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Fund Flow Statement: Problems and Solutions with Adjustments

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

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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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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 31^st 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.

(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