Question 3 (a) On the basis of the following data, prepare Cash Flow Statement as per AS-3 for the year ended 31st March, 2024: • Total Sales for t...

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Question 3 (a) On the basis of the following data, prepare Cash Flow Statement as per AS-3 for the year ended 31st March, 2024: • Total Sales for the year were 380 lakhs out of which Cash Sales amounted to 262 Lakhs. • Receipts from credit customers during the year, total 134 lakhs. • Total Purchases for the year amounted to 220 lakhs, out of which 80% were credit purchases. • Opening balance in creditors 84 lakhs and Closing balance in creditors 92 lakhs. • Suppliers of other consumables and services were paid 19 lakhs in cash. • Employees of the enterprise were paid 20 lakhs in cash. • Fully-paid preference shares of the face value of 32 lakhs were redeemed. • Issued equity shares of the face value of 20 lakhs at a premium of 20%. • Debenture of 20 lakhs at premium of 10% were redeemed by issuing equity shares in lieu of their claims. • 26 lakhs were paid by way of Income Tax. • A new machinery costing 20 lakhs was purchased in a part exchange of an old machinery. The book value of the old machinery was 13 lakhs, but the vendor agreed to take over the old machinery at a higher value of 15 lakhs. The balance due to vendor was paid in cash. • Dividend 15 lakhs (including dividend distribution tax)∗ of 2.7 lakhs was also paid on 30th March, 2024. • Debenture interest 3 lakhs was paid. • During the year 8 lakhs rent was received from property held as investment. • 0.50 lakh interest was earned on the advance payments to suppliers of Goods. • Cash and cash equivalents on 1st April 2023, 2 lakhs. (7 Marks) (b) Aerodots Ltd. has the following capital structure as on 31.03.2024 : Particulars Amount ( in thousands) Equity Share Capital (shares of 10 each) 600 Reserves: General Reserve 540 Securities Premium 200 Profit & Loss 100 Revaluation Reserve 30 Investment Allowance Reserve (Statutory Reserve) 75 Infrastructure Development Reserve 25 Loan Funds 2000 On 1st April, 2024 the company wants to buy back 14,000 equity shares of 10 each at 30 per Equity share. You are required to calculate maximum permissible number of equity shares that can be bought back. Buy Back of shares is duly authorized by its articles and necessary resolution has been passed by the company. (7 + 7 = 14 Marks) ∗PS: As per IT Act, 1961 DDT is no more applicable ADVANCED ACCOUNTING

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Answer Solution: (a) Cash flow statement for the year ended 31st March 2024 ( in lakhs) ( in lakhs) Cash flow from operating activities Cash sales 262.00 Cash collected from credit customers 134.00 Interest received on advance payment to suppliers 0.50 Less: Cash purchases (44.00) Less: Payment to Creditors (84 + 176 – 92) (168.00) Less: Cash paid to suppliers for consumables & services (19.00) Less: Cash paid to employee (20.00) Cash from operations 145.50 Less: Income tax paid (26.00) Net cash generated from operating activities 119.50 Cash flow from investing activities Payment for purchase of Machine (20-15) (5.00) Proceeds from rent received 8.00 Net cash used in investing activities 3.00 Cash flow from financing activities Redemption of Preference shares (32.00) Proceeds from issue of Equity shares 24.00 Debenture interest paid (3.00) Dividend Paid (15.00) Net cash used in financing activities (26.00) Net increase in cash and cash equivalent 96.50 Add: Cash and cash equivalents as on 1.04.2023 2.00 Cash and cash equivalents as on 31.3.2024 98.50 (b) Statement determining the maximum number of shares to be bought back (in thousands) Particulars Number of shares Shares Outstanding Test (W.N.1) 15 Resources Test (W.N.2) 12 Debt Equity Ratio Test (W.N.3) 11 Maximum number of shares that can be bought back [least of the above] 11 Thus, the lowest being 11,000 shares, the company cannot buy back 14,000 shares. Working Notes: 1. Shares Outstanding Test Particulars (Shares in thousands) Number of shares outstanding 60 25% of the shares outstanding 15 2. Resources Test Particulars (in thousands) Paid up capital 600 Free reserves (540 + 200 +100) 840 Shareholders’ funds 1,440 25% of Shareholders fund 360 Buy-back price per share 30 Number of shares that can be bought back 12,000 shares ADVANCED ACCOUNTING 3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy-Back Particulars in thousands (a) Loan funds 2,000 (b) Minimum equity to be maintained after buy-back in the ratio of 2:1 () (a/2) 1,000 (c) Present equity shareholders fund () 1,440 (d) Future equity shareholders fund () (see W.N.4) (1,440-110) 1,330 (e) Maximum permitted buy-back of Equity () [(d) – (b)] 330 (f) Maximum number of shares that can be bought back @ 30 per share 11,000 shares 4. Amount transferred to CRR and maximum equity to be bought back will be calculated by simultaneous equation method. Suppose amount transferred to CRR account is ‘x’ and maximum permitted buy-back of equity is ‘y’ Then Equation 1: (Present Equity- Transfer to CRR)- Minimum Equity to be maintained = Maximum Permitted Buy-Back = (1,440 – x) – 1,000 = y = 440 – x = y (1) Equation 2: Maximum Permitted Buy-Back X Nominal Value Per Share/Offer Price Per Share y/30 x 10 = x or 3x = y (2) by solving the above two equations we get x = 110 thousands y = 330 thousands Alternatively, Maximum number of shares from debt equity ratio test may be worked out as follows: Buy-back price + Face value of equity shares 30 + 10 = 40 Excess of equity fund over the minimum equity to be maintained 1440-1000 = 440 thousands Number of Shares that can be bought back = 440/40 thousands = 11 thousands.

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