Charatlal, the President and majority shareholder, was a superb operating executive. He was an imaginative, aggressive...

 

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Charatlal, the President and majority shareholder, was a superb operating executive. He was an imaginative, aggressive marketing man and an ingenious, creative production man. But he had little patience with financial matters. After examining the most recent balance sheet and income statement, he muttered, 'we have enjoyed ten years of steady growth, this year was our most profitable year. Despite this, we are in the worst cash position in our history. Just look those current liabilities in relation to our available cash! This whole picture of the more you make, the poorer you get, just does not make sense. These statement must be cockeyed". The balance sheets (in lakhs of rupees) of Charat Engineering Ltd., are given below: Assets Current Previous Liabilities Current Previous year year year year Cash 2 10 Current 105 30 liabilities Receivables 60 30 150 Long term debt (net) Inventories 100 50 Stock 207 160 300 100 Fixed assets (net of accumulated depreciation) 462 190 462 190 9 2362 Net income before taxes, Rs. 81 lakhs. Taxes paid are Rs. 27 lakh. Net income was Rs. 24 lakh, cash dividend paid were Rs. 7 lakh. Depreciation was Rs. 20 lakh. Fixed asets were purchased for Rs. 220 lakh, Rs. 150 lakh of which was financed via the issuance of long term debt outright for cash. Using cash flow statement (based on AS-7), write a short memorandum to Mr. Charatlal, explaining why there is such squeeze for cash. Show working. holder's equity Charatlal, the President and majority shareholder, was a superb operating executive. He was an imaginative, aggressive marketing man and an ingenious, creative production man. But he had little patience with financial matters. After examining the most recent balance sheet and income statement, he muttered, 'we have enjoyed ten years of steady growth, this year was our most profitable year. Despite this, we are in the worst cash position in our history. Just look those current liabilities in relation to our available cash! This whole picture of the more you make, the poorer you get, just does not make sense. These statement must be cockeyed". The balance sheets (in lakhs of rupees) of Charat Engineering Ltd., are given below: Assets Current Previous Liabilities Current Previous year year year year Cash 2 10 Current 105 30 liabilities Receivables 60 30 150 Long term debt (net) Inventories 100 50 Stock 207 160 300 100 Fixed assets (net of accumulated depreciation) 462 190 462 190 9 2362 Net income before taxes, Rs. 81 lakhs. Taxes paid are Rs. 27 lakh. Net income was Rs. 24 lakh, cash dividend paid were Rs. 7 lakh. Depreciation was Rs. 20 lakh. Fixed asets were purchased for Rs. 220 lakh, Rs. 150 lakh of which was financed via the issuance of long term debt outright for cash. Using cash flow statement (based on AS-7), write a short memorandum to Mr. Charatlal, explaining why there is such squeeze for cash. Show working. holder's equity

Answer rating: 100% (QA)

Cash flow statement cash flow from operating activities Net profit before ta... View the full answer