Mr. Know­It­All is the chairman and managing director (CMD) for New Age Limited that completed…

Mr. Know­It­All is the chairman and managing director (CMD) for New Age Limited that completed its first year of operations on 31st March 2018. Mr. Kuber is the chief financial officer (CFO) of the company. They are reviewing the financial results of the company (balance sheet and profit and loss statement attached). The following conversation took place between them:

CMD: I am happy to note that the company has made a profit of over ₹ 8 lakh in its first year of operations. Let us consider declaring a maiden dividend at 10% on equity shares.

CFO: Yes sir. It had been a good first year but I am afraid that it may not be possible to declare any dividend.

CMD: Why not? A 10% dividend on the equity capital of ₹ 4,400,000 would require only ₹ 440,000. We can easily afford to pay this amount out of the PAT of ₹ 875,262.

CFO: Sir, I agree that we have adequate profits to pay the dividend but there is not enough cash to pay this dividend. Our cash balance is just ₹ 37,850.

CMD: I do not understand your accounting jargons. If the profits earned is ₹ 875,262 then Where has the cash gone?

Mr. Kuber wants your help in explaining the cash position to the CMD with the help of a cash flow statement clearly indicating cash flow from operating activities, investing activities and financing activities.

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