Information related to Reyan Company is as presented below. Using this information you are to prepare a statement of cash flows using the indirect method.
REYAN COMPANY
Comparative Balance Sheets
December 31
Assets 2004 2003
Cash Rs. 54,000 Rs. 37,000
Accounts receivable 68,000 26,000
Inventories 54,000 -0-
Prepaid expenses 4,000 6,000
Land 45,000 70,000
Buildings 2,00,000 2,00,000
Accumulated depreciation-buildings (21,000) (11,000)
Equipment 1,93,000 68,000
Accumulated depreciation-equipment (28,000) (10,000)
-------------------- -----------------------
Totals Rs.5,69,000 Rs.3,86,000 -------------------- -----------------------
Liabilities and Stockholders’ Equity
Accounts payable Rs. 23,000 Rs. 40,000
Accrued expenses payable 10,000 -0-
Bonds payable 1,10,000 1,50,000
Common stock (Re.1 par) 2,20,000 60,000
Retained earnings 2,06,000 1,36,000
----------------- ----------------
Totals Rs.5,69,000 Rs. 3,86,000
----------------- ----------------
REYAN COMPANY
Income Statement
For the Year Ended December 31, 2004
Revenues Rs. 8,90,000
Cost of goods sold Rs. 4,65,000
Operating expenses 2,21,000
Interest expense 12,000
Loss on sale of equipment 2,000 7,00,000
---------------- -------------------
Income from operations 1,90,000
Income tax expense 65,000
-------------------
Net income Rs.1,25,000
-------------------
Additional information:
1. Operating expenses include depreciation expense of Rs. 33,000 and charges from prepaid expenses of Rs.2,000.
2. Land was sold at its book value for cash.
3. Cash dividends of Rs.55,000 were declared and paid in 2004.
4. Interest expense of Rs.12,000 was paid in cash .
5. Equipment with a cost of Rs.1,66,000 was purchased for cash. Equipment with a cost of Rs.41,000 and a book value of Rs.36,000 was sold for Rs.34,000 cash.
6. Bonds of Rs.10,000 were redeemed at their book value for cash. Bonds of Rs.30,000 were converted into common stock.
7. Common stock (Re.1 par) of Rs.1,30,000 was issued for cash.
8. Accounts payable pertain to merchandise suppliers.
Solution.
Cash Flow Statement (as per accounting standard 3)
Particular | Amount | Amount |
CASH FROM OPERATING ACTIVITY | | |
Income from operation | 190000 | |
Add: Non cash and Non operating item | | |
Interest expense | 12000 | |
Loss on sale of equipment | 2000 | |
Depreciation | 33000 | |
Charge from prepaid expense | 2000 | |
Add: Increase in Current Liability/Decrease in Current Assets | | |
Accrued expense payable | 10000 | |
Less: Increase in Current assets/Decrease in Current Liabilities | | |
Debtor | 42000 | |
Stock | 54000 | |
A/c Payable | 17000 | |
Less: Income Tax Paid | 65000 | |
Cash From Operating Activity - A | | 71000 |
| | | |
CASH FROM FINANCIAL ACTIVITY | | |
Inflow | | |
Issue of common stock | 130000 | |
Less: Outflow | | |
Interest expense | 12000 | |
Cash Dividend | 55000 | |
Repayment of Bond | 10000 | |
Cash From Financial Activity - B | | 53000 |
| | | |
CASH FROM INVESTING ACTIVITY | | |
Inflow | | |
| 25000 | |
| 34000 | |
Less: Outflow | | |
Purchase of equipment | 166000 | |
Cash from Investing Activity - C | | -107000 |
Net Cash Flow (A + B + C) | | 17000 |
Add: Opening cash balance | | 37000 |
Closing cash balance | | 54000 |
Note: Bonds of Rs. 30000 were converted into common stock.
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