Making of Cash flow Statement with both direct and indirect methods.

In good question of making cash flow statement , the examiner must give you two year balance sheet of company , a profit and loss account and some additional information for making cash flow statement . With above three basic information you can easily make cash flow statement
with direct or indirect method . Here we are taking one practical question , then we solve it both direct method and indirect method. This question can be asked in CA , ICWA , MCA ,MCOM and MBA exams

The following is the abstract of balance sheet of Software securities ltd for the year 2005 and 2006
Liabities
Provision for depreciation 2005 –Rs. 108000 and 2006 –RS. 396000
Retained earning 244800 370800
9% debenture 270000 198000
Account payable 72000 41400
Expense payable 0 18000
Assets
Land 2005 - Rs. 126000 and 2006 - Rs. 81000
building 360000 360000
Accumulated depreciation on building 19800 37800 Equipment 122400 347400
Accumulated depreciation on equipment18000 50400
stock in hand 10800 97200
Account receivable 36000 122400
cash in hand 66600 97200
Preliminary expenses 10800 7200
Question gives you also income statememtn of software securities ltd
Sales 1602000
less cost of sale 837000
less operating exp. 397800
less interest exp. 21600
loss on sale of equipments 3600
126000
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Net income before tax 342000
provision of tax 117000
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Net Income after tax 225000
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Additional information
1. Operating expenses include depreciation of rs. 59400 and charges from preliminary expenses of rs. 3600
2. Land was sold at its book value
3. cash dividend paid for the year 2006 amounted to rs. 27000 and fully paid bonus shares were given in the ratio of 2 shares for every 3shares held.
4. Interest expenses was paid in cash.
5. Equipment with a cost of rs .298800 was purchased for cash .Equipment with a cost of rs . 73800 ( book value rs. 64800) was sold for rs. 61200
6. Debenture for rs. 18000 were redeemed for cash and for rs.54000 were redeemed by converting into equity shares at par value.
7.Equity shares of rs. 162000 were issued for cash at par.
8. Income tax paid during the year amounted to rs. 117000
Prepare cash flow statement with
direct method
indirect method