Question

The following information is available in relation to Britannia Baby Company. The Company has profit before taxes of Rs 50 lacs.
a. Classify and give reasons for the cash flows falling under the operating activities (5 Marks)
b. Classify and give reasons for the cash flows falling under the investing activities (5 Marks)

Answer 1

Answer:

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Answer 2

Britannia Baby Company. The Company has profit before taxes of Rs 50 lacs.

Explanation:

The given cash flows can be classified as follows:

Tangible assets purchased during the year 75,00,000

This must be classified as "Investing Activities" as assets purchased will increase the "overall assets" of the "company & cash" will flow out due to such purchase.

Depreciation charged on these tangible assets for the year @ 10%

Depreciation charged on the assets purchased is classified under "Operating Activities" and is added to "Profits before tax(PBT)" while calculating "Cash from Operations".

Stock sold for the year 95,00,000

This must be classified as "Investment Activities" as stocks sold were "investments" made by the "company & cash flow" was "inwards" due to such sale. Such sale will be added in the "Cash from Finance activities".

Loan given to Big Boy Company Rs 150,00,000

This must be classified as "Investment Activity" & will be recorded as "negative cash flow" in the "Cash from Investment activities".

Interest received from Big Boy company for the said loan @11.5%

This must be classified as "Investment Activities" as the interest received is a part of the "investment" made by the "company".

Shares purchased of a company called as Arvind Mills Rs 10,00,000

This must be classified as "Investment Activity" since shares/stock purchased are "investments made the company" & a "negative cash flow" will be recorded.

Dividend Received from Arvind Mills

"Dividends received" on shares purchased of Arvind Mills should be classified as "Investment Activities".

Taxes paid for the year @ 30%

Taxes paid for the year @ 30 % will be recorded in the "Cash from operations" heading while calculating "Net profits" and will be deducted after "adjustment "of "Changes in working capital"

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30 accounting transactions with journal ledger and final accounts ...

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