Question

The following is the position of current assets and current liabilities of Z Ltd.:

\[\begin{array}{|l|r|r|} \hline Items & March, 2022 (Rs.) & March, 2023 (Rs.) \\ \hline \text{Provision for doubtful debts} & \text{1,000} & \text{--} \\ \hline \text{Short-term loans} & \text{10,000} & \text{19,000} \\ \hline \text{Creditors} & \text{15,000} & \text{10,000} \\ \hline \text{Bills payable} & \text{20,000} & \text{40,000} \\ \hline \end{array}\]

The company incurred a loss of Rs. 45,000 during the year. Calculate cash from operating activities.

Hint:

When calculating cash flows, always adjust non-cash items like provisions and account for changes in working capital (current assets and liabilities).

Answer 1

Step 1: Adjust Net Loss with Non-Cash Items \[ \text{Net Loss} = -45,000 \] \[ \text{Add: Provision for Doubtful Debts (Non-Cash Item)} = 1,000 \] \[ \text{Adjusted Net Loss} = -45,000 + 1,000 = -44,000 \] Step 2: Adjust for Changes in Working Capital \[ \text{Increase in Short-term Loans} = - (19,000 - 10,000) = -9,000 \] \[ \text{Decrease in Creditors} = - (15,000 - 10,000) = -5,000 \] \[ \text{Increase in Bills Payable} = (40,000 - 20,000) = 20,000 \] Step 3: Calculate Net Cash Flow from Operating Activities \[ \text{Net Cash Flow from Operating Activities} = -44,000 - 9,000 - 5,000 + 20,000 \] \[ \text{Net Cash Flow} = -38,000 \] Final Answer: Cash from Operating Activities = \(-38,000\)