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106 Corporate Finance BRILLIANT’S

3. The balance relating to current items taken from the balance sheets of 2018 and 2019 are
given below:
2018 VWm 2019 H$s ~¡b|g erQ> go {b`o J`o H$a§Q> Am`Q>åg go g§~§{YV ~¡b|g ZrMo {X`o J`o h¢…

Particulars ({ddaU) 31-12-2019 31-12-2018
(`) (`)
Trade Debtors (Q´>oS> S>oãQ>g©) 80,000 60,000
Inventory (BÝdoÝQ´>r) 65,000 70,000

Trade Creditors (Q´>oS> H«o${S>Q>g©) 90,000 85,000
Required: Cash flow from operation by (1) Direct Method and (2) Indirect Method.
kmV H$s{OE… {ZåZ{b{IV Am°naoeZ go H¡$e âbmo (1) S>m`aoŠQ> {d{Y VWm (2) BZS>m`aoŠQ> {d{Y
Solution: Direct Method
Particulars (`)

Cash flow from Operating Activities
Cash collected from customers (working 1) 7,80,000
Cash payments for operating expenses (working 2) 4,70,000
Cash from ordinary operations 3,10,000
Extra-ordinary income: Gain on speculation 50,000
Cash generated before taxes 3,60,000
Taxes paid 90,000
Cash flow from Operating Activities 2,70,000

Indirect Method
Particulars (`)

Cash flows from operating activities
Net Profit before tax and extra-ordinary items 2,00,000
Adjustments:
Depreciation 1,00,000
Loss on sale of machinery 20,000
Increase in trade debtors (20,000)
Decrease in inventory 5,000
Increase in trade creditors 5,000
Cash flow from ordinary activities 3,10,000
Add : Extra-ordinary cash flow 50,000
Cash flow from operation before taxes 3,60,000
Less : Taxes paid 90,000
Cash Flows from Operating Activities 2,70,000