Ledger Accounts in Fund Flow Statement: Working Notes

 

Preparations of Ledger Accounts in Fund Flow Statement

Generally, ledger accounts are prepared when additional information is provided to find out hidden account and amount.

Ledger accounts have impact either in profit and loss adjustment account or in funds flow statement or in both the statements.

 

(A) Treatment of Provision for Taxation

On the basis of given information, the provision for taxation can be treated as current liabilities or non-current liabilities.

When provision for taxation is given in balance sheet and no additional information is in adjustment, provision for taxation is treated as current liability.

It is shown in schedule change in working capital. 

If provision for taxation is given in both balance sheet and additional information, ledger account is prepared.

 

Provision for Tax Account

Particulars	Amount	Particulars	Amount
To Tax paid (bank)	xxxx	By Beginning balance	xxxx
To Ending balance	xxxx	By P&L adjustment account	xxxx
	xxxx		xxxx

 

 

When provision for taxation is given in both balance sheet and additional information

EXAMPLE: 4A

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
Provision for taxation	45,000	80,000

Additional adjustment

The provision for taxation for the year Rs 75,000

Required: Tax paid for the year 2020

[Answer: Tax paid = Rs 75,000]

SOLUTION:

Provision for Taxation Account

Particulars	Amount	Particulars	Amount
To Tax paid (b/f)	40,000*	By Opening balance	45,000
To Closing balance	80,000	By Provision for the year	75,000#
	120,000		120,000

 

Explain:

Provision for tax is liabilities; therefore, all liabilities have credit opening balance.

Rs 40,000* tax paid is outflow; it is shown in outflow side of fund flow statement.

Rs 75,000^# provision for tax is non-operating expenses; it is debited in profit and loss adjustment account.

 

 

When provision for taxation is given in both balance sheet and additional information

EXAMPLE: 4B

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
Provision for taxation	50,000	80,000

Additional adjustment

(a) Tax paid for the year is Rs 30,000.

Required: Provision tax for the year 2020

[Answer: P&L adjustment = Rs 60,000]

SOLUTION:

Provision for Taxation Account

Particulars	Amount	Particulars	Amount
To Tax paid	30,000*	By Opening balance	50,000
To Closing balance	80,000	By P&L adjustment account  (b/f)	60,000#
	110,000		110,000

Explain:

Provision for tax is liabilities; all liabilities have credit opening balance.

Rs 30,000* tax paid is outflow; it is shown in outflow side of fund flow statement.

Rs 60,000^# provision for tax is non-operating expenses; it is debited in profit and loss adjustment account.

 

When provision for taxation is not given in balance sheet but is given in additional information

EXAMPLE: 4C

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
Provision for taxation	Nil	Nil

Additional adjustment

Tax paid for the year is Rs 75,000

Required: Show tax paid

[Answer: Tax paid = Rs 75,000]

SOLUTION:

There is not provision for tax in balance sheet; therefore, no need to prepare working note or ledger.

Tax paid Rs 75,000 is given in additional information; it affects two aspects.

Therefore, it is debited in profit and loss adjustment account and is shown in outflow of fund flow statement.

 

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Tax paid	75,000

 

Fund Flow Statement

Inflow or sources	Amount	Outflow or uses	Amount
		Tax paid	75,000

 

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(B) Treatment of Proposed Dividend

On the basis of given information, proposed dividend can be treated as current liabilities or non-current liabilities.

When proposed dividend is given in balance sheet and no additional information is in adjustment, proposed dividend is treated as current liability.

It is shown in schedule change in working capital. 

If proposed dividend is given in both balance sheet and additional information, ledger account is prepared.

 

Proposed Dividend Account

Particulars	Amount	Particulars	Amount
To Dividend paid (bank)	xxxx	By Opening balance	xxxx
To Closing balance	xxxx	By P&L adjustment account	xxxx
	xxxx		xxxx

 

Or

P&L Account (Retained Earning Account or Reserve Account)

Particulars	Amount	Particulars	Amount
To Dividend paid	xxxx	By Opening balance	xxxx
To Closing balance	xxxx	By P&L adjustment account	xxxx
	xxxx		xxxx

 

When proposed dividend is given in both balance sheet and additional information

EXAMPLE: 4D

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2014	2015
Proposed dividend	75,000	100,000

Additional adjustment

The proposed   dividend for the year Rs 55,000

Required: Dividend paid

[Answer: Dividend paid = Rs 30,000]

SOLUTION:

Proposed Dividend Account

Particulars	Amount	Particulars	Amount
To Dividend paid (b/f)	30,000*	By Opening balance	75,000
To Closing balance	100,000	By P&L adjustment account	55,000#
	130,000		130,000

 

Explain:

Proposed dividend is liabilities; therefore, all liabilities have credit opening balance.

Rs 30,000* dividend paid is outflow; therefore, it is shown in outflow side of fund flow statement.

Rs 55,000^# proposed dividend is non-operating expenses.

Therefore, it is debited in profit and loss adjustment account.

 

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Proposed dividend	55,000#

 

Fund Flow Statement

Inflow or sources	Amount	Outflow or uses	Amount
		Dividend paid	30,000*

 

When proposed dividend is given in both balance sheet and additional information

EXAMPLE: 4E

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
Proposed dividend	90,000	140,000

Additional adjustment

Dividend paid for the year is Rs 80,000.

Required: Proposed dividend for the year 2020

[Answer: P&L adjustment = Rs 130,000]

SOLUTION:

Proposed Dividend Account

Particulars	Amount	Particulars	Amount
To Dividend paid	80,000*	By Opening balance	90,000
To Closing balance	140,000	By P&L adjustment A/c (b/f)	130,000#
	220,000		220,000

Explain:

Proposed dividend is liabilities; all liabilities have credit opening balance.

Rs 80,000* dividend paid is outflow; it is shown in outflow side of fund flow statement.

Rs130,000^# proposed dividend is non-operating expenses; it is debited in P&L adjustment account.

 

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Proposed dividend	130,000#

Fund Flow Statement

Inflow or sources	Amount	Outflow or uses	Amount
		Dividend paid	80,000*

 

When proposed dividend is not given in balance sheet but dividend paid or interim dividend paid is given in additional information

EXAMPLE: 4F

Extracted Balance Sheet

 

Liabilities	2014	2015	Assets	2014	2015
Proposed dividend	Nil	Nil

Additional adjustment

Dividend paid for the year is Rs 90,000

Required: Dividend paid  

 [Answer: Dividend paid = Rs 80,000]

SOLUTION:

Dividend paid Rs 90,000 is given in additional information. It affects two aspects.

Therefore, it is debited in profit and loss adjustment account and is shown in outflow of fund flow statement.

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Dividend paid	90,000

 

Fund flow statement

Inflow or sources	Amount	Outflow or uses	Amount
		Dividend paid	90,000

 

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(C) Treatment of Fixed Assets

Depreciation is treated as the diminishing value of fixed assets.

It is charged at the end of every accounting period.

There are two method of charging depreciation on fixed assets:

(a) Simple depreciation

(b) Accumulated depreciation 

 

(a) Simple depreciation

In simple depreciation, amount of depreciation is treated in debit side of profit and loss account and credited to related asset account.

 

EXAMPLE: 4G

The extracted balance sheet of XYZ Company is given available:

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
			Plant and machinery	150,000	250,000

Additional adjustment

Depreciation on plant and machinery for the year is Rs 30,000

Required: Machinery account

[Answer: Purchase = Rs 130,000]

SOLUTION:

Plant and Machinery Account

Particulars	Amount	Particulars	Amount
To Opening balance	150,000	By Depreciation	30,000*
To Purchase (b/f)	130,000#	By Closing balance	250,000
	280,000		280,000

 

Explain:

Plant and machinery is assets; all assets have debit opening balance.

Rs 30,000* depreciation is debited in P&L adjustment account.

Rs 130,000^# plant purchase is cash outflow; it is shown in outflow side of fund flow statement.

 

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Depreciation	30,000*

 

Fund Flow Statement

Inflow or sources	Amount	Outflow or uses	Amount
		Purchase of plant and mach.	130,000#

 

(b) Accumulated depreciation

In accumulated depreciation, the amount of deprecation is debited to profit and loss account but it does not deducted from fixed assets.

It is cumulated in separate account known as accumulated depreciation account.

It is shown either on liability side of balance sheet or deducted from concerned asset on assets side of balance sheet.

It is known by different names such as provision for depreciation, depreciation reserve account etc.

 

Accumulated Depreciation Account

Particulars	Amount	Particulars	Amount
To Depreciation on sales	xxxx	By Opening balance	xxxx
To Closing balance	xxxx	By P&L adjustment account	xxxx
		(depreciation for the year)
	xxxx		xxxx

 

Again,

Accumulated depreciation	=	Original cost – Book salvage value
Loss	=	Book salvage value – Cash salvage value
Profit	=	Cash salvage value – Book salvage value

 

Fixed Account (P&L, L&B, Furniture)

Particulars	Amount	Particulars	Amount
To Opening balance	xxxx	By Bank/sold	xxxx
To Profit and loss (profit)	xxxx	By Depreciation (P&L adjustment)	xxxx
To Bank/Purchase	xxxx	By Profit and loss (loss)	xxxx
		By Closing balance	xxxx
	xxxx		xxxx

 

Keep in Mind (KIM)

Assets have always debit opening balance or To balance b/d

Liabilities have always credit opening balance or By balance b/d

 

When depreciation for the year is given in additional information

EXAMPLE: 4H

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
			Plant and machinery	150,000	300,000
			Accumulate depreciation	(15,000)	(30,000)

Additional adjustment

Depreciation on plant and machinery for the year 2015 is Rs 30,000

Required: Accumulated depreciation account and machinery account

[Answer: Depn on sold = Rs 15,000; Purchase = Rs 165,000]

SOLUTION:

Accumulated Depreciation Account

Particulars	Amount	Particulars	Amount
To Deprecation on sold (b/f)	15,000*	By Opening balance	15,000
To Closing balance	30,000	By Depn for year (P&L Adjustmrnt)	30,000$
	45,000		45,000

 

Plant and Machinery Account

Particulars	Amount	Particulars	Amount
To Opening balance	150,000	By Depreciation on sold	15,000*
To Purchase (b/f)	165,000#	By Closing balance	300,000
	315,000		315,000

 

Explain:

No entry for opening balance and closing balance of accumulated depreciation and plant and machinery.

Accumulated depreciation is part of liabilities; all liabilities have credit opening balance.

Rs 30,000^$ depreciation is debited in P&L adjustment account.

Rs 165,000^# plant purchase is cash outflow; it is shown in outflow side of fund flow statement.

 

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Depreciation	30,000$

 

Fund Flow Statement

Inflow or sources	Amount	Outflow or uses	Amount
		Purchase of plant and machinery	165,000#

 

 

When depreciation of sold part of assets is given in additional information

EXAMPLE: 4I

Extracted Balance Sheet

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
			Plant and machinery	150,000	250,000
			Accumulate depreciation	(15,000)	(25,000)

Additional adjustment:

A machine costing Rs 50,000 with accumulated depreciation Rs 5,000 is sold for Rs 30,000.

Required: (1) Accumulated depreciation account; (2) Plant and machinery account;

(3) Effect on fund flow statement

[Answer: Depn on sold = Rs 5,000; Purchase = Rs 150,000]

SOLUTION:

Given and working note:

Accumulated depn	=	Original cost – Book salvage value
5,000	=	50,000 – Book salvage value
Book salvage value	=	45,000

 

Again,

Loss = Book salvage value − Cash salvage value       = 45,000 – 30,000                 = 15,000

 

Keep in Mind (KIM)

When cash salvage value (bank or sold) is more than book salvage value, there is profit. It is capitalized profit.

When book salvage value is more than cash salvage value (bank or sold), there is loss. It is capitalized loss.

 

Accumulated Depreciation Account

Particulars	Amount	Particulars	Amount
To Deprecation on sold	5,000*	By Opening balance	15,000
To Closing balance	25,000	By Depreciation for year (b/f)	15,000$
	30,000		30,000

 

Plant and Machinery Account

Particulars	Amount	Particulars	Amount
To Opening balance	150,000	By Bank (CSV or sales value)	30,000
To Profit and loss (profit)	Nil	By Depreciation on sold	5,000*
To Bank/Purchase (b/f)	150,000	By Profit and loss (loss)	15,000
		By Closing balance	250,000
	300,000		300,000

 

Profit and Loss Adjustment Account

Particulars	Amount	Particulars	Amount
To Depreciation for the year	15,000$
To Loss on sales of machine	15,000

 

Fund Flow Statement

Inflow or sources	Amount	Outflow or uses	Amount
Sales of machinery	30,000	Purchase of machinery	150,000

 

 

(D) Treatment of Investment

Investment is part of non-current assets.

It is treated like fixed assets.

There may be profit or loss on sales of investment.

All the procedures are like fixed assets except depreciation. It does not have depreciation.

 

Investment Assets

Particulars	Amount	Particulars	Amount
To Opening balance	xxxx	By Bank/sold	xxxx
To Profit and loss (profit)	xxxx	By Profit and loss (loss)	xxxx
To Bank/Purchase	xxxx	By Closing balance	xxxx
	xxxx		xxxx

 

Keep in Mind (KIM)

Assets have always debit opening balance or To balance b/d

Liabilities have always credit opening balance or By balance b/d

 

EXAMPLE: 4J

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
			Investment	150,000	100,000

Additional adjustment

Investment has sold at a profit of Rs 5,000

Required: Investment account

[Answer:  investment sold = Rs 55,000]

SOLUTION:

Investment Assets

Particulars	Amount	Particulars	Amount
To Opening balance	150,000	By Bank (sold, b/f)	55,000
To Profit and loss (profit)	5,000	By Closing balance	100,000
	155,000		155,000

 

 

(E) Treatment of Stock and Cash Dividend

Dividend is provided to shareholder only when company earns net profit.

Dividend may be paid to shareholders either in cash or bonus shares.

When dividend is provided in bonus share, it is known as stock dividend.

Dividend paid in cash is shown in outflow or uses side of funds flow statement.

Stock dividend is added to the value of share capital.

 

EXAMPLE: 4K

Extracted Balance Sheet

Liabilities	2019	2020	Assets	2019	2020
Share capital	10,00,000	15,00,000
Profit and loss account	1,50,000	2,00,000

Additional adjustment:

The BOD decided to pay cash dividend Rs 50,000 and declared stock dividend Rs 150,000.

Required: (1) Profit and loss account; (2) Share capital account

[Answer: Net profit = Rs 250,000;

Issue of share for cash = Rs 350,000]

SOLUTION:

Profit and Loss Account

Particulars	Amount	Particulars	Amount
To Cash dividend paid	50,000	By Opening balance	1,50,000
To Stock dividend	1,50,000	By Net profit (b/f)	2,50,000
To Closing balance	2,00,000
	4,00,000		4,00,000

 

Share Capital Account

Particulars	Amount	Particulars	Amount
To Closing balance	15,00,000	By Opening balance	10,00,000
		By Stock dividend	1,50,000
		By Issue of share for cash (b/f)	3,50,000
	15,00,000		1,500,000

 

Keep in Mind (KIM)

Stock dividend is the bonus share given to the shareholders; so it increases the value of share capital and credited to share capital account.

Cash dividend is the outflow of fund.

Therefore, it is shown on uses side of funds flow statement.

 

 

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PROBLEMS   AND   ANSWERS

 

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

PROBLEM: 4A

Extracted balance sheet of MK Traders is given below ($/₹/Rs):

Liabilities	2019	2020	Assets	2019	2020
Provision for tax	Rs 50,000	Rs 90,000
Proposed dividend	Rs 40,000	Rs 70,000

Additional information:

Provision for tax Rs 60,000.

Dividend paid Rs 20,000.

Required: (1) Provision for tax account; (2) Proposed dividend account

[Answer: Tax paid = Rs 20,000; Proposed dividend = Rs 50,000]

 

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

PROBLEM: 4B

Extracted balance sheet of MK Traders is given below ($/₹/Rs):

Liabilities	2019	2020	Assets	2019	2020
Provision for tax	Rs 80,000	Rs 90,000
Proposed dividend	Rs 50,000	Rs 70,000

Additional information:

Tax paid for the year Rs 60,000.

Proposed dividend for the year Rs 40,000.

Required: (a) Provision for tax account; (b) Proposed dividend account

[Answer: Tax provision= Rs 70,000; Dividend paid = Rs 20,000]

 

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

PROBLEM: 4C

Extracted balance sheet of GT Company Ltd is given below ($/₹/Rs):

Liabilities	2019	2020	Assets	2019	2020
			Plant and machinery	200,000	170,000

Additional information:

Depreciation on plant and machinery Rs 5,000

Required: Plant and machinery account

[Answer: Sales of P&M = Rs 25,000

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

PROBLEM: 4D

Extracted balance sheet of GT Company (P) Ltd is given below ($/₹/Rs):

Liabilities	2019	2020	Assets	2019	2020
			Plant and machinery	400,000	475,000

Additional information:

a. A part plant costing Rs 80,000 with accumulated depreciation of Rs 10,000 was sold for Rs 60,000.

b. Depreciation for the period is Rs 30,000

Required: Plant and machinery account

[Answer: Purchase of P&M = Rs 1,55,000

 

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

PROBLEM: 4E

Extracted balance sheet of MK Traders is given below ($/₹/Rs):

Liabilities	2019	2020	Assets	2019	2020
			Plant and machinery	3,00,000	3,75,000
			Accumulated depreciation	(30,000)	(37,500)

Additional information:

A part plant costing Rs 25,000 with accumulated depreciation of Rs 7,500 was sold for Rs 22,500.

Required:  (a) Accumulated depreciation; (b) Plant and machinery account

[Answer: Depⁿ on sales = Rs 15,000; Purchase of P&M = Rs 1,17,500]

 

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