How to Solve Cash Flow Statement Class 12 TS Grewal Solution

If you are an accountancy student in your 12th standard and trying to find the solution of the cash flow statement question of TS Grewal’s question of class 12 book, this blog is going to be very helpful for you. Because in this blog, we are going to help you out with the same.

Solution of TS Grewal’s Cash Flow Statement Question in Class 12’s Accountancy​

In order to excel in your class 12’s Accountancy exams, you need to solve several tricky questions. And the cash flow statement questions demand more of it. You need to have a solid strategy to solve them. Here, we will be exploring the indirect method, which is also the most commonly used, into clear manageable steps, so that it becomes easier for you to comprehend them.

The Foundation of the Cash Flow Statement​

As per the AS-3, a Cashflow Statement is a dynamic snapshot of a company’s financial statement, along with being just a financial report. It helps in keeping track of the actual cash that is coming in and going out from a company. A Cash Flow Statement can provide companies with a perspective that a balance sheet or an income statement cannot provide. The TS Grewal problems are designed to test capabilities to differentiate between three different key activities.

Step-by-Step Guide to Solving a Cash Flow Statement Problem

Step 1: Calculate Net Profit Before Tax and Extraordinary Items​

For the Operating Activities section, this would be the very first step. You will probably have the closing and opening balances of Surplus.

• Start with the Difference: Find the change in the Surplus balance from the opening and closing date.
• Add Back Appropriations and Provisions: If you notice any interim or final dividend was paid in the year, or if funds were transferred to reserves, you need to add these amounts back. In addition to this, you will also need to add any provision for tax made during the year.
• Include Extraordinary Items: Adjust for any unusual or non-encurring expenses, like an insurance claim or a natural disaster loss, it must be specified in your problem.

Step 2: Adjust for Non-Cash and Non-Operating Items​

The profit calculated in the Step 1 is based on accrual method, not cash. Here, you will have to reverse the impact.

• Add Back Non-Cash Expenses: Items like depreciation on fixed assets, amortization of goodwill or patents, and loss on the sale of assets do not involve cash outflows. Add them back.
• Now Deduct Non-Operating Incomes: Incomes that are not coming from the main operations of the company, such as profit on the sale of a fixed asset, or interest and dividends received, must be deducted. Remember, these are classified under Investing Activities.
• The result you got now is your Operating Profit, before Capital Changes.

Step 3: Adjust for Changes in the Working Capital​

This refers to the current assets and the current liabilities of a company, and when there are changes in these items, it affects the cash position of a company.

• For Current Assets: If you notice a decrease in the current assets, it indicates that the cash has been received. And when there is an increase, it means that cash was used to acquire it, so you need to deduct it.
• For Current Liabilities: When there is an increase in the current liability, it shows you have bought on credit and saved cash. You need to add it. And when it is showing a decrease, it says that you have paid off a liability with cash—deduct it.

Step 4: Calculate Cash Flow from Investing Activities

Compared to the other sections, this section is quite simple. All you need to do is list the cash transactions which are related to long-term assets and investments.

• Cash Inflows: Include proceeds with the sale of fixed assets, non-current investments, and interest/dividends received.
• Cash Outflows: Take note of the cash paid in the purchase of fixed assets, and non-current investments.

Working Notes are the Keys: For any asset, whether it is a sold one or purchased one, you need to create a ledger account. It can help you find the missing figure like the purchased price, or the accumulated depreciation.

Step 5: Calculate the Cash Flow from Financing Activities​

This section deals with how the company raised its capital and paid it back.

• Cash Inflows: Include proceeds from issuing shares or debentures and raising long-term loans.
• Cash Outflows: Include the repayment of loans, redemption of preference shares or debentures, and the payment of dividends and interest.

Example

In cash flow statement class 12 ts grewal solution, it is often observed that there is additional information included. Say, that a problem is mentioning the sale of a fixed asset, here you will have to calculate the profit or loss on the sale. You need to remember the below things:

• Adjust for Depreciations: The depreciations on the asset sold need to be accounted for in their dedicated accounts—Asset and Accumulated Depreciation accounts.
• Operating vs. Investing: The loss or profit in the sale is a non-operating item, which is adjusted in the Operating section. And the cash proceeds from the sale are shown under Investing Activities.

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