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UNIT ‐ 3

Module – 4

Fund Flow Statement

Practical Problems and

Solutions

PROBLEM ‐ 1

The following are the summaries of the balance sheets of the Bharat Vijay Ltd. as on 31‐12‐02 and 31‐12‐03.

Liabilities 2002

Rs.

2003

Rs.

Assets 2002

Rs.

2003

Rs.

Share capital

Debentures

Profit & Loss A/c

Creditors

Bank overdraft

Provision for Taxation

3,00,000

2,00,000

40,000

70,000

25,000

30,000

6,65,000

4,00,000

2,50,000

60,000

80,000

25,000

40,000

8,55,000

Buildings

Machinery

Stock

Debtors

Prepaid expenses

1,20,000

3,00,000

90,000

1,40,000

15,000

6,65,000

2,50,000

2,60,000

80,000

2,40,000

25,000

8,55,000

The following additional information is obtained:

1. The net profit for the year was Rs. 40,000 after charging depreciation.

2. During the year depreciation charged was Rs. 30,000 on building and Rs. 40,000 on machinery.

3. The company purchased during the year buildings worth Rs. 1, 60,000.

4. Dividend paid during the year amounted to Rs. 20,000.

From the above information, prepare a statement of sources and application of funds for the year 2003.

Solution ‐ 1

STATEMENT OF CHANGIES IN WORKING CAPITAL

PARTICULAR 2002 2003 INCCREASE IN W.C.

DECREASE IN W.C.

Current Assets Stock 90,000 80,000 ‐ 10,000Debtors 1,40,000 2,40,000 1,00,000 ‐Prepaid Expenses. 15,000 25,000 10,000 ‐ Total (A) 2,45,000 3,45,000 Current Liabilities Creditors 70,000 80,000 10,000B.O.D. 25,000 25,000 ‐ ‐Provision for Taxation 30,000 40,000 ‐ 10,000 Total (B) 1,25,000 1,45,000 Working Capital (A‐B) 1,20,000 2,00,000

Increase in Working Capital 80,000 1,10,000 1,10,000

LEDGER ACCOUNTS:

Building Account

Particular Amount

₹ Particular Amount

₹ Opening Bal 1,20,000 By Depreciation 30,000

To bank A/C‐ Purchase 1,60,000 By closing balance 2,50,000

2,80,000 2,80,000

Machinery Account

Particular Amount


₹ To opening bal 3,00,000 By Deprication 40,000

By closing bal. 2,60,000

3,00,000 3,00,000

Adjusted Profit and Loss Account

Particular Amount


₹ To Depreciation By Opening balance 40,000

Building 30,000

Machinery 40,000 70,000

To Dividend Paid 20,000

To closing balance 60,000 By Adjusted Profit 1,10,000

1,50,000 1,50,000

Fund Flow Statement

Sources of Funds Amount

₹ Application of Funds Amount

₹ Equity share capital 1,00,000 Purchase building 1,60,000

Debenture 50,000 Dividend Paid 20,000

Profit 1,10,000 Increase in working capital

80,000

2,60,000 2,60,000

PROBLEM ‐ 2

The comparative balance sheet of Icelands Ltd. as at 31st December, 2007 and 2008 are as under:

Liabilities 2007

Rs.

2008

Rs.

Assets 2007

Rs.

2008

Rs.

Share capital

Share premium

P & L A/c

5% debentures

Creditors

Prov. for Taxation

Proposed dividend

10,00,000

‐

2,00,000

5,00,000

3,00,000

1,00,000

50,000

21,50,000

15,00,000

50,000

4,25,000

3,80,000

5,20,000

25,000

50,000

29,50,000

Building at cost

Machinery

(Less depreciation)

Investments

Stock

debtors

Bank balance

7,50,000

8,75,000

1,00,000

2,25,000

75,000

1,25,000

21,50,000

11,50,000

11,25,000

1,00,000

2,45,000

90,000

2,40,000

29,50,000

The additional information is as under:

1. During the year 2008 the company sold machinery costing Rs. 75,000 for Rs. 25,000. The accumulated depreciation on the said machinery was Rs. 40,000.

2. Depreciation written off during the year 2008 was Rs. 90,000.

3. Taxation paid during the year amounted to Rs. 90,000.

From the above information prepare a statement of Sources and Application of Funds for the year 2008.

Solution ‐ 2



DECREASE IN W.C.

Current Assets

Stock 2,25,000 2,45,000 20,000 ‐

Debtors 75,000 90,000 15,000 ‐

Bank balance 1,25,000 2,40,000 1,15,000 ‐

Total (A) 4,25,000 5,75,000

Current Liabilities

Creditors 3,00,000 5,20,000 ‐ 2,20,000

Total (B) 3,00,000 5,20,000

Working Capital (A ‐ B) 1,25,000 55,000

Decrease in Working Capital 70,000 ‐

2,20,000 2,20,000

LEDGER ACCOUNTS:

Building Account

Particular Amount Particular Amount

Opening Bal 7,50,000

To Purchase building 4,00,000 By Closing balance 11,50,000

11,50,000 11,50,000

Machinery Account


To Opening bal 8,75,000 By Deprication (40,000+50,000)

90,000

To Purchase machinery 3,75,000 By Bank‐ sale 25,000

By Profit & Loss 10,000

By Closing bal. 11,25,000

12,50,000 12,50,000

Provision for Taxation


To Tax paid 90,000 By opening bal. 1,00,000

To bal c/f 25,000 By profit & loss 15,000

1,15,000 1,15,000

Adjusted Profit & Loss Account


To proposed dividend 50,000 By opening bal. 2,00,000

To depreciation 90,000

To loss on sale of machinery

10,000

To provision for taxation 15,000

To closing bal. 4,25,000 By Adjusted Profit 3,90,000

5,90,000 5,90,000

Fund Flow Statement



₹ Share capital 5,00,000 Debenture 1,20,000

Share Premium 50,000 Purchase of Machinery 3,75,000

Decrease in working capital

70,000 Purchase of building 4,00,000

Sale of Machinery 25,000 Payment dividend 50,000

Adjusted Profit 3,90,000 Payment of taxation 90,000

10,35,000 10,35,000

PROBLEM ‐ 3

You have been given the following financial statements of Adarsh Eng. Co. Ltd. as at 31st December, 2002 and 2003.

Liabilities 2003

Rs.

2002

Rs.

Assets 2003

Rs.

2002

Rs.

Sundry creditors

Prov. for taxation

Bank loan (secured)

Res. and surplus

Share capital (Rs. 100 shares)

2,98,000

1,72,000

‐

3,12,000

2,30,000

10,12,000

2,51,450

65,000

87,000

1,48,000

1,97,000

7,48,450

Cash at bank

Sundry debtors

Stock

Fixed assets (less

depreciation) Investments

Pre‐paid expenses

45,000

1,40,000

1,96,000

6,00,000

10,000

21,000

10,12,000

1,30,000

90,700

1,42,500

3,60,000

11,250

14,000

7,48,450

The following further information is available from the records:

(a) The position in respect of Reserves and Surplus is as under: Rs.

Balance on 1st January, 2003 1, 48,000

Net Profit for the year 1, 98,500

3, 46,500

Less: dividend 34,500

3,12,000

(b) On 31‐12‐03 the accumulated depreciation on fixed assets was Rs. 1,80,000 and on 31‐12‐02 Rs. 1,60,000. Machinery costing Rs. 20,000 which was half depreciated was discarded and written off in 2002; Depreciation for the year 2003 amounted to Rs. 30,000.

(c) Investment costing Rs. 5,000 were sold during the year 2003 for Rs. 4,800 and government securities of the face value Rs. 4,000 were purchased during the year for Rs. 3,750.

You are required to prepare (1) Statement of sources and application of funds and (2) Statement showing detail the item‐wise increase or decrease in net working capital.

Solution ‐ 3



DECREASE IN W.C.

Current Assets

Cash at bank 1,30,000 45,000 ‐ 85,000

Debtors 90,700 1,40,000 49,300 ‐

Stock 1,42,500 1,96,000 53500 ‐

Pre‐Paid Exp. 14,000 21,000 7000

Total (A) 3,77,200 4,02000

Current Liabilities

Taxation 65,000 1,72,000 1,07,000

Sundry creditors 2,51,450 2,98,000 46550

Total(B) 3,16,450 4,70,000

Working Capital(A‐B) 60,750 (‐68,000)

Decrease in Working Capital 1,28,750 ‐

2,38,550 2,38,550

Fixed Assets Account

Particular Amount


₹ To opening bal.(with dep.) 3,60,000 By Acc. depreciation 10,000

To Depreciation A/C 1,60,000 By Adj. P & L (loss) 10,000

To bank ‐ purchase 2,80,000 By Acc. depreciation 1,80,000

By Bal C/F(with dep.) 6,00,000

8,00,000 8,00,000

Accumulated Depreciation Account

Particular Amount


₹ To Fixed Assets A/c 10,000 By Balance B/d 1,60,000

To Balance C/d 1,80,000 By Adj. P & L A/c. 30,000

1,90,000 1,90,000

Investment Account

Particular Amount


₹ To opening balance 11,250 By bank (sold) 4800

To bank (purchase) 3750 By Adjusted Profit & Loss A/C

200

By Balance C/d 10,000

15,000 15,000


Particular Amount


₹ To loss on fixed assets 10,000 By opening bal. 1,48,000

To Depreciation 30,000

To loss on investment 200

To dividend paid 34,500 By adjusted Profit 2,38,700

To bal c/f 3,12,000

3,86,700 3,86,700

Fund Flow Statement



₹ Issue of shares 33,000 Repayment of loan to

bank 87,000

Sale of investment 4800 Dividend paid 34500


1,28,750 Investment purchased 3750

Adjusted Profit 2,38,700 Purchase of fixed assets 2,80,000

4,05,250 4,05,250

PROBLEM ‐ 4

The balance sheet of Mira Ltd. is as under:

Liabilities 2006

Rs.

2005

Rs.

Assets 2006

Rs.

2005

Rs.

Share capital:

Eq. shares each of Rs. 10

10% pref. shares of Rs.

10 each Rs. 8 called up

Share premium

Capital reserve

Capital Red. Fund

General reserve

P & L A/c

Provident fund

Creditors

Bills payable

15,00,000

‐

‐

50,000

7,00,000

4,00,000

5,00,000

1,00,000

1,50,000

6,00,000

40,00,000

12,00,000

8,00,000

30,000

‐

‐

9,00,000

4,00,000

80,000

2,00,000

3,90,000

40,00,000

Building

Stock

Land

Plant

Debtors

Cash balance

Prepaid expenses

Bills receivable

Mis. expenses

4,80,000

2,34,000

2,00,000

17,00,000

8,46,000

2,00,000

30,000

60,000

2,50,000

40,00,000

3,45,000

2,44,000

4,00,000

15,00,000

10,56,000

1,55,000

25,000

35,000

2,40,000

40,00,000

Additional information:

1. During the year 2006 the company decided to value stock at cost where as previously the Practice was to value stock at cost less 10%. The stock on 31‐12‐06 was correctly valued.

2. During the year, the company has redeemed Red. Pref. Shares at 5% premium after complying necessary requirements of the Act. For this purpose the company transferred Rs. 7,00,000 to capital redemption fund from general reserve and necessary new equity shares were issued.

3. The company declared a dividend at 25% to equity share holders.

4. Rs. 1,50,000 were provided for depreciation on plant. During the year one plant, whose book value was Rs. 50,000 was sold at a loss of Rs. 10,000.

5. A piece of land has been sold out and profit was transferred to capital reserve.

From the above information prepare:

(A) A statement of sources and applications of funds.

(B) A statement of changes in working capital.

Solution ‐ 4


PARTICULAR 2005 2006 INCREASE IN W.C.

DECREASE IN W.C.

Current Assets Debtors 10,56,000 8,46,000 ‐ 2,10,000Cash balance 1,55,000 2,00,000 5000 ‐Bills receivable 35,000 60000 25,000 ‐Pre‐Paid Exp. 25,000 30,000 5000 Stock (2,44,000 + 10%) 2,71,111 2,34,000 37,111 Total(A) 15,42,111 13,70,000 Current Liabilities Bills Payable 3,90,000 6,00,000 2,10,000Provident fund 80,000 1,00,000 20,000Sundry creditors 2,00,000 1,50,000 50,000 ‐ Total(B) 6,70,000 8,50,000 Working Capital(A‐B) 8,72,111 5,20,000

Decrease in Working Capital 3,52,111 ‐ 4,87,111 4,87,111

Land Account

Particular Amount₹


To Opening balance 4,00,000 By Bank (sold) 2,50,000To Capital reverse A/C 50,000 By Closing bal. 2,00,000 4,50,000 4,50,000

Building Account



To Opening balance 3,45,000To Purchase 1,35,000 By Closing bal. 4,80,000 4,80,000 4,80,000

General Reserve Account



To Cap. Red. Reserve A/C 7,00,000 By Opening bal. 9,00,000To Closing bal. 4,00,000 By Adj. P & L A/c. (prov) 2,00,000 11,00,000 11,00,000

Plant Account



To Opening bal. 15,00,000 By Bank(sales) 40,000To Purchase 4,00,000 By Adj. P & L A/c. ‐ loss 10,000 By Depreciation 1,50,000 By closing bal. 17,00,000 19,00,000 19,00,000

Working Note: 1) Preference shares Redeemed Paid up capital ₹ 8,00,000 Unpaid capital ₹ 2,00,000

Before redemption preference share should be fully paid up • After this it will redeem with 5% premium (1,00,000*5%) 50,000 • Share premium ₹30,000 was given in balance sheet first take it

&remaining amount ₹20,000 will provide from profit &loss A/C.

2) Dividend to Shareholders

• Before dividend paid to shareholders first paid to preference shareholders. • Preference dividend: 2005 ₹8,00,000 capital @10% = ₹80,000 paid in 2006. • Equity share dividend:‐ ₹12,00,000 @ 25%= ₹3,00,000 proposed in 2005

&paid in 2006.




To Depreciation 1,50,000 By Opening bal. 4,00,000To Loss on sale of plant 10,000To Preference share dividend

80,000 By Stock (difference amt in opening stock)

27,111

To Red. Preference Premium

20,000 By Adjusted Profit 8,32,889

To Provision for general reserve

2,00,000

To Balance c/f. 5,00,000 12,60,000 12,60,000

Fund Flow Statement

Sources of Funds Amount₹

Application of Funds Amount₹

Equity shares 3,00,000 Purchase of Building 1,35,000Preference shares 2,00,000 Equity share dividend 3,00,000Plant sale 40,000 Preference dividend 80,000Land sale 2,50,000 Paid to preference

share cap. 10,50,000


3,52,111 Plant purchase 4,00,000

Adjusted Profit 8,32,889 Mis. Exp. Paid 10,000 19,75,000 19,75,000

PROBLEM ‐ 5

From the following balance sheets of Bhairav Ltd. prepare:

(a) A statement showing changes in working capital

(b) A statement of source and application of funds.

Liabilities 31‐3‐10

Rs.

31‐3‐11

Rs.

Assets 31‐3‐10

Rs.

31‐3‐11

Rs.

Creditors

Bills payable

Bank‐overdraft

Provision for taxation

Reserve

P & L A/c

Equity shares capital

39,520

33,780

59,510

40,000

50,000

39,690

2,00,000

4,62,500

41,135

12,645

‐

50,000

55,000

36,220

2,60,000

4,55,000

Cash at bank

Debtors

Sundry Advances

Stock

Land‐ building

Plant

Goodwill

2,520

85,175

2,315

1,11,040

1,48,500

1,12,950

‐

4,62,500

4,820

72,625

735

97,370

1,44,250

1,16,200

19,000

4,55,000

Additional information:

1. During the year taxes and interim dividend paid were Rs. 35,000 and Rs. 39,000 respectively.

2. The assets of another company were purchased for Rs. 60,000 payable in fully paid equity shares of the company. The assets consisted of stock Rs. 21,640, plant Rs. 18,360 and remaining amount was for goodwill.

3. During the year the purchase price is Rs. 5,650 for a plant.

Solution ‐ 5



DECREASE IN W.C.

Current Assets Stock 1,11,040 97,370 Less: Asset Purchase 21,640 Correct Stock 1,11,040 75,730 35,310Cash at bank 2520 4820 2300

Sundry Advances 2315 735 1580Debtors 85,175 72625 12550 Total(A) 201,050 1,53,910 Current Liabilities Bills Payable 33,780 12,645 21135 ‐Creditors 39,520 41,135 1615B.O.D. 59,510 59510 ‐ Total(B) 1,328,10 53,780 Working Capital(A‐B) 68,240 1,00,130

Increase in Working Capital 31,890 82945 82945

Land‐Building Account



To Opening bal. 1,48,500 By Profit &loss (Dep.) 4,250 By Closing bal. 1,44,250 1,48,500 1,48,500

Machinery Account



To Opening bal. 1,12,950 By Profit &loss (Dep.) 20,760To Machinery(business) 18,360To Bank (purchase) 5650 By Closing bal. 1,16,200 1,36960 1,36960

Provision for Taxation Account



To Tax paid 35,000 By Balance b/d 40,000To Balance c/f 50,000 By Profit &loss

(provision) 45,000

85,000 85,000

Equity share Capital Account



By Balance b/d. 2,00,000 By Machinery 18,300 By Stock 21,640By Balance C/d 2,60,000 By G/w A/c. 20,060 2,60,000 2,60,000

Adjusted Profit &Loss Account



To Prov. for reverse 5,000 By Balance b/d. 39,690To Goodwill written off 1,000 To Prov. for taxation 45,000 By Adjusted profit 1,11,540TO Interim Dividend 39,000To Dep. ‐ Land building 4,250To Dep. ‐ Machinery 20,760To Balance c/f 36,220 1,51,230 1,51,230

Fund Flow Statement

Sources of Funds Amount₹

Application of Funds Amount₹

Purchase of machinery 5,650 Tax paid 35,000 Interim Dividend 39,000Adjusted Profit 1,11,540 Increase in working

capital 31,890

1,11,540 1,11,540

PROBLEM ‐ 6

The balance sheets of A ltd. as on 31‐12‐2011 and 31‐12‐2012 are given below. Prepare source and application of fund statement:

Liabilities 2011

Rs.

2012

Rs.

Assets 2011

Rs.

2012

Rs.

Share capital

Capital reserve

General reserve

P & L A/c

Debentures

Current liabilities

Prov. for income tax

Proposed dividend

Unpaid dividend

3,00,000

‐

1,70,000

60,000

2,00,000

1,20,000

90,000

30,000

‐

9,70,000

4,00,000

10,000

2,00,000

75,000

1,40,000

1,30,000

85,000

36,000

4,000

10,80,000

Fixed assets at cost

Less: Depreciation

Investments

Current assets

Preliminary Exp.

8,00,000

2,30,000

5,70,000

1,00,000

2,80,000

20,000

9,70,000

9,50,000

2,90,000

6,60,000

80,000

3,30,000

10,000

10,80,000

During the year 1985 the company:

1. Sold the machines for Rs. 25,000 the cost of which was Rs. 50,000 and the depreciation provided on it was Rs. 21,000.

2. Provided Rs. 95,000 as depreciation.

3. Redeemed 30% of debentures at Rs. 103.

4. Sold some trade investments at a profit which was credited to capital reserve.

5. Decided to value stock at cost whereas previously the practice was to value stock at cost less 10%. The stock according to books on 31‐12‐11 was Rs. 54,000. The stock on 31‐12‐12 was correctly valued at cost Rs. 75,000.

6. Write off fixed assets costing Rs. 14,000 which is fully depreciated.

Solution ‐ 6



DECREASE IN W.C.

Current Assets

Current Assets 2,86,000 3,30,000 44,000 ‐

Total(A) 2,86,000 3,30,000

Current Liabilities

Current liabilities 1,20,000 1,30,000 10,000

Provision for taxation 90,000 85,000 5000

Total(B) 2,10,000 2,15,000 ‐

Working Capital(A‐B) 76,000 1,15,000

Increase in Working Capital 39,400

49,000 49,000


Particular Amount


₹ To Balance b/d. 8,00,000 By Bank (sales) 25,000

By Adj. P & L A/c. 4,000

By Prov. for depreciation 35,000

To Bank (purchase) 2,14,000 By Balance. c/f 9,50,000

10,14,000 10,14,000

Provision for Depreciation Account


To Fixed assets 35,000 By Balance b/d 2,30,000

To Balance c/f. 2,90,000 By Adj. P & L A/c. 95,000

3,25,000 3,25,000


Particular Amount


₹ To Fixed assets 4,000 By Balance b/d.

60,000

To Prov. for depreciation 95,000 By Stock 6,000

To Deb. red. Premium 1800 By Adjusted profit 1,85,800

To Prel. Exp. Written off 10,000

To Proposed dividend 36,000

To General reserve 30,000

To Balance c/f 75,000

2,51,800 2,51,800

Fund Flow Statement



₹ Equity share capital 1,00,000 Purchase of fixed assets 2,14,000

Sale of machinery 25,000 Redeemable Debenture 61,800

Sale of trade investment 30,000 Dividend paid 26000

Adjusted Profit 1,85,000 Increase in working capital 39,000

3,40800 3,40800

Working note:1

• Redeemable amount of debenture: 60,000 Face Value of Debenture • No. of Debenture: 60,000/100 = 600 Debenture • Redeemable amount = 600* 103 =61800 • Redeemable Premium = 61800 – 60,000 = 1800

PROBLEM ‐ 7

The directors of a company present you with the balance sheet as at 31st march 2002 and 2003 and ask you to prepare statement which will show them what has happened to the money which has come into the business during the year.

Particulars 31‐3‐02

Rs.

31‐3‐03

Rs.

Authorised Capital:

15,000 shares of Rs. 100 each

Paid‐up share capital

General reserve

Profit & loss Appropriation A/c

Sundry creditors

Bank overdraft

Bills payable

Proposed final dividend

Loan on mortgage

Freehold building

Machinery and Plant

Furniture

Cash

Sundry debtors

Bills receivable

Stock

Pre‐paid expenses

Goodwill

Shares in other companies

Preliminary expenses

15,00,000

13,00,000

60,000

36,000

76,000

69,260

40,000

78,000

‐

16,59,260

8,00,000

1,44,000

6,000

1,560

1,25,600

7,600

2,44,000

4,500

2,40,000

80,000

6,000

16,59,260

15, 00,000

14,00,000

40,000

38,000

1,12,000

1,29,780

38,000

72,000

5,60,000

23,89,780

11,76,000

3,94,000

5,500

1,280

1,04,400

6,400

2,38,000

6,200

2,20,000

2,34,000

4,000

23,89,780

You are given the following additional information:

1. Depreciation has been charged:

On freehold buildings @ 2½% p.a. (cost Rs. 10, 00,000)

On machinery and plant @ 8% p.a. (cost Rs. 4, 00, 000)

On furniture @ 5% p.a. (cost Rs. 10,000)

No depreciation has been written off on newly acquired buildings and plant and machinery.

2. Shares in other companies were purchased for Rs. 1,60,000 cash and dividends amounting to Rs. 6,000 declared out of profit made prior to purchase have been received and used to write down the investment (shares).

3. Goodwill has been written off against general reserve.

4. The purposed dividend for the year ended 31st march, 2003 was duly paid and in addition, an interim dividend of Rs. 52,000 was paid.

Solution ‐ 7



DECREASE IN W.C.

Current Assets

Cash balance 1560 1280 280

Debtors 1,25,600 1,04,400 ‐ 21,200

Bills receivable 7600 6400 1200

Stock 2,44,000 2,38,000 6000

Pr‐paid Exp. 4500 6200 1700

Total(A) 3,83260 3,56,280 ‐

Current Liabilities

Sundry Creditors 76,000 1,12,000 36,000

Bills Payable 40,000 38,000 2000

Bank O.D. 69,260 1,29,780 60,250

Total(B) 1,85,260 2,79,780

Working Capital(A‐B) 1,98,000 76,500

Decrease in working capital 1,21,500

1,25,200 1,25,200

Free‐ Hold Building Account

Particular Amount


₹ To Balance b/d. 8,00,000 By Dep.(P &L Adj) 25,000

To Bank (purchase) 4,01000 By Balance c/f 11,76,000

12,01,000 12,01,000

Machinery Account

Particular Amount


₹ To Balance b/d. 1,44,000 By Dep.(P &L Adj) 32,000

To Bank (purchase) 2,82,000 By Balance c/f 3,94,000

4,26,000 4,26,000

Furniture Account

Particular Amount


₹ To Balance b/d. 6000 By Dep.(P &L Adj) 500

By Balance c/f 5500

6000 6000


Particular Amount


₹ To Interim dividend 52,000 By Balance b/d 36,000

To Proposed dividend 72,000

To Depreciation

Building 25000

Machinery 32000

Furniture 500 57,500 By Adjusted profit 1,85,500

To Prel. Exp. written off 2,000

To Balance c/f 38,000

2,21,500 2,21,500

Fund Flow Statement



₹ Equity share capital 1,00,000 Purchase of free hold

building 4,01,000

Mortgage loan 5,60,000 Purchase of Machinery 2,82,000

Dividend received 6,000 Dividend paid 1,30,000


1,21,500 Purchase of shares 1,60,000

Adjusted profit 1,85,500

9,73,000 9,73,000

PROBLEM ‐ 8

Following are the Balance Sheets of X Ltd. as on 31 st December, 2006 and 2007 and Income statement for the period ending 31st December, 2007. Prepare a fund flow Statement. During the year 2007 equipment whose book value was Rs. 15000 was sold for Rs. 6000 and it had an accumulated depreciation of Rs. 8000.

Balance Sheets

Liabilities 2006 Rs.

2007 Rs.

Assets 2006 Rs.

2007 Rs.

Capital

Retained Earnings

Debentures

2,50,000

2,31,000

2,20,000

4,60,000

2,11,000

60,000

Building & Equip.

Less: Depreciation

4,20,000

1,05,000

3,15,000

4,80,000

1,20,000

3,60,000

Prov. for income tax

Prov. for Social

Security‐tax

Accounts payable

Bills payable

86,000

3,000

58,000

28,000

8,76,000

12,000

5,000

94,000

8,000

8,50,000

Land

Patents

Cash

Inventories

A/c's Receivables

Pre‐paid Expenses

60,000

55,000

74,000

3,12,000

54,000

6,000

8,76,000

60,000

65,000

37,000

2,77,000

47,000

4,000

8,50,000

Income Statement (for the year ended 31‐12‐2007)

Particulars Amount (Rs.)

Net Sales

Less: Cost of goods sold

Gross Profit

Less: Operating Expenses (includes depreciation on buildings and equipment of Rs. 23000 and patent amortization of Rs. 6000)

Net Loss form operation

Less: other revenue

Net Loss:

Add: Retained earnings

Less: Dividend Paid 16,000

Loss on sale of asset 1,000

Retained earnings (31‐12‐2007)

19,70,000

14,80,000

4,90,000

5,00,000

(10,000)

7,000

(3,000)

2,31,000

2,28,000

17,000

2,11,000

Solution ‐ 8



DECREASE IN W.C.

Current Assets

Cash balance 74,000 37,000 37,000

Inventories 3,12,000 2,77,000 ‐ 35,000

Bills receivable 54,000 47,000 7000

Pr‐paid Exp. 6,000 4000 2000

Total(A) 4,46,000 3,65,000 ‐

Current Liabilities

Accounts payable 58,000 94,000 36,000

Bills Payable 28000 8000 20000

Prov. for social service tax 3000 5000 2000

Prov. for income tax 86000 12000 74000

Total(B) 1,75,000 1,19,000

Working capital(A‐B) 2,71,000 2,46,000

Decrease in working capital 25,000

1,19,000 1,19,000

Building & Equipments Account

Particular Amount


₹ To Balance b/d. 4,20,000 By Dep. On furniture 8000

To Bank (purchase) 75000 By Loss due to sale 1000

By Bank (sale) 6000

By Balance c/f 4,80,000

4,95,000 4,95,000

Depreciation Fund Account

Particular Amount


₹ To Building & Equipments 8000 By Balance b/d 105000

By Adj. P & L A/c. ‐ Dep. 23,000

To Balance c/f 120000

128000 128000

Patents Account

Particular Amount


₹ By Balance b/d 55,000 By Amortization 6000

To Bank(purchase) 16,000 By Balance c/f 65,000

71,000 71,000


Particular Amount


₹ To Dividend paid 16,000 By Balance b/d 2,31,000

To Loss due to sale of building

1000

To Amortization 6000

To Depreciation 23,000 By Adjusted Profit 26,000

To Balance c/f 2,11,000

2,57,000 2,57,000

Fund Flow Statement



₹ Equity share capital 2,10,000 Purchase of building 75000

Sale of Equipment 6000 Purchase of Patents 16,000

Adjusted profit 26000 Dividend paid 16000


25000 Payments of Debenture 160000

2,67,000 2,67,000

PROBLEM ‐ 9

From the Balance Sheets of Manan Ltd. as on 31‐12‐2005 and 31‐12‐2006 and other additional information given to you. Prepare:

Liabilities 2005

Rs.

2006

Rs.

Assets 2005

Rs.

2006

Rs.

Eq. Share capital of Rs. 10

General reserve

P & L A/c

10% Debenture

Creditors

Bills Payable

Provision of taxes

1,00,000

60,000

10,000

‐

25,000

20,000

15,000

2,30,000

1,50,000

20,000

12,000

50,000

31,000

20,000

17,000

3,00,000

Goodwill

Building

Machinery

Investment

Stock

Debtors

Bank balance


30,000

60,000

40,000

15,000

16,000

49,000

12,000

8,000

2,30,000

28,000

1,00,000

95,000

12,000

25,000

21,000

13,000

6,000

3,00,000

Additional Information:

1. On 1‐1‐ 2006, company has given bonus shares from General Reserve. One bonus share is given against two equity shares.

2. Taxation paid during the year was Rs. 14,000 and interim dividend of Rs. 8,000 was also paid.

3. Depreciation charged on building is Rs. 6,000 and on machinery is Rs. 4,000.

4. A machine having cost value of Rs. 10,000 was sold with profit. This profit was credited to capital reserve A/c.

5. During the year debentures were issued at 5% discount. 6. Investments of Rs. 5,000 cost value were sold at 20% profit. 7. Closing stock of 31‐12‐2005 was shown at price, which is 20% less than cost

price. Closing stock of 31‐12‐2006 is shown at cost price. You have to consider original cost price of stock of 31‐12‐2005.

Goodwill was written off against capital reserve.

Solution ‐ 9



DECREASE IN W.C.

Current Assets

Stock (16000+4000) 20,000 25,000 5000 ‐

Debtors 49000 21000 28000

Cash & Bank 12000 13000 1000 ‐

Total(A) 81000 59000

Current Liabilities

Creditors 25000 31000 6000

Bills Payable 20000 20000 ‐

Total(B) 45,000 51,000

Working Capital(A‐B) 36000 8000

Decrease in Working Capital 28,000 ‐

34,000 34,000

Building Account

Particular Amount


₹ To Balance b/d. 60,000 By Depreciation 6000

To Bank (purchase) 46000 By Balance c/f 1,00,000

1,06,000 1,06,000

Machinery Account

Particular Amount


₹ To Balance b/d. 40,000 By Depreciation 4000

To Bank (purchase) 69000 By Bank(sales) 12,000

To Capital reserve (profit)

2000 By Balance c/f 95,000

1,11,000 1,11,000

Investment Account

Particular Amount


₹ To Balance b/d. 15000

To Bank (purchase) 2000 By Bank (sales)(5000+1000)

6000

To Profit & loss (Profit) 1000 By Balance c/f 12000

18,000 18,000

Provision for Taxes Account

Particular Amount


₹ To Cash paid 14000 By Balance b/d 15000

To Balance c/f 17000 By Adj. P & L A/c. ‐ prov. 16000

31,000 31,000


Particular Amount


₹ To Equity share(bonus) 50,000 By Balance b/d 60,000

To Balance c/f 20,000 By Adj. P & L A/c. 10,000

70,000 70,000


Particular Amount


₹ To Depreciation By Balance b/d 10,000

Building 6000 By Stock 4000

Machinery 4000 10,000

By Investment(profit) 1000

To Provision for tax 16000

To Prov. for general reserve 10,000

To Pre. Exp. Written off 2000 By Adjusted Profit 45,500

To Interim dividend 8000

To Deb. Discount written off 2500

To Balance c/d 12,000

60,500 60,500

Fund Flow Statement

Sources of Funds Amount Application of Funds Amount

Issue Debenture 47,500 Purchase of building 46000

Sale of Machinery 12000 Purchase of Machinery 69000

Investment sold 6000 Purchase of investment 2000

Dec. in working capital 28000 Income tax paid 14,000

Adjusted Profit 45,500 Interim dividend 8000

1,39,000 1,39,000

PROBLEM ‐ 10

Following are the Balance Sheets of Shah Ltd. as on 31‐3‐06 and 31‐3‐07.

Liabilities 2005‐06

Rs.

2006‐07

Rs.

Assets 2005‐06

Rs.

2006‐07

Rs.

Eq. Share capital

Pref. Sh. Capital‐10 Rs. each

Capital reserve

General reserve

P & L A/c

13.5% Deb. of Rs. 100 each

Proposed dividend

Provision for income tax

Depreciation fund

Creditors

Outstanding Expenses

Bills Payable

3,00,000

50,000

2,000

3,80,000

30,000

1,50,000

45,000

40,000

90,500

40,000

8,000

14,500

11,50,000

5,40,000

‐

5,000

2,40,000

45,000

1,00,000

64,800

65,000

1,19,000

46,000

11,000

34,200

12,70,000

Goodwill

Fixed assets

Investments

Stock

Debtors

Bills Rec.

Cash & Bank


‐

40,000

8,15,000

1,55,000

45,000

37,000

46,000

12,000

‐

11,50,000

30,000

9,02,000

1,60,000

60,000

42,000

38,000

29,000

9,000

12,70,000

Additional Information:

1. Company capitalized some amount from General Reserve and issued the bonus shares to the existing shareholders as 2:1 at the end of the year 31‐3‐07.

2. Company issued Right Equity Shares in the Ratio of 5:1 after issuing bonus shares on increased capital.

3. Income tax paid Rs. 37,000 for the year ending 31‐3‐2006 and also paid proposed dividend for the year 2005‐06

4. Investment is sold Rs. 7000 with profit and profit is transferred to capital reserve account.

5. Real valued of machinery is Rs. 20000 and accumulated depreciation is Rs. 7500 on machinery, which is sold at Rs. 15,000.

6. 1/3 Debentures out of total debentures are redeemed at Rs. 104.

7. Expenses for issuing Right shares is to be written off in nine equal instalments from 2006‐07.

Solution ‐ 10


PARTICULAR 2005‐06 2006‐07 INCCREASE IN W.C.

DECREASE IN W.C.

Current Assets

Stock 45000 60000 15000 ‐

Bills Receivable 46000 38000 8000

Debtors 37000 42000 5000

Cash & Bank 12000 29000 17000 ‐

Total(A) 1,40,000 1,69,000

Current Liabilities

Creditors 40000 46000 6000

O/S. Expenses 8000 11000 3000

Bills Payable 14500 34200 19700

Total(B) 62500 91200

Working Capital(A‐B) 77500 77800

Increase in Working Capital 300

37000 37000

Working Note:1

1) Bonus Shares: 2 Equity share = 1 Bonus share 3000 Equity share = ? Ans. = 15,000 shares

Bonus Capital: 15000*10 = 1,50,000 Rs. So, total equity share = 30,000 + 15,000 = 45,000 shares

2) Right shares: 5 Equity share = 1 Bonus share 3000 Equity share = ? Ans. = 9,000 Right shares issued Right share capital =9000*10 = 90000 Rs.

Equity Share Capital Account

Particular Amount


₹ By Balance b/d 3,00,000

To Balance c/f 5,40,000 By Bank A/c 90,000

To Equity share (bonus) 1,50,000

5,40,000 5,40,000


Particular Amount


₹ To shareholder bonus 1,50,000 By Balance b/d 3,80,000

To Balance c/f 2,40,000 By Adj. P & L A/c. 10,000

3,90,000 3,90,000

Provision for taxation Account

Particular Amount


₹ To Bank A/c (Paid) 37,000 By Balance b/d 40,000

To Balance c/f 65,000 By Adj. P & L A/c. ‐ prov. 62,000

1,02000 1,02,000

Investment Account

Particular Amount


₹ To Balance b/d 1,55,000 By Bank (sales) 10,000

To Capital Reserve(profit)

3,000

To Bank (purchase) 12,000 By Balance c/f 1,60,000

1,70,000 1,70,000


Particular Amount


₹ To Balance b/d 8,15,000 By Depreciation Fund 7,500

To Profit &loss(profit) 2,500 By Bank 15,000

To Bank (purchase) 1,07,000 By Balance c/f 9,02,000

9,24,500 9,24,500

Depreciation Fund Account

Particular Amount


₹ To Fixed assets 7,500 By Balance b/d 90,500

To Balance c/f 1,19,000 By Profit &loss(profit) 36,000

1,26,500 1,26,500

Working Note:

1) Debenture: 1,50,000 * 1/3 = 50,000 • No. of Debentures = 50,000/ 100 Rs. = 500 Debentures. • Redeemable Amount: 500 * 104 Rs. = 52,000 Rs. • Premium = 52000 – 50000 = 2000 Rs.


Particular Amount


₹ To General Reserve 10,000 By Balance b/d 30,000

To Provision of tax 62,000 By Profit due to sale of machinery

2,500

To Depreciation fund 36,000

To Debenture Red. Premium

2,000 By Adjusted Profit 1,97,300

To Goodwill written off 10,000

To Proposed Dividend 64,800

To Balance c/d 45,000

2,29,800 2,29,800

Fund Flow Statement



₹ Equity Share (right share)

90,000 Preference Share written off

50,000

Sale of Machinery 15,000 Tax Paid 37,000

Investment sold 10,000 Purchase of investment 12,000

Machinery Purchase 1,07,000

Adjusted Profit 1,97,300 Proposed Dividend 45,000

Debenture written off 52,000

Increase in Working capital

300

Preliminary Exp. 9,000

3,12,300 3,12,300

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