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\begin{tabular}{|c|c|c|c|c|c|}
\hline
\textbf{Liabilities} & \textbf{2076} & \textbf{2077} & \textbf{Assets} & \textbf{2076} & \textbf{2077} \\
\hline
Equity share capital & 750,000 & 900,000 & Machinery & 800,000 & 1,140,000 \\
\hline
Share premium & 75,000 & 90,000 & Investments & 100,000 & 80,000 \\
\hline
Bank loan & 150,000 & 75,000 & Inventory & 75,000 & 150,000 \\
\hline
Outstanding expenses & 15,000 & 12,000 & Account receivable & 221,000 & 148,000 \\
\hline
Bills payable & 210,000 & 273,000 & Prepaid expenses & 4,000 & 2,000 \\
\hline
Retained earnings & 150,000 & 225,000 & Cash and bank & 150,000 & 75,000 \\
\hline
Total & 1,350,000 & 1,575,000 & Total & 1,350,000 & 1,575,000 \\
\hline
\end{tabular}

Additional information:
1. Sales revenue for the year: Rs 760,000
2. Cost of goods sold: Rs 380,000
3. Office and selling expenses: Rs 150,000
4. Purchase of machinery: Rs 460,000
5. Investment costing Rs 30,000 was sold for Rs 35,000
6. Dividend paid: Rs 30,000

Required: Cash flow statement under direct method



Answer :

GinnyAnswer
To prepare the Cash Flow Statement under the direct method, we need to classify cash flows into three categories: Cash Flow from Operating Activities, Cash Flow from Investing Activities, and Cash Flow from Financing Activities.

Let's break down each section with the provided information:

### 1. Cash Flow from Operating Activities:
We begin by calculating the net cash flow from operations.

Sales Revenue:
Sales revenue for the year = Rs 760,000

Cost of Goods Sold:
Cost of goods sold = Rs 380,000

Office and Selling Expenses:
Office and selling expenses = Rs 150,000

Cash Flow from Operating Activities is calculated as:
[tex]\[ \text{Cash Flow from Operating Activities} = \text{Sales Revenue} - \text{Cost of Goods Sold} - \text{Office and Selling Expenses} \][/tex]
[tex]\[ \text{Cash Flow from Operating Activities} = 760,000 - 380,000 - 150,000 = Rs 230,000 \][/tex]

### 2. Cash Flow from Investing Activities:
Next, we consider the cash flows related to investments and fixed assets.

Sale of Investments:
Investment costing Rs 30,000 was sold for Rs 35,000.
So, the cash inflow from the sale of investments = Rs 35,000

Purchase of Machinery:
Purchase of machinery = Rs 460,000

Cash Flow from Investing Activities is calculated as:
[tex]\[ \text{Cash Flow from Investing Activities} = \text{Sale of Investments} - \text{Purchase of Machinery} \][/tex]
[tex]\[ \text{Cash Flow from Investing Activities} = 35,000 - 460,000 = Rs -425,000 \][/tex]

### 3. Cash Flow from Financing Activities:
Finally, we consider the cash flows related to financing.

Dividend Paid:
Dividend paid = Rs 30,000

Cash Flow from Financing Activities is calculated as:
[tex]\[ \text{Cash Flow from Financing Activities} = - \text{Dividend Paid} \][/tex]
[tex]\[ \text{Cash Flow from Financing Activities} = - 30,000 = Rs -30,000 \][/tex]

### 4. Net Cash Flow:
To find the net cash flow, we sum the cash flows from operating, investing, and financing activities:

[tex]\[ \text{Net Cash Flow} = \text{Cash Flow from Operating Activities} + \text{Cash Flow from Investing Activities} + \text{Cash Flow from Financing Activities} \][/tex]
[tex]\[ \text{Net Cash Flow} = 230,000 - 425,000 - 30,000 = Rs -225,000 \][/tex]

### Summary:
- Cash Flow from Operating Activities: Rs 230,000
- Cash Flow from Investing Activities: Rs -425,000
- Cash Flow from Financing Activities: Rs -30,000
- Net Cash Flow: Rs -225,000

Thus, the Cash Flow Statement under the direct method for the given year will show a net decrease in cash of Rs 225,000.

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