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Home /  Fund Flow Statement
  • 28602 Views
  • Estimated reading time : 656 Minutes
  • Fund Flow Statement: Problems and Solutions with Adjustments

  • Arjun EP
  • Published on: April 5, 2021

  •  

      

    Problems and Solutions of Fund Flow Statement with Adjustments

    Problems and solutions of fund flow statement with adjustments include Schedule of charges of working capital, funds from operation and funds flow statement.

     

    Here, best questions are solved from easy to difficult methods.

    After studying and solving these problems, you can solve any types of questions related to fund flow statement.

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 5

    The following is the balance sheet of BK Company Ltd for two fiscal years:

    Balance Sheet

    Liabilities

    2019

    2020

    Assets

    2019

    2020

    Equity share capital

    5,00,000

    750,000

    Land and building

    3,65,000

    6,95,000

    Share/security premium

    50,000

    75,000

    Plant and machinery

    2,50,000

    4,00,000

    Reserve fund

    25,000

    55,000

    Goodwill

    1,00,000

    75,000

    Profit and loss account

    80,000

    120,000

    Inventory

    1.50,000

    1,75,000

    5% Debenture

    2,50,000

    3,50,000

    Debtors

    1,75,000

    1,90,000

    Bank overdraft

    1,00,000

    1,40,000

    Cash at bank

    75,000

    125,000

    Sundry creditors

    1,00,000

    1,40,000

    Prepaid expenses

    25,000

    75,000

    Bills payable

    50,000

    70,000

    Preliminary expenses

    40,000

    20,000

    Provision for taxation 

    50,000

    75,000

    Discount on shares 

    25,000

    20,000

     

    12,05,000

    17,75,000

     

    12,05,000

    17,75,000

    Additional information:

    Provision for taxation for the year is Rs 65,000.

    Depreciation on plant and machinery is Rs 25,000.

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

    [Answer:  Increase in WC = Rs 40,000: FFO = Rs 210,000; FFS = Rs 585,000]

    * P&M purchase = Rs 175,000; Tax paid = Rs 40,000

    SOLUTION: 

    Provision for Taxation Account

    Particulars

    Amount

    Particulars

    Amount

    To Bank (tax paid, outflow, b/f)

    40,000

    By Opening balance

    50,000

    To Closing balance 

    75,000

    By P&L adjustment

    65,000

     

    115,000

     

    115,000

     

    Plant and Machinery Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    2,50,000

    By Depn (P&L adjustment)

    25,000

    To Bank (purchase, outflow, b/f)

    1,75,000

    By Closing balance

      4,00,000

     

    4,25,000

     

    4,25,000

     

    Schedule Change in Working Capital

    Particulars

    2019

    2020

    Change in WC

     

     

     

    Increase

    Decrease

    Current assets:

     

     

     

     

    Inventory

    1.50,000

    1,75,000

    25,000

     

    Debtors

    1,75,000

    1,90,000

    15,000

     

    Cash at bank

    75,000

    125,000

    50,000

     

    Prepaid expenses

    25,000

    75,000

    50,000

     

    TCA 

    425,000

    5,65,000

     

     

    Current liabilities:  

     

     

     

     

    Bank overdraft

    1,00,000

    1,40,000

     

    40,000

    Sundry creditors

    1,00,000

    1,40,000

     

    40,000

    Bills payable

    50,000

    70,000

     

    20,000

    TCL

    250,000

    350,000

     

     

    Net working capital (TCA – TCL)

    175,000

    215,000

    140,000

    100,000

    Increase in working capital

    40,000

    −

    −

    40,000

    Total

    215,000

    215,000

    140,000

    140,000

     

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars

    Amount

    To Net profit (120,000 – 80,000)

    40,000

    By Operating profit (FFO)

    210,000

    To Transfer to reserve fund

    30,000

     

     

    To Provision for taxation

    65,000

     

     

    To Depreciation

    25,000

     

     

    To Preliminary expenses written off

    20,000

     

     

    To Discount on share written off

    5,000

     

     

    To Goodwill written off

    25,000

     

     

     

    210,000

     

    210,000

     

    Funds Flow Statement

    Inflow or Sources

    Amount

    Outflow or Uses

    Amount

    Issue of equity share 

    250,000

    Purchase of land and building

    330,000

    Share premium

    25,000

    Purchase of plant and machine

    175,000

    Issue of debenture

    100,000

    Increase in working capital

    40,000

    Funds from operation 

    210,000

    Tax paid

    40,000

     

    585,000

     

    585,000

     

    #####

    Click on link for YouTube videos

    Accounting for Share

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    Fund Flow Statement

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    Cash Flow Statement

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    Theory Accounting Xii

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    #####

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 6

    The following is the balance sheet of XN Company Ltd for two fiscal years: 

    Balance Sheet

    Liabilities

    Year 1

    Year 2

    Assets

    Year 1

    Year 2

    Equity share capital

    2,00,000

    4,00,000

    Land and building

    1,00,000

    3,70,000

    General reserve

    30,000

    50,000

    Plant and machinery

    1,50,000

    3,00,000

    Retained earnings

    75,000

    95,000

    Trade mark

    45,000

    35,000

    10% Debenture

    1,00,000

    150,000

    Inventory

    50,000

    75,000

    Short term loan

    50,000

    90,000

    Account receivable

    75,000

    50,000

    Account payable

    30,000

    20,000

    Cash at bank

    75,000

    25,000

    Bills payable

    20,000

    40,000

    Prepaid expenses

    25,000

    35,000

    Provision for taxation

    40,000

    50,000

    Underwriting commission

    40,000

    20,000

    Proposed dividend 

    30,000

    25,000

    Discount on debenture

    15,000

    10,000

     

    5,75,000

    9,20,000

     

    5,75,000

    9,20,000

    Additional information:

    Tax paid for the year is Rs 45,000

    Depreciation on plant and machinery is Rs 37,500

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

    [Answer:  Decrease in WC = Rs 85,000: FFO = Rs 167,500; FFS = Rs 502,500]

    * P&M purchase = Rs 187,500; Tax paid = Rs 45,000

    SOLUTION: 

    Schedule Change in Working Capital

    Particulars

    Year 1

    Year 2

    Effect in WC

     

     

     

    Increase

    Decrease

    Current assets:

     

     

     

     

    Inventory

    50,000

    75,000

    25,000

    –

    Account receivable

    75,000

    50,000

    –

    25,000

    Cash at bank

    75,000

    25,000

    –

    50,000

    Prepaid expenses

    25,000

    35,000

    10,000

    –

    A

    2,25,000

    1,85,000

     

    –

    Current liabilities: 

     

     

     

     

    Short term loan

    50,000

    90,000

    –

    40,000

    Account payable

    30,000

    20,000

    10,000

    –

    Bills payable

    20,000

    40,000

    –

    20,000

    Proposed dividend 

    30,000

    25,000

    5,000

    –

    B

    130,000

    175,000

     

     

    Change in working capital (A-B)

    95,000

    10,000

    50,000

    135,000

    Decrease in working capital

    –

    85,000

    85,000

    –

    Total

    95,000

    95,000

    135,000

    135,000

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars                                         

    Amount

    To Net profit (95,000 – 75,000)

    20,000

    By Operating profit (FFO)

    1,67,500

    To Transfer to general  reserve 

    20,000

     

     

    To Provision for taxation

    55,000

     

     

    To Depreciation

    37,500

     

     

    To Trade mark written off

    10,000

     

     

    To Underwriting commission written off

    20,000

     

     

    To Discount on debenture written off

    5,000

     

     

     

    167,500

     

    167,500

     

    Funds Flow Statement

    Sources

    Amount

    Uses

    Amount

    Issue of equity share 

    2,00,000

    Purchase of land and building

    2,70,000

    Issue of debenture

    50,000

    Purchase of plant and machine

    1,87,500

    Funds from operation 

    167,500

    Tax paid

    45,000

    Decrease in working capital

    85,000

     

     

     

    502,500

     

    5,02,500

    Given and working note:

    Provision for Taxation Account

    Particulars

    Amount

    Particulars

    Amount

    To Bank (tax paid, outflow, b/f)

    45,000

    By Opening balance

    40,000

    To Closing balance 

    50,000

    By P&L adjustment (b/f) 

    55,000

     

    95,000

     

    95,000

     

    Plant and Machinery Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    1,50,000

    By Depreciation (P&L adjustment)

    37,500

    To Bank (b/f, outflow, purchase)

    1,87,500

    By Closing balance

     3,00,000

     

    3,37,500

     

    3,37,500

     

     

    ###########

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    ###########

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 7

    The following is the comparative balance sheet of AKL Company Ltd for two fiscal years: 

    Liabilities

    2019

    2020

    Assets

    2019

    2020

    Equity share capital

    5,00,000

    5,00,000

    Land and building

    4,00,000

    4,00,000

    Sinking fund

    30,000

    50,000

    Plant and machinery

    3,05,000

    4,70,000

    Reserve and surplus

    75,000

    95,000

    Trade mark

    25,000

    15,000

    10% debenture

    1,00,000

    150,000

    Inventory

    20,000

    35,000

    Bank overdraft

    50,000

    90,000

    Account receivable

    45,000

    20,000

    Sundry creditors

    30,000

    20,000

    Cash at bank

    15,000

    5,000

    Bills payable

    20,000

    40,000

    Prepaid expenses

    10,000

    15,000

    Proposed dividend 

    30,000

    25,000

    Discount on debenture

    15,000

    10,000

     

    8,35,000

    9,70,000

     

    8,35,000

    9,70,000

    Additional information:

    Proposed dividend for the year is Rs 45,000

    A plant costing Rs 50,000, accumulated depreciation thereon Rs 20,000 was sold for Rs 25,000.

    Depreciation on plant and machinery for the year was Rs 40,000.

    Tax paid for the year Rs 25,000

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

     [Answer:  Decrease in WC = Rs 65,000: FFO = Rs 170,000; FFS = Rs 310,000]

    * P&M purchase = Rs 235,000; Dividend paid = Rs 50,000

    SOLUTION:

    Schedule Change in Working Capital

    Particulars

    2018

    2019

    Effect in WC

     

     

     

    Increase

    Decrease

    Current assets:

    –

    –

    –

    –

    Inventory

    20,000

    35,000

    15,000

    –

    Account receivable

    45,000

    20,000

    –

    25,000

    Cash at bank

    15,000

    5,000

    –

    10,000

    Prepaid expenses

    10,000

    15,000

    5,000

    –

    A

    90,000

    75,000

     

     

    Current liabilities: 

    –

    –

     

    –

    Bank overdraft

    50,000

    90,000

     

    40,000

    Sundry creditors

    30,000

    20,000

    10,000

    –

    Bills payable

    20,000

    40,000

     

    20,000

    B

    100,000

    150,000

     

     

    Change in working capital (A-B)

    (10,000)

    (75,000)

    30,000

    95,000

    Decrease in working capital

     

    65,000

    65,000

     

    Total

    (10,000)

    (10,000)

    95,000

    95,000

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars

    Amount

    To Net profit (95,000 – 75,000)

    20,000

    By Operating profit (FFO)

    170,000

    To Transfer to sinking fund    

    20,000

     

     

    To Trade mark written off

    10,000

     

     

    To Discount on debenture written off

    5,000

     

     

    To Proposed dividend

    45,000

     

     

    To Depreciation

    40,000

     

     

    To Loss on sale of plant

    5,000

     

     

    To Tax paid

    25,000

     

     

     

    170,000

     

    170,000

     

    Funds Flow Statement

    Sources

    Amount

    Uses

    Amount

    Issue of debenture

    50,000

    Purchase of plant and machine

    2,35,000

    Funds from operation 

    1,70,000

    Tax paid

    25,000

    Decrease in working capital

    65,000

    Dividend paid

    50,000

    Sales of plant and machinery  

    25,000

     

     

     

    3,10,000

     

    3,10,000

     

    Given and working note:

    Proposed Dividend Account

    Particulars

    Amount

    Particulars

    Amount

    To Bank (dividend paid, outflow, b/f)

    50,000

    By Opening balance 

    30,000

    To Closing balance 

    25,000

    By P&L adjustment

    45,000

     

    75,000

     

    75,000

     

    Plant and Machinery Account

    Particulars                                                 

    Amount

    Particulars

    Amount

    To Opening balance

    3,05,000

    By Bank (sold, inflow) 

    25,000

    To Bank (purchase, outflow, b/f)

    2,35,000

    By Depreciation (P&L adjustment)

    40,000

     

     

    By Profit and loss (loss)

    5,000

     

     

    By Closing balance 

    4,70,000

     

    5,40,000

     

    5,40,000

    .

    Accumulated depreciation

    =

    Original cost – Book salvage value

    20,000

    =

    50,000 – Book salvage value

    Book salvage value

    =

    30,000

    Again,

    Loss = Book salvage value – Cash salvage value      = 30,000 – 25,000       = Rs 5,000

     

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 8

    The following is the balance sheet of BXC Company Ltd for two fiscal years:

    Balance Sheet

    Liabilities

    2019

    2020

    Assets

    2019

    2020

    Equity share capital

    5,00,000

    10,00,000

    Land and building

    4,00,000

    7,00,000

    Reserve fund

    25,000

    55,000

    Plant and machinery

    95,000

    4,57,000

    Retained earning

    80,000

    1,20,000

    Inventory

    1,50,000

    1,75,000

    5% debenture

    2,00,000

    3,50,000

    Debtors

    1,75,000

    90,000

    Sundry creditors

    1,00,000

    40,000

    Cash at bank

    75,000

    1,25,000

    Bills payable

    50,000

    70,000

    Prepaid expenses

    25,000

    75,000

    Provision for bad debts 

    5,000

    7,000

    Preliminary expenses

    40,000

    20,000

     

    960,000

    16,42,000

     

    960,000

    16,42,000

    Additional information

    Net profit earned for the year Rs 65,000.

    A plant purchase price of Rs 50,000, accumulated depreciation thereon Rs 20,000, was sold for Rs 35,000. Depreciation for the year is Rs 40,000.

    Tax paid for the year Rs 20,000.

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

    [Answer:  Increase in WC = Rs 78,000: FFO = Rs 170,000; FFS = Rs 855,000]

    * P&M purchase = Rs 432,000; Dividend paid = Rs 25,000

    SOLUTION:

    Schedule Change in Working Capital

    Particulars

    2019

    2020

    Effect in WC

     

     

     

    Increase

    Decrease

    Current assets:

     

     

     

     

    Inventory

    Debtors

    1.50,000

    1,75,000

    1,75,000

    90,000

    25,000

    –

    –

    85,000

    Cash at bank

    75,000

    1,25,000

    50,000

    –

    Prepaid expenses

    25,000

    75,000

    50,000

    –

    A

    4,25,000

    4,65,000

     

     

    Current liabilities: 

     

     

     

     

    Sundry creditors

    1,00,000

    40,000

    60,000

    –

    Bills payable

    50,000

    70,000

    –

    20,000

    Provision for bad debts 

    5,000

    7,000

    –

    2,000

    B

    155,000

    117,000

     

     

    Change in working capital (A-B)

    270,000

    348,000

    185,000

    107,000

    Increase in working capital

    78,000

     

     

    78,000

    Total

    348,000

    348,000

    185,000

    185,000

     

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars

    Amount

    To Net profit for the year

    65,000

    By Profit on sale of plant

    5,000

    To Transfer to reserve fund

    30,000

    By Operating profit (FFO)

    1,70,000

    To Preliminary expenses  written off

    20,000

     

     

    To Depreciation

    40,000

     

     

    To Tax paid

    20,000

     

     

     

    1,75,000

     

    1,75,000

     

    Funds Flow Statement

    Inflow or sources

    Amount

    Outflow or uses

    Amount

    Issue of equity share

    5,00,000

    Purchase of land and building

    3,00,000

    Issue of debenture

    1,50,000

    Purchase of plant and machine

    432,000

    Funds from operation 

    1,70,000

    Tax paid

    20,000

    Plant sold

    35,000

    Dividend paid

    25,000

     

     

    Increase in working capital

    78,000

     

    8,55,000

     

    855,000

    Given and working note:

    Retained Earnings Account

    Particulars

    Amount

    Particulars

    Amount

    To Bank (dividend paid, outflow, b/f)  

    25,000

    By Opening balance

    80,000

    To Closing balance 

    1,20,000

    By Net profit (P&L adjustment)

    65,000

     

    1,45,000

     

    145,000

     

    Plant and Machinery Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    95,000

    By Bank (sold, inflow) 

    34,000

    To Profit on sold

    5,000

    By Depreciation

    40,000

    To Bank (purchase, outflow b/f)

    4,32,000

    By Closing balance

    4,57,000

     

    5,32,000

     

    5,32,000

     

    Keep in Mind (KIM)

    When net profit is given in additional information, dividend paid is to be calculated from retained earning account.

    Retained earnings, profit and loss credit balance, reserve and surplus are equivalent in fund flow statement.

    Net profit of additional information is recorded in two times, firstly on credit side of retained earning account and secondly on debit side of profit and loss adjustment account.

     

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 9

    The following were the comparative balance sheet of ABC Company Ltd:

    Liabilities

    1 Jan

    31 Dec

    Assets

    1 Jan

    31 Dec

    Share capital

    60,000

    1,00,000

    Land and building

    1,99,000

    3,00,000

    Retained earning 

    2,10,000

    2,20,000

    Plant and machinery

    2,55,000

    2,77,000

    Share premium

    1,00,000

    1,55,000

    Advance payment

    12,000

    24,000

    Long term loan

    1,84,000

    1,10,000

    Stock

    120,000

    2,00,000

    6% debenture

    20,000

    1,70,000

    Debtors

    80,000

    1,00,000

    Account payable 

    90,000

    1,44,000

    Cash at bank

    40,000

    20,000

    Expenses payable

    42,000

    22,000

     

     

     

     

    7,06,000

    9,21,000

     

    7,06,000

    9,21,000

    Additional information:

    Net income for the period amounted to Rs 70,000

    Depreciation on plant and equipment charged during the year Rs 68,000

    Stock dividend for Rs 30,000 has been declared

    Cash dividend of Rs 30,000 were declared and paid

    100 shares of Rs 100 each were issued for Rs 65,000.

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

    [Answer:  Decrease in WC = Rs 58,000: FFO = Rs 138,000; FFS = Rs 353,000]

    Stock dividend Rs 30,000 is debited only in P&L Appn;

    No entry for net profit of information.

    Net profit from retained earning = Rs 10,000;

    SOLUTION: 

    Schedule Change in Working Capital

    Particulars

    1 Jan

    31 Dec

    Effect in WC

     

     

     

    Increase

    Decrease

    Current assets:

     

     

     

     

    Advance payment

    12,000

    24,000

    12,000

    −

    Stock

    120,000

    2,00,000

    80,000

    −

    Debtors

    80,000

    1,00,000

    20,000

    −

    Cash at bank

    40,000

    20,000

    −

    20,000

    A

    252,000

    344,000

    −

    −

    Current liabilities: 

     

     

     

     

    Account payable 

    90,000

    1,44,000

    −

    54,000

    Outstanding expenses

    42,000

    22,000

    20,000

    −

    B

    132,000

    166,000

     

     

    Net change working capital (A − B)

    120,000

    178,000

    132,000

    74,000

    Increase in working capital

    58,000

     

     

    58,000

    Total

    178,000

    178,000

    132,000

    132,000

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars                           

    Amount

    To Net profit

    −

    By Operating profit (FFO)

    138,000

    (retained earnings 220,000 – 210,000)

    10,000

     

     

    To Depreciation  on P&M

    68,000

     

     

    To Stock dividend (shares)

    30,000

     

     

    To Cash dividend

    30,000

     

     

     

    138,000

     

    138,000

     

    Funds Flow Statement

    Inflow or sources                              

    Amount

    Outflow or uses

    Amount

    Funds from operation 

    138,000

    Cash dividend paid

    30,000

    Issue of shares (for cash)

    10,000

    Increase in working capital

    58,000

    Share premium

    55,000

    Purchase of land and building

    101,000

    Issue of debenture

    150,000

    Purchase of plant and machine

    90,000

     

     

    Repayment of long term loan 

    74,000

     

    353,000

     

    353,000

     

    Given and working note:

    Plant and Machinery Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    2,55,000

    By Depn (P&L adjustment)

    68,000

    To Bank (purchase, b/f)

    90,000

    By Closing balance

    2,77,000

     

    345,000

     

    345,000

     

    Retained Earnings Account 

    Particulars

    Amount

    Particulars

    Amount

    To Stock dividend

    30,000

    By Opening balance

    210,000

    To Cash dividend (uses)

    30,000

    By Net profit

    70,000

    To Closing balance

    220,000

     

     

     

    280,000

     

    280,000

     

    Share Capital Account

    Particulars

    Amount

    Particulars

    Amount

     

    −

    By Opening balance

    60,000

     

    −

    By Stock dividend

    30,000

    To Closing balance

    100,000

    By Bank (issue for cash) 

    10,000

     

    100,000

     

    100,000

     

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 10

    The following is the balance sheet of BHS Company Ltd for two fiscal years:

    Liabilities

    2019

    2020

    Assets

    2019

    2020

    Share capital

    5,00,000

    7,50,000

    Land and building

    4,25,000

    6,25,000

    General reserve

    25,000

    50,000

    Plant and machinery

    2,00,000

    3,00,000

    Retained earnings account 

    1,50,000

    1,75,000

    Stock

    1,50,000

    1,25,000

    5% Debenture

    2,00,000

    1,50,000

    Account receivable

    1,25,000

    90,000

    Sundry creditors

    80,000

    60,000

    Cash at bank

    75,000

    1,25,000

    Bills payable

    50,000

    70,000

    Cash in hand

    25,000

    15,000

    Accumulated depreciation  

    25,000

    45,000

    Underwriting commission

    30,000

    20,000

     

    10,30,000

    13,00,000

     

    10,30,000

    13,00,000

    Additional information:

    Net profit for the year Rs 120,000.

    Shares worth Rs 50,000 were issued for dividend.

    A plant costing Rs 100,000 with accumulated depreciation Rs 50,000 was sold for Rs 60,000.

    Cash dividend paid Rs 45,000 and interim dividend paid Rs 25,000.

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

     [Answer: Decrease in working capital = Rs 20,000; FFO = Rs 240,000;

    Total FFS = Rs 520,000; Depn = Rs 70,000; Fixed assets purchase = Rs 200,000;

    SOLUTION: 

    Schedule Change in Working Capital

    Particulars

    2019

    2020

    Effect in working capital

     

     

     

    Increase

    Decrease

    Current assets:

     

     

     

     

    Stock

    1,50,000

    1,25,000

    –

    25,000

    Account receivable

    1,25,000

    90,000

    –

    35,000

    Cash at bank

    75,000

    1,25,000

    50,000

    –

    Cash in hand

    25,000

    15,000

    –

    10,000

    A

    3,75,000

    3,55,000

     

     

    Current liabilities: 

    –

    –

    –

    –

    Sundry creditors

    80,000

    60,000

    20,000

    –

    Bills payable

    50,000

    70,000

    –

    20,000

    B

    1,30,000

    1,30,000

     

     

    Change in working capital (A − B)

    2,45,000

    2,25,000

    70,000

    90,000

    Decrease in working capital

     

    20,000

    20,000

     

    Total

    2,45,000

    2,45,000

    90,000

    90,000

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars                                     

    Amount

    To Net profit

    1,20,000

    By Profit on sale of plant

    10,000

    To Transfer to general reserve

    25,000

    By Operating profit (FFO)

    2,40,000

    To Underwriting commission written off

    10,000

     

     

    To Depreciation

    70,000

     

     

    To Interim dividend paid

    25,000

     

     

     

    2,50,000

     

    2,50,000

     

    Funds Flow Statement

    Sources

    Amount

    Uses

    Amount

    Issue of share for cash

    2,00,000

    Redemption of debenture

    50,000

    Funds from operation 

    2,40,000

    Purchase of land and building

    2,00,000

    Plant sold

    60,000

    Purchase of plant and machine

    2,00,000

    Decrease in working capital

    20,000

    Interim dividend paid

    25,000

     

     

    Cash dividend

    45,000

     

    5,20,000

     

    5,20,000

     

    Keep in Mind (KIM)

    When interim dividend and cash dividend are given in adjustment:

    Interim dividend recorded in two places viz debited in P&L adjustment account and outflow of FFS.

    But cash is dividend only in outflow of FFS.

     

    Given and working note:

    Accumulated Depreciation Account

    Particulars                     

    Amount

    Particulars

    Amount

    To Depreciation on sales

    50,000*

    By Opening balance

    25,000

    To Closing balance 

    45,000

    By Depn for the year  (P&L adj, b/f)

    70,000

     

    95,000

     

    95,000

     

    Plant and Machinery Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    2,00,000

    By Bank (sold, inflow) 

    60,000

    To Profit and loss (profit)

    10,000

    By Depreciation on sales

    50,000*

    To Bank (purchase, outflow, b/f)

    2,00,000

    By Closing balance

    3,00,000

     

    4,10,000

     

    4,10,000

     

    Retained Earnings Account

    Particulars

    Amount

    Particulars

    Amount

    To Stock dividend paid

    50,000#

    By Opening balance

    1,50,000

    To Cash dividend paid (outflow)

    45,000

    By Net profit (P&L adjustment)

    1,20.000

    To Closing balance 

    1,75,000

     

     

     

    2,70,000

     

    270,000

     

    Share Capital Account

    Particulars

    Amount

    Particulars

    Amount

    To Closing balance

    7,50,000

    By Opening balance

    5,00,000

     

     

    By Stock dividend

    50,000#

     

     

    By Issue of share (cash inflow)

    2,00,000

     

    7,50,000

     

    7,50,000

     

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 11

    The following is the balance sheet of XYZ Company Ltd for two fiscal years:

    Balance Sheet

    Liabilities

    2019

    2020

    Assets

    2019

    2020

    Share capital

    5,00,000

    5,00,000

    Fixed assets

    6,25,000

    6,40,000

    General reserve

    25,000

    50,000

    Investment

    1.50,000

    1,25,000

    Profit and loss account

    1,50,000

    1,75,000

    Stock

    1,25,000

    90,000

    10% Bank loan

    2,00,000

    1,50,000

    Account receivable

    75,000

    1,25,000

    Sundry creditors

    80,000

    60,000

    Cash at bank

    5,000

    10,000

    Bills payable

    50,000

    70,000

    Discount on share

    25,000

    15,000

     

    10,05,000

    10,05,000

     

    10,05,000

    10,05,000

                 

     

    Journal Entries

    For additional information

    Date

    Particulars

     

    LF

    Amount

    Amount

     

    Tax paid

     

     

     

     

     

    Tax account

    Dr

     

    25,000

     

     

              To Bank account

     

     

     

    25,000

     

    (Being- tax paid)

     

     

     

     

     

    Investment sold

     

     

     

     

     

    Bank account

    Dr

     

    30,000

     

     

              To Investment account

     

     

     

    25,000

     

              To P&L adjustment (profit) account

     

     

     

    5,000

     

    (Being- investment sold at profit)

     

     

     

     

     

    Fixed assets sold

     

     

     

     

     

    Bank account

    Dr

     

    40,000

     

     

    P&L adjustment (loss) account

     

     

    10,000

     

     

              To Fixed assets account

     

     

     

    50,000

     

    (Being- fixed assets sold at loss)

     

     

     

     

     

    Transferred

     

     

     

     

     

    P&L adjustment account

    Dr

     

    50,000

     

     

              To Depreciation account

     

     

     

    40,000

     

              To Discount on share account

     

     

     

    10,000

     

    (Being- depreciation and discount on share transferred)

     

     

     

     

     

     

     

     

     

     

    Required:   (1) Schedule change in working capital; (2) Funds from operation; (3) Funds fund flow statement 

     [Answer:  Increase in WC = Rs 20,000: FFO = Rs 130,000; FFS = Rs 200,000]

    *Purchase of fixed assets = Rs 105,000;

    SOLUTION: 

    Schedule Change in Working Capital

    Particulars

    2019

    2020

    Effect in working capital

     

     

     

    Increase

    Decrease

    Current assets:

    –

    –

    –

    –

    Stock

    1,25,000

    90,000

    –

    35,000

    Account receivable

    75,000

    1,25,000

    50,000

     

    Cash at bank

    5,000

    10,000

    5,000

     

    A

    205,000

    225,000

    –

     

    Current liabilities: 

    –

    –

    –

    –

    Sundry creditors

    80,000

    60,000

    20,000

    20,000

    Bills payable

    50,000

    70,000

     

     

    B

    1,30,000

    1,30,000

     

     

    Net change working capital (A-B)

    75,000

    95,000

    75,000

    55,000

    Increase in working capital

    20,000

     

     

    20,000

    Total

    95,000

    95,000

    75,000

    75,000

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars

    Amount

    To Net profit (175,000 – 150,000)

    25,000

    By Profit on sale of investment

    5,000

    To Transfer to general reserve

    25,000

    By Operating profit (FFO)

    130,000

    To Discount on share written off

    10,000

     

     

    To Income tax paid

    25,000

     

     

    To Loss on sale of fixed assets

    10,000

     

     

    To Depreciation

    40,000

     

     

     

    285,000

     

    285,000

     

    Funds Flow Statement

    Inflow or sources

    Amount

    Outflow or uses

    Amount

    Funds from operation 

    130,000

    Increase in working capital

    20,000

    Sale of investment

    30,000

    Repaid of bank loan 

    50,000

    Sale of fixed assets

    40,000

    Income tax paid

    25,000

     

     

    Purchase of fixed assets

    105,000

     

    200,000

     

    200,000

    Given and working note:

    Fixed Assets Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    625,000

    By Bank (sold, inflow)

    60,000

    To Profit and loss (profit)

    10,000

    By Depreciation 

    40,000

    To Bank (purchase, outflow, b/f)

    105,000

    By Closing balance

    640,000

     

    740,000

     

    740,000

     

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 12

    The following income statement and balance sheet of AB Company Ltd as on 31st December are provided:

    Trading, Profit and Loss Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening stock

    50,000

    By Sales (net)

    7,50,000

    To Purchase (net)

    3,00,000

    By Closing stock

    55,000

    To Wages

    1,00,000

     

     

    To Factory overheads

    55,000

     

     

    To Gross profit c/d

    3,00,000

     

     

     

    805,000

     

    805,000

    To Administrative expenses

    75,000

    By Gross profit b/d

    3,00,000

    To Selling expenses

    55,000

    By Gain on sale of investment 

    15,000

    To Distribution expenses

    10,000

     

     

    To Depreciation

    30,000

     

     

    To Provision for taxation

    25,000

     

     

    To Goodwill written off

    10,000

     

     

    To Net profit c/d

    110,000

     

     

     

    315,000

     

    315,000

    To Proposed dividend

    35,000

    By Net profit b/d

    110,000

    To Reserve fund

    45,000

    By Balance b/d

    60,000

    To Balance c/d

    90,000

     

     

     

    170,000

     

    170,000

     

    Balance Sheet

    Liabilities

    Year 1

    Year 2

    Assets

    Year 1

    Year 2

    Equity share capital

    3,00,000

    5,00,000

    Fixed assets

    320,000

    505,000

    Reserve fund

    20,000

    65,000

    Stock

    50,000

    55,000

    Profit and loss account

    60,000

    90,000

    Debtors

    50,000

    40,000

    Bank overdraft

    1,50,000

    70,000

    Cash at bank

    75,000

    125,000

    Sundry creditors

    50,000

    40,000

    Goodwill

    40,000

    30,000

    Provision for taxation

    30,000

    20,000

    Investment

    75,000

    30,000

     

    610,000

    785,000

     

    610,000

    785,000

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

     [Answer:  Increase in WC = Rs 135,000: FFO = Rs 160,000; FFS = Rs 420,000]

    * FA purchase = Rs 215,000; Investment sold = Rs 60,000; Tax paid = Rs 35,000

    SOLUTION: 

    Schedule Change in Working Capital

    Particulars

    Year 1

    Year 2

    Effect in WC

     

     

     

    Increase

    Decrease

    Current assets:

     

     

     

     

    Stock

    50,000

    55,000

    5,000

    –

    Debtors

    50,000

    40,000

    –

    10,000

    Cash at bank

    75,000

    125,000

    50,000

    –

    A

    175,000

    220,000

    –

    –

    Current liabilities: 

     

     

     

     

    Bank overdraft

    1,50,000

    70,000

    80,000

    –

    Sundry creditors

    50,000

    40,000

    10,000

    –

    B

    2,00,000

    1,10,000

     

     

    Net change working capital (A − B)

    (25,000)

    110,000

    145,000

    10,000

    Increase in working capital

    135,000

     

     

    135,000

    Total

    60,000

    60,000

    145,000

    145,000

     

    Profit and Loss Adjustment Account

    Particulars

    Amount

    Particulars

    Amount

    To Net profit (90,000 – 60,000)

    30,000

    By Profit on sale of investment

    15,000

    To Depreciation

    30,000

    By Operating profit (FFO)

    160,000

    To Provision for taxation

    25,000

     

     

    To Goodwill written off

    10,000

     

     

    To Proposed dividend

    35,000

     

     

    To Transfer to reserve fund

    45,000

     

     

     

    175,000

     

    175,000

     

    Funds Flow Statement

    Sources

    Amount

    Uses

    Amount

    Funds from operation 

    160,000

    Increase in working capital

    135,000

    Issue of shares

    200,000

    Tax paid

    35,000

    Sale of investment

    60,000

    Dividend paid

    35,000

     

     

    Purchase of fixed assets

    215,000

     

    420,000

     

    420,000

    Given and working note:

    Fixed Assets Account

    Particulars

    Amount

    Particulars

    Amount

    To Opening balance

    320,000

    By Depn (P&L adjustment)

    30,000

    To Bank (purchase, outflow, b/f)

    215,000

    By Closing balance

    505,000

     

    535,000

     

    535,000

     

    Investment Account

    Particulars                                      

    Amount

    Particulars

    Amount

    To Opening balance

    75,000

    By Bank (sold, b/f)

    60,000

    To P&L (profit)

    15,000

    By Closing balance

    30,000

     

    90,000

     

    90,000

     

    Provision for Taxation Account

    Particulars

    Amount

    Particulars

    Amount

    To Tax paid (b/f)

    35,000

    By Opening balance

    30,000

    To Closing balance

    20,000

    By P&L adjustment account  

    25,000

     

    55,000

     

    55,000

     

     

    Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    PROBLEM: 13

    The following are the balance sheets and income statement of ABC Company Ltd:

    Liabilities

    2020

    2019

    Assets

    2020

    2019

    Creditors

    14,000

    11,000

    Cash

    10,000

    14,000

    Bills payable

    5,000

    20,000

    Debtors

    16,000

    11,000

    Debentures

    40,000

    40,000

    Prepaid expenses

    9,000

    6,000

    Accrued interest

    12,000

    9,000

    Stock

    26,000

    15,000

    Accumulated depn:

    –

    –

    Investment

    12,000

    8,000

    Building

    13,000

    10,000

    Land

    40,000

    50,000

    Plant

    15,000

    20,000

    Building

    75,000

    60,000

    Equity capital

    130,000

    100,000

    Plant

    77,000

    70,000

    Share premium

    8,000

    5,000

    Goodwill

    19,000

    20,000

    Retained earning

    50,500

    43,000

    Discount on debentures

    3,500

    4,000

             

    287,500

    258,000

     

    287,500

    258,000

     

    Income Statement for 2020

     

    Particulars

    Amount

    Amount

     

     

    Sales

     

    400,000

     

     

    Less: Cost of goods sold

     

    290,000

     

     

              Gross margin

     

    110,000

     

     

    Less: Operating expenses

    65,500

     

     

     

              Depreciation for the year

    9,000

     

     

     

              Goodwill written off

    1,000

     

     

     

              Loss on sale of plant (free given)

    2,000

     

     

     

              Interest expenses

    4,500

    82,000

     

     

     

     

        28,000

     

     

    Add:  Other income

     

     

     

     

              Gain on sale of land

    10,000

     

     

     

    Less: Income tax on gain on sale of land

    2,500

    7,500

     

     

    Net income

     

    35,500

     

    Additional information:

    (a) Cash dividend amounting to Rs 20,000 paid to equity shareholders.

    (b) Land was sold for Rs 20,000.

    (c) Business tax paid for the year Rs 8,000.

    (d) Tin shed constructed Rs 15,000 for building.

    (e) Plant costing Rs 5,000 with accumulated depreciation of Rs 3,000 was given free of charge.

    (f) Plant costing Rs 18,000 with accumulated depreciation Rs 8,000 was sold for Rs 10,000.

    (g) Interest expenses include Rs 500 amortization of discount on debentures.

    (h) 300 enquiry shares were issued at Rs 110 per share.

    Required:  (1) Schedule of charges of working capital; (2) Funds from operation; (3) Funds flow statement

    [Answer:  Increase in WC = Rs 24,000: FFO = Rs 40,500; FFS = Rs 103,500]

    * Plant purchase = Rs 30,000; Investment purchase = Rs 4,000;

    Tax paid for FFS (8,000 + 2,500) = Rs 10,500]

    SOLUTION:

    Schedule Change in Working Capital

    Particulars

    Year

    Year

    Effect on WC

     

    2019

    2020

    Increase

    Decrease

    Current assets:

     

     

     

     

    Cash

    14,000

    10,000

    –

    4,000

    Debtors

    11,000

    16,000

    5,000

    –

    Prepaid expenses

    6,000

    9,000

    3,000

    –

    Stock

    15,000

    26,000

    11,000

    –

    A

    46,000

    61,000

     

     

    Current liabilities:

     

     

     

     

    Creditors

    11,000

    14,000

    –

    3,000

    Bills payable

    20,000

    5,000

    15,000

    –

    Accrued interest

    9,000

    12,000