Pragati Exports Limited was created by Aashish Argade and Varun Aaron, both, veterans in commodity exports. Aashish
Question:
Pragati Exports Limited was created by Aashish Argade and Varun Aaron, both, veterans in commodity exports. Aashish and Varun were not happy with the firms accountant, Shan Mohan Sagili. Their concern was simple: always the net profit figures looked appealing and highly attractive; yet, Pragati Exports used to always face problems in meeting the cash requirement for working capital expenses.
The owners always felt that the indirect method of estimating cash flow is much more practical as it starts with the figure of net profit. The net profit for the year 20X5 has been stated as ₹500 lakhs. Additional information about Pragati Exports is being provided below:
During the year, the Pragati Exports has recorded the following activities:
1. The purchase of investment securities of ₹500 lakh
2. The payment of cash dividends of ₹15 Lakh
3. The sale of land costing ₹40 Lakh for proceeds of ₹55 lakh
4. The annual depreciation of plant & equipment of ₹5 lakh
5. The issue of common stock for cash ₹100 lakh
6. Repayment of loan and hence loan retirement worth ₹50 lakh
7. Received dividends & interests of ₹10 lakh from different investments.
Make relevant assumptions and see if Pragati Exports is going through a cash crunch.
Step by Step Answer:
Financial Accounting For Management
ISBN: 9789385965661
4th Edition
Authors: Neelakantan Ramachandran, Ram Kumar Kakani