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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.
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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