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Shirish has extracted the following information from the financial statements of Zoom Ltd. you are required to calculate cash from operating activities with the help of the given figures:

Particulars Rs
Cash sales for the year 14,00,000
Net credit sales for the year  56,00,000
Cash purchases for the year 10,00,000
Net credit purchases for the year 52,00,000
Commission received during the year 40,000
Office and administrative expenses during the year 4,40,000
Provision for income tax made during the year  80,000

Additional Information: 

Particulars Balance as on 1st April, 2014 (Rs.) Balance as on 31st March, 2015 (Rs.)
Debtors and bills receivable 8,00,000 9,00,000
Creditors and bills payable 15,00,000 3,00,000
Outstanding office and administrative expenses 90,000 30,000
Prepaid office and administrative expenses 50,000 1,30,000
Provision for income tax 1,00,000 1,20,000

1 Answer

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Cash Flows from Operating Activities using direct method

Working Notes 

(a) Effect of sales on cash can be computed as follows:

Particulars Rs Rs.
Cash Sales 14,00,000
Net credit sales 56,00,000
Less: Closing balance of debtors and bills receivable  9,00,000
Add: Opening balance of debtors and bills receivable  8,00,000
Cash generated from credit sales 55,00,000
Total cash generated from sales 69,00,000

(b) Cash movement due to purchases can be ascertained as follows:

Particulars Rs
Cash purchases 10,00,000
Credit purchases 52,00,000
Total Purchases 62,00,000
Add: Opening balance of creditors and bills payable 15,00,000
Less: Closing balance of creditors and bills payable 3,00,000
Cash Payment for Purchases 74,00,000

(c) Disbursement of cash for expenses can be calculated as follows:

Particulars  Office and administrative expenses (Rs.) Income Tax (Rs.)
Expenses  4,40,000 80,000
Add: Outstanding at the beginning of the year 90,000 1,00,000
Less: Outstanding at the end of the year 30,000 1,20,000
Add: Prepaid Expenses at the end of the year 1,30,000
Less: Prepaid Expenses at the beginning of the year 50,000
Cash Payment for Expenses 5,80,000 60,000

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