Question
Write The Importance of Cash flow Statement.
✓
Answer
1) Useful in Short term financial planning and decision making : Cash flow statement provides
importance of uses of cash and equivalents for a specific period, which is useful of management
plan, operating, financial and investment requirement of the business enterprise.
2) Helps is analysis of liquidity positions : Cash flow statement is prepared on monthly basis
or quarterly basis which helps to find out liquidity in a better way. Analysis of liquidity is
important for banks and financial Institutions as it shows the ability of the business to pay its
Current liabilities.
3) Help in efficient cash management : Cash flow statement gives information relating to surplus
or deficit of cash which helps the business enterprise to decide on the short term investment of
surplus and arrange short term credit of deficit.
4) Helps is comparative study : A Comparison of Cash Flow statement with cash budget will
indicate the extent to which cash resources of business were generated and used according to
cash budget. Causes of different between the Cash flow statement and Cash Budget can be
analysed and necessary corrective measures can be taken.
5) Helps in study of Receipts and Payments : Cash Flow Statement gives the speed at which
Cash is generated from debtors, stock and other current asset and the speed at which current
liabilities are paid off. This enables the management to find the true position of Cash in future.
6) Helpful in dividend declaration : Before declaring dividend the management goes through the
Cash Flow statement ascertain the position of cash generated from operating activities which
can be used for payment of dividend.
7) Tools of Planning : Cash Flows statement can be used for projecting future investing and financial plans by the management of a business enterprise.
importance of uses of cash and equivalents for a specific period, which is useful of management
plan, operating, financial and investment requirement of the business enterprise.
2) Helps is analysis of liquidity positions : Cash flow statement is prepared on monthly basis
or quarterly basis which helps to find out liquidity in a better way. Analysis of liquidity is
important for banks and financial Institutions as it shows the ability of the business to pay its
Current liabilities.
3) Help in efficient cash management : Cash flow statement gives information relating to surplus
or deficit of cash which helps the business enterprise to decide on the short term investment of
surplus and arrange short term credit of deficit.
4) Helps is comparative study : A Comparison of Cash Flow statement with cash budget will
indicate the extent to which cash resources of business were generated and used according to
cash budget. Causes of different between the Cash flow statement and Cash Budget can be
analysed and necessary corrective measures can be taken.
5) Helps in study of Receipts and Payments : Cash Flow Statement gives the speed at which
Cash is generated from debtors, stock and other current asset and the speed at which current
liabilities are paid off. This enables the management to find the true position of Cash in future.
6) Helpful in dividend declaration : Before declaring dividend the management goes through the
Cash Flow statement ascertain the position of cash generated from operating activities which
can be used for payment of dividend.
7) Tools of Planning : Cash Flows statement can be used for projecting future investing and financial plans by the management of a business enterprise.
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Seema purchased goods from Roma on credit on 1st August, 2019 for ₹ 37,000. Seema accepts bill for 2 months drawn by Roma for the same amount. On the same day, Roma discounts the bill with the bank for ₹ 36,200 on 3rd August, 2019. On the due date the bill is dishonoured and Noting Charges of ₹ 160 is paid by the bank. Seema pays ₹ 19,000 and Noting Charges in cash immediately. A new bill is drawn by Roma for the balance including interest ₹ 650 for 2 months, which is accepted by Seema. The new bill is retired one month before the due date at a rebate of ₹ 300.
Give Journal Entries in the books of Seema and prepare Seema’s Account in the books of Roma.
Give Journal Entries in the books of Seema and prepare Seema’s Account in the books of Roma.
Rekha, Menaka, Mukta were partners in a business sharing profits and losses in the ratio of 2 : 1 : 1 respectively. Their Balance sheet as on 31st March 2019
Mukta died on 1st July 2019
1. Plant & Machinery was to be revalued to ₹ 70,000 and R.D.D. is to be created of ₹ 2,000
2. The drawings of Mukta up to the date of her death amounted to ₹ 10,000
3. Charge interest on drawings ₹ 1,000
4. Her share of goodwill should be calculated at three year purchase of the profits for the last four years which were 1 year ₹ 1,50,000, II year ₹1,30,000, III year ₹ 70,000, IV ₹ 50,000
5. The deceased partners share of profit upto the date of death to be calculated on the basis of average profit of last two years. (III & IV year)
Prepare : Profit and Loss Adjustment Account, Partners Capital Accounts, Balance sheet of the continuing firm, Give working Note of Profit upto the date of death of Mukta and Goodwill.
| Balance Sheet as on 31-03-2019 | |||
| Liabilities | Amt (₹) | Assets | Amt (₹) |
| Capital Accounts : | Plant & Machinery | 60,000 | |
| Rekha | 60,000 | Debtors | 50,000 |
| Menaka | 70,000 | Furniture | 30,000 |
| Mukta | 34,000 | Bank | 60,000 |
| Creditors | 18,000 | ||
| Bills payable | 2,000 | ||
| General Reserve | 16,000 | ||
| 2,00,000 | 2,00,000 | ||
1. Plant & Machinery was to be revalued to ₹ 70,000 and R.D.D. is to be created of ₹ 2,000
2. The drawings of Mukta up to the date of her death amounted to ₹ 10,000
3. Charge interest on drawings ₹ 1,000
4. Her share of goodwill should be calculated at three year purchase of the profits for the last four years which were 1 year ₹ 1,50,000, II year ₹1,30,000, III year ₹ 70,000, IV ₹ 50,000
5. The deceased partners share of profit upto the date of death to be calculated on the basis of average profit of last two years. (III & IV year)
Prepare : Profit and Loss Adjustment Account, Partners Capital Accounts, Balance sheet of the continuing firm, Give working Note of Profit upto the date of death of Mukta and Goodwill.
Kale, Gore and Pandhare were partners sharing Profit and losses in the ratio 3 : 3 : 2. Their Balance sheet as on 31st March 2018 is as follows.
On 1 st April 2018 Mr. Pandhare retired from the firm on the following terms.
1. Assets to be revalued as Stock ₹ 6300, Plant and Machinery ₹ 10,000 Live Stock ₹10,200
2. Goodwill of the firm is to be valued at ₹ 4,000, however only Pandhare’s share in it is to be raised in the books and written off immediately.
3. R.D.D to be maintained at 10 % on debtors.
4. ₹ 100 to be written off from Creditors.
5) The amount payable to Mr. Pandhare to be transferred to his loan account.
Prepare : Profit and Loss Adjustment account, Partners Capital Account, Balance Sheet of new firm.
| Balance Sheet as on 31st March 2018 | |||
| Liabilities | Amt ₹ | Assets | Amt ₹ |
| Capital Account : | Building | 10,000 | |
| Kale | 11,000 | Plant & Machinery | 10,700 |
| Gore | 15,000 | Live Stock | 10,000 |
| Pandhare | 8,000 | Debtors | 5,000 |
| Creditors | 8,900 | Stock | 6,600 |
| Bill Payable | 2,000 | Bank | 6,600 |
| Reserve Fund | 4,000 | ||
| 48,900 | 48,900 | ||
1. Assets to be revalued as Stock ₹ 6300, Plant and Machinery ₹ 10,000 Live Stock ₹10,200
2. Goodwill of the firm is to be valued at ₹ 4,000, however only Pandhare’s share in it is to be raised in the books and written off immediately.
3. R.D.D to be maintained at 10 % on debtors.
4. ₹ 100 to be written off from Creditors.
5) The amount payable to Mr. Pandhare to be transferred to his loan account.
Prepare : Profit and Loss Adjustment account, Partners Capital Account, Balance Sheet of new firm.
Subhash Company Limited issues 2000 Equity shares of ₹ 100 each payable as ₹ 30 on application, ₹ 30 on the allotment, ₹ 40 on first and final call.
All the shares were subscribed and duly allotted. The company made all the calls. All cash was duly received except the first and final call on 100 equity shares. These shares were forfeited by the company and were re-issued as fully paid for ₹ 75 per share.
Show the Journal Entries in the books of Subhash Company Ltd.
All the shares were subscribed and duly allotted. The company made all the calls. All cash was duly received except the first and final call on 100 equity shares. These shares were forfeited by the company and were re-issued as fully paid for ₹ 75 per share.
Show the Journal Entries in the books of Subhash Company Ltd.
Shubhangi, Manisha and Shital are partners. They share Profit and Losses equally. Their Balance Sheet as on 31st March 2018 was as follows :
On the above date it was decided to dissolve the firm
The assets realised were as follows :
1. Stock ₹ 31, 250, Machinery ₹ 37,500, Debtors ₹ 21,250 and Bills Receivable ₹ 18,000.
2. Creditors were paid at a discount of 2% and Bills Payable were paid in full.
3. Realisation expenses amounted to ₹ 6,250.
4. Shital was declared insolvent and 50 paise in rupees could be recovered from her private estate.
Prepare : Realisation Account, Partner’s Capital Account and Bank Account.
| Balance Sheet as on 31st March 2018 | ||||
| Liabilities | Amount ₹ | Assets | Amount ₹ | |
| Capital Account : | Machinery | 62,500 | ||
| Shubhangi | 62,500 | Stock | 37,500 | |
| Manisha | 37,500 | Debtors | 27,500 | |
| Reserve fund | 22,500 | Less R. D. D. | 2,500 | 25,000 |
| Creditors | 37,500 | Bills Receivable | 22,500 | |
| Bills Payable | 12,500 | Cash at Bank | 12,500 | |
| Shital's Capital | 12,500 | |||
| 1,72,500 | 1,72,500 | |||
The assets realised were as follows :
1. Stock ₹ 31, 250, Machinery ₹ 37,500, Debtors ₹ 21,250 and Bills Receivable ₹ 18,000.
2. Creditors were paid at a discount of 2% and Bills Payable were paid in full.
3. Realisation expenses amounted to ₹ 6,250.
4. Shital was declared insolvent and 50 paise in rupees could be recovered from her private estate.
Prepare : Realisation Account, Partner’s Capital Account and Bank Account.
Journalise the following transaction in the books of Sudha:
(a) Endorsed Sonali’s acceptance at 2 months for ₹ 6,000 in favour of Urmila and paid cash ₹ 3,500 in full settlement of her account ₹ 10,000.
(b) Discounted 2 months acceptance of Surya for ₹ 7,800 with bank at 10% p.a.
(c) Bank informed that Anuradha’s acceptance of ₹ 4,800 which was discounted was dishonoured and bank paid Noting Charges ₹ 125.
(d) Pooja honoured her acceptance of ₹ 16,400 which was deposited into bank for collection.
(a) Endorsed Sonali’s acceptance at 2 months for ₹ 6,000 in favour of Urmila and paid cash ₹ 3,500 in full settlement of her account ₹ 10,000.
(b) Discounted 2 months acceptance of Surya for ₹ 7,800 with bank at 10% p.a.
(c) Bank informed that Anuradha’s acceptance of ₹ 4,800 which was discounted was dishonoured and bank paid Noting Charges ₹ 125.
(d) Pooja honoured her acceptance of ₹ 16,400 which was deposited into bank for collection.
Priyanka owed Meena ₹ $18,000,$ Priyanka accepted a bill drawn by Meena for the amount at $4$ months. Meena endorsed the same bill to Sagar. Before due date Priyanka approached Meena for renewal of bill. Meena agreed on condition that ₹ $6,000$ be paid immediately together with interest on the remaining amount of $8\%$ p.a. for $3$ months and Priyanka should accept a new bill for the balance amount. These arrangements were carried through. However, before the due date Priyanka became insolvent and only $50\%$ of the amount could be recovered from her estate.
Give Journal Entries in the books of Meena.
→Give Journal Entries in the books of Meena.
Neha sold goods to Rohan ₹ 42,000 on 6th Sept. 2019. Neha drew a bill of exchange at 3 months for the amount which was accepted by Rohan. Neha discounted the bill with her bankers at ₹ 41,000. On the due date of the bill Rohan dishonoured the bill and bank paid ₹ 300 as Noting Charges.
Show Journal Entries in the books of Neha and Rohan.
Show Journal Entries in the books of Neha and Rohan.
Sanika Company Ltd issued 10000 equity shares to the public of ₹ 10 each. Payable as ₹ 2 on
Application, ₹ 5 on Allotment, and ₹ 3 on 1st and Final Call. All the calls were made and money
received.
Company received applications for 20,000 shares. Directors decided to allot shares to all applicants
on pro-rata basis.
Pass Journal Entries in the Books of Sanika Co. Ltd.
Application, ₹ 5 on Allotment, and ₹ 3 on 1st and Final Call. All the calls were made and money
received.
Company received applications for 20,000 shares. Directors decided to allot shares to all applicants
on pro-rata basis.
Pass Journal Entries in the Books of Sanika Co. Ltd.
Ganesh and Kartik are partners sharing profits and losses equally. They decided to dissolve the firm on 31st March 2018. Their Balance Sheet was as under:
Balance Sheet as of 31st March 2018
Assets were realised as under:
Building ₹ 82,000, Debtors ₹ 22,000, Stock ₹ 20,000. Bills Receivable ₹ 3,200 and Ganesh agreed to take over Furniture for ₹ 10,000. Realisation Expenses amounted to ₹ 2,000.
Show Realisation A/c, Partners’ Capital A/c, and Cash A/c.
Balance Sheet as of 31st March 2018
Assets were realised as under:
Building ₹ 82,000, Debtors ₹ 22,000, Stock ₹ 20,000. Bills Receivable ₹ 3,200 and Ganesh agreed to take over Furniture for ₹ 10,000. Realisation Expenses amounted to ₹ 2,000.
Show Realisation A/c, Partners’ Capital A/c, and Cash A/c.