Why does reduction in stock represent inflow of cash and what to do when during the year stock has been purchased and equity shares have been issued in return ?
Qs . Opening Stock - 100000, Closing stock - 75000
stock purchased for 10000 and equity shares issued in return
please Help ...
dear gaurav, i wl ask u a simple question and u wl get the answer.
suppose u hv some stock n u sell it. now wot does it mean?
it means the stock u had u sold n u are receiving cash for it.... thus there is inflow of cash. cash is coming in ur hand n it results in inflow.
for ur 2nd question the j.entry is
purchases a/c dr 10000
TO EQuity share cap A/C. 10000
In cash flow statement only items effectinf flows of cash are represented.
When shares are issued for stock, There is no effect on cash hence this not shown in Cash flow.
Thnx Hrithvik .. I Have understood the first part .. bt shoudn't Purchase of Stock By issue Of Shares Be Added BAck To Net Profit to get Adjusted Net Proft because it is a non- cash expense .... ??
Ans to 2nd question _only 1effect
while calculating cash from opertion
amt of Decrease in stock =
= (op.stock)100000 - [(cl.stock)75000 - (non cash purchase of stock)10000]
=100000 - 65000
=35000
"bt shoudn't Purchase of Stock By issue Of Shares Be Added BAck To Net Profit to get Adjusted Net Proft because it is a non- cash expense .... ??"
exactly ... could someone explian it??
opening stock 100000
add:-purshase 10000
less:- closing stock 75000
net cash in - fiow 35000
net cash out flow is nil becouse --
purchase a/c Dr.
to equity share capital a/c
(equity shares issue for purchase of goods other then cash)
Thnx ravi sir .. I think that makes sense ..
CAclubindia
