Either increase or decrease in working capital or

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either increase or decrease in working capital or funds and this could be verified with the net increase/decrease in working capital as derived from the above statement. The change in working capital may also be verified by calculating working capital separately. While preparing a funds flow statement current asset and current liabilities are to be ignored. Attention is to be given to changes in fixed assets and fixed liabilities. Statement of sources and application of funds sources Rs. Applications Rs. Issue of shares Redemption of shares Issue of debentures Redemption of debentures Long term and medium term loans Repayment of loans Purchase of investment Sales of investments Purchase of fixed assets Sales of fixed assets Payment of dividends Trading profits Funds lost from operations Non trading income Non trading payments Net decrease in working capital as per schedule of changes in working capital Net increase in working capital as per schedule of changes in working capital Total Total
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101 Illustration 1 From the following information, calculate funds from operation Profit and loss account Rs. Rs. To expenses: By Gross profit b/d 200000 Operation 100000 By Gain on sale of buildings 20000 Depreciation 40000 By Other income 2000 To Loss on Sale of Machinery 10000 To Advertisement Suspense A/C 5000 To Discount of Debtors 500 To Discount on Issue of Shares 500 To Goodwill W/Off 12000 To Preliminary Expenses W/Off 2000 To Net Profit 52000 222000 222000 Solution Calculation of funds from operation Rs. Rs. Reported current profit 52000 Add : items not affecting funds: Depreciation 40000 loss on sale of machinery 10000 advertisement suspense a/c 5000 discount on issue of shares 500 goodwill w/off 12000 preliminary expenses w/off 2000 69500 121500 Less : non operating income : Gain on sale of buildings 20000 Other income 2000 22000 Funds from operations 99500 Note: other income Rs.2000 should be shown as a separate source in the funds flow statement.
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102 Illustration: 2 Calculate the funds from operations from the following Profit and loss account Rs. Rs. To Salaries 15000 By Gross Profit 20000 To Rent 15000 By Profit on Sale of Land 5000 To Depreciation 10000 By Net Loss 35000 To Printing Expenses 5000 To Goodwill W/Off 3000 To Provision for Tax 4000 To Loss on Sale of Plant 2000 To Proposed Dividends 6000 60000 60000 Solution Calculation of funds from operations Rs. Rs. Reported net loss (-) 35000 Add: items not affecting funds Depreciation 10000 Goodwill written off 3000 Provision for taxation 4000 Loss on sale of plant 2000 Proposed dividends 6000 25000 (-)10000 Less: non operating income Profit on sale of land (-)5000 Funds lost from operation (-)15000 Illustration 3: From the following particulars prepare a funds flow statement for the year ended 31 st December 2015. Rs. Net profit before writing off goodwill 21500 Depreciation written off on fixed assets 3500 Good will written off from profits 5000 Dividends paid 7000 Shares issued for cash 10000 Purchase of machinery 20000 Increase in working capital 8000 Solution: Working notes: Computation of funds from operations Net profit before writing off goodwill Rs.21500
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103 Add: Depreciation 3500 Funds from operations 25000
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