Numeric example to explain, difference between Cashflows and Accounting Profit

Company spends Rs. 50 lakhs on a project (spread over two years)

It estimates sales from the project to start from the third year. (yearwise: Rs. 20 lakh; Rs. 40 lakh, and
Sales are on credit period of 2 months.
Variable cost is 50% and Fixed cost (other than depreciation is Rs. 10 lakhs from first year itself)
The company does not enjoy credit period on purchases
Company makes provision of 2% of sales towards bad debts; But actual bad debt is NIL
Depreciation is at 10%
Company borrows the required funds at 12% paid in beginning of the year for previoys year end balan
Accounting Profit for 7 years
Yr 1

Yr 2

Income
Sales
Expenses
Variable Cost
Fixed Cost
Bad Debts Provision
Depreciation
Interest cost
Total Expense
Net Profit (Loss)

420,000
420,000
(420,000)

840,000
840,000
(840,000)

Yr 3

Yr 4

Yr 5

2,000,000

4,000,000

5,000,000

1,000,000
1,000,000
40,000
500,000
840,000
3,380,000
###

2,000,000
2,500,000
1,000,000
###
80,000
100,000
500,000
###
840,000
780,000
4,420,000 4,880,000
(420,000)
120,000

Cash Flow for 7 year

Yr 1
Opening Balance
Inflow
Loan Taken
Collections
Total Inflow
Outflow
Capex
Variable Cost
Fixed Cost
Loan Repaid
Interest Paid
Total Outflow
Closing Balance

Yr 2
-

3,500,000

###

Yr 4

Yr 5

1,580,000

406,667

233,333

1,666,667
1,666,667

3,666,667
3,666,667

4,833,333
4,833,333

1,000,000
1,000,000

2,000,000
1,000,000

840,000
2,840,000
406,667

840,000
3,840,000
233,333

2,500,000
1,000,000
500,000
840,000
4,840,000
226,667

3,500,000

3,500,000

###

2,500,000
-

2,500,000
420,000
###
###

2,500,000
1,000,000

Yr 3

ng Profit

kh; Rs. 40 lakh, and thereafter Rs. 50 lakhs p a)

rst year itself)

s NIL

ioys year end balance loan

Yr 6

Yr 7

TOTAL

5,000,000

###

###

2,500,000
1,000,000
100,000
500,000
720,000
4,820,000
180,000

2,500,000
###
100,000
###
660,000
4,760,000
240,000

###
5,000,000
420,000
2,500,000
5,100,000
###
###

Yr 6

Yr 7

TOTAL

226,667

446,667

5,000,000
5,000,000

5,000,000
5,000,000

7,000,000
###
###

2,500,000
1,000,000
500,000
780,000
4,780,000
446,667

2,500,000
1,000,000
###
720,000
4,720,000
726,667

5,000,000
###
5,000,000
1,500,000
4,440,000
###
726,667

Companys Act depreciation rate:

1. Pro rata basis from the date of additional or up to the date of sale / discarded.
2. Assets whose actual cost does not exceed Rs. 5000/- shall be provided depreciation at the rate of 100%
Rates for most commonly used items
Income
Tax

Companys Act

% WDV

% WDV

% SLM

A.Y.

Single
Shift

Single
Shift

Computers

60%

40%

16.21%

Plant and machinery

15%

13.91%

4.75%

Furniture and fixture

10%

18.10%

6.33%

Cars and vehicles

15%

25.89%

9.50%

Cars vehicles used on hire

30%

40%

16.21%

Building Non residential

10%

10%

3.34%

Building Residential

5%

5%

1.63%

Particulars

.
ciation at the rate of 100%

Treatment of Depreciation under Companies Act & Income Tax Act

Original Cost of the Car
Date of Purchase

500000
Sale Value of the car
1st October 2013Date of Sale

Depreciation working
Prescribed Rates

300,000
30th Sept 2015

Income Tax Companies Companies

Act -WDV
Act - WDV Act - SLM
15.00%
25.89%
9.50%

2013-14
B/f (all Cars for Income Tax)
New Car
Depreciation
WDV at the end of the year

1,200,000
500,000
1,700,000

Not relevant
###
500,000
(64,725)
(23,750)
435,275
476,250

Depreciation
WDV at the end of the year

(255,000)
1,445,000

(112,693)
322,582

(47,500)
428,750

Sale Value
Depreciation
WDV of Car before Sale

(300,000)
1,145,000

(300,000)
(41,758)
280,824

(300,000)
(23,750)
405,000

2014-15

2015-16

Capital Gains (Loss)

N/A

19,176

(105,000)

ept 2015