activities
Proceeds from issue of 12% Debentures: ₹20,000
Less: Dividend Paid: (₹1,00,000)
Net Cash used in Financing Activities (C): (₹80,000)
Net Increase in Cash and Cash Equivalents (A+B+C): ₹32,500
Add: Opening Cash and Cash Equivalents (balancing figure): ₹17,500
Closing Cash and Cash Equivalents: ₹50,000 ✓
Notes: Under AS-3 (Accounting Standard 3 — Cash Flow Statements), dividend paid is classified as a Financing Activity. Income tax paid is deducted under Operating Activities. Loss on sale of P&M is added back as a non-cash/non-operating adjustment; actual sale proceeds (Net Book Value − Loss = ₹3,500) are shown under Investing Activities. Provision for tax is added back to arrive at profit before tax, and actual tax paid (₹65,000) is separately deducted.
Write it like this
1The skeleton
- Write the heading exactly as: 'Cash Flow Statement of [Entity] for the year ended [date] (As per AS-3 — Indirect Method)' — examiners look for 'AS-3' and 'Indirect Method' in the title itself; missing either costs you presentation marks before you've written a single number.
- Start Operating Activities with Net Profit, immediately add Provision for Tax to arrive at 'Net Profit before Tax' — this is the mandatory first step under Indirect Method; jumping straight to adjustments without this line signals you don't understand the structure.
- Label your adjustments block as 'Adjustments for non-cash and non-operating items' — then list depreciation (+) and loss on sale (+) under it; the examiner needs to see you know WHY you're adding these back, not just that you are.
- Under Investing Activities, show the sale proceeds calculation explicitly as BV ₹4,500 − Loss ₹1,000 = ₹3,500 — don't just write ₹3,500 out of nowhere; showing the working in brackets proves you derived proceeds correctly and protects your step marks.
- Put Dividend Paid under Financing Activities, not Operating — and write a one-line note at the bottom: 'Dividend paid is classified as Financing Activity as per AS-3'; this note alone can rescue 1 mark if your figure is right but placement looks debatable.
- End with the reconciliation: Net Change + Opening Cash = Closing Cash ₹50,000 ✓ — the tick mark and the match signal to the examiner the statement is complete and self-checking; derive opening cash as the balancing figure and state it clearly.
2Examiner-rewarded phrases
3Common trap
The single biggest killer here is putting Dividend Paid under Operating Activities — nearly every student does it instinctively because dividend flows out of P&L. It's Financing under AS-3, full stop. Second trap: showing Book Value ₹4,500 as sale proceeds instead of computing actual proceeds (BV − Loss = ₹3,500); you'll lose marks on Investing Activities even if your Operating total is perfect.