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 b. Classify and give reasons for the cash flows falling under the investing activities Particulars Amount Rs in (Lacs) 1. Tangible assets purchased during the year 75 2. Depreciation charged on these tangible assets for the year @ 10% ? 3. Stock sold for the year 95 4. Loan given to Big Boy Company 150 5. Interest received from Big Boy company for the said loan @11.5% ? 6. Shares purchased of a company called as Arvind Mills 10 7. Dividend Received from Arvind Mills 1 8. Taxes paid for the year @ 30% ?

Answer 1

Answer:

here your answer

Explanation:

The given cash flows can be classified as follows:

1. Tangible assets purchased during the year for Rs.75,00,000 should be classified as Investing Activities since assets purchased will increase the overall assets of the company and cash will flow out because of such purchase.

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

3. Stocks sold for the year for Rs.95,00,000 should be classified as Investment Activities as stocks sold were investments made by the company and cash flow was inwards because of such sale. Such sale will be added in the Cash from Finance activities.

4.  Loan given to Big Boy Company of Rs.150,00,000 should be classified as Investment Activity and will be recorded as negative cash flow in the Cash from Investment acitivies.

5. Interest received from Big Boy Company for the above loan @11.5% should be classified as Investment Activities as the interest received is a part of the investment made by the company.

6. Shares purchased for Rs.10,00,000 of Arvind Mills should be classified as Investment Activity since shares/stock purchased are investments made the company and a negative cash flow will be recorded.

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

8. 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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