Balance Sheet
| Liabilities | 2011 | 2012 | Assets | 2011 | 2012 |
| Share Capital | 5,76,000 | 7,10,400 | Land & Building | 76,800 | 1,53,600 |
| Profit & Loss a/c | 2,42,880 | 2,62,000 | Machinery | 5,76,000 | 9,21,600 |
| Creditors | 3,84,000 | 3,74,400 | Cash | 96,000 | 1,15,200 |
| Outstanding Expenses | 38,400 | 76,800 | Debtors | 2,68,800 | 2,97,600 |
| Provision for Tax | 19,200 | 21,200 | Stocks | 4,22,400 | 1,53,600 |
| Acc. Dep. on | Advance | 12,480 | 14,400 | ||
| Building & Machinery | 1,92,000 | 2,11,200 | |||
| 14,52,480 | 16,56,000 | 14,52,480 | 16,56,000 |
Income Statement
For the year ended 31st March, 2012
| Particular | Detail | Amount |
| Net Sales | 40,32,000 | |
| Less: Cost of goods sold | 31,68,000 | |
| Depreciation | 96,000 | |
| Salaries and wages | 3,84,000 | |
| Operating expenses | 1,28,000 | |
| Provision for tax | 1,40,800 | 39,16,800 |
| Net operating profit | 1,15,200 | |
| Add: Non operating incomes: | ||
| Profit on sale of machinery | 19,200 | |
| Profit for the year | 1,34,400 | |
| Profit & Loss a/c as on 31st March, 2011 | 2,42,880 | |
| 3,77,280 | ||
| Dividend declared and paid | 1,15,280 | |
| Profit & Loss a/c as on 31st March, 2012 | 2,62,000 |
Additional Information: Cost of machinery sold Rs. 1,15,200.
Question based on Annamalai University Assignment Solution and other course
Solution:
- Indirect Method
The indirect method uses net-income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts for all cash-based transactions. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual- basis net income (loss) into cash flow by using a series of additions and deductions.
The following rules are used to make adjustments for changes in current assets and liabilities, operating items not providing or using cash and non operating items:
- Decrease in non cash current assets are added to net income
- Increase in non cash current asset are subtracted from net income
- Increase in current liabilities are added to net income
- Decrease in current liabilities are subtracted from net income
- Expenses with no cash outflows are added back to net income
- Revenues with no cash inflows are subtracted from net income (depreciation expense is the only operating item that has no effect on cash flows in the period)
- Non operating losses are added back to net income
- Non operating gains are subtracted from net income
