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funds
flow statement
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2 financial statement

Profit & loss Account Balance Sheet

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What does these statements

Discloses

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What does these statements

Dont Disclose
Changes or movement of finances between two periods

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New Statement is Required to show

changes in
Assets Liabilities Owners Equity

between dates of two Periods of B Sheet

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it is called

Statement of Changes in Financial Position SCFP

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Statement of Changes in Financial

Position

Changes in Assets & Liabilities Use in Fin. Resources Increases in Fin. Resources
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Due to

Financial & Investment Decisions Owners Equity Acquiring Assets Paying Debts Paying Dividend

During the Period Selling Assets Raising Capital Increasing Debt

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Statements of Changes in Financial Position

funds

flow statement

cash flow statement

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Listed Indian companies are required to include

Cash flow Statement in their annual accounts

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AS-3 ON Changes in Financial Position

also suggested standards for Funds Flow Statement

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Nature of Changes in the Financial Position

XYZ CO. Balance Sheet Changes March 31,2005 and March 2006 2005 Assets Cash Debtors Stock Total Current Assets Fixed Assets Other Assets Total Assets 54 6750 10125 16929 2970 945 20844 2006 135 8235 22680 31050 6075 1890 39015
(Rs 000)

Changes +81 +1485 +12555 + 14121 + 3105 + 945 + 18171

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Nature of Changes in the Financial Position

XYZ CO. Balance Sheet Changes March 31,2005 and March 2006 2005 2006
(Rs 000)

Changes

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Liabilities & Capital Bank Borrowings Creditors Prov for taxes Accured Exp Total C Liabilities Long Term Debt 540 Total Liabilities Paid Up S Capital Reserves & Surplus

3510 2835 270 810 7425 1944 9369 8370 3105

8664 6615 972 2700 18951 1404 20355 8370 10290

+ 5154 + 3780 + 702 + 1800 +11526 _ +10986 + 7185

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Changes in the Financial Position

Total Assets Increased by .Rs 18171 Change in Retained EarningRs 7185 Change in Outsiders Liab Rs 10986

What financial impact does these changes make? These changes may raise few questions.. sharma

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Few

Changes in the Financial Position

Questions

Is the Increase in inventory due to growth of Sales or inefficiency? Why have the fixed Assets increased ?
Though retained Earnings increased but whether the

liquidity position is sound ? Why long term debt is used or not used?

What is the proportional change in dividend?

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Sources & Uses of Funds

Increase in current liabilities Bank Borrowings Creditors Provisions for Taxes Accrued Expenses Total Increase in Share H Equity Reserves (Retained Earnings) Total Sources

Rs in 000

Amount

Sources

%
5154 3750 702 1890 11526 7185 18711 27.5 20.2 3.8 10.1 61.6 38.4 100.0

ONE WAY To assess percentage Changes

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Uses Increase in Current Assets Cash Debtors Stock (Inventory) Total Increase in Fixed Assets 16.6 Increase in Other Assets 5.1

81 1485 12555 14121 3105 945

0.4 7.9 67.1 75.4

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Changes in Working Capital

Current Assets Year end 2005 less Current Liabilities

(Rs 000)

=
= = =

Net W Capital

16929 31050 14121 183%

_ _ _

7425 18951 11526 390%

9504

Find Changes In Working Capital

Year end 2006 12099 Change 2595

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another way is to prepare

Schedule of change in WC Funds Flow Statement

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What are funds?

Funds may refers to Cash only Funds may refers to net working Capital Funds may Refers to total Resources

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Assess Changes in funds?

Changes in firms Cash position

Changes in the firms W Capital Position

Changes in the firms total financial position

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Statement of Changes in Financial Position

Cash Flow Statement

Fund Flow Statement

Total Resources Statement

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Statement of Changes in Financial Position

Statement reporting changes in working capital

NWC affected- if 1 account Current-non current NWC increases/decreases when a/c are C/NC NWC Unaffected if both a/c are current NWC Unaffected if both a/c are Non-Current
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Changes in Funds

Ordinary Shares

Cash (Current Asset)

Share Capital

Machinery for Cash

Cash Account

Mach Account

Cash from Debtors

Cash Account

Debtors

No changes In Funds

Cash to Creditors

Cash Account

Creditors

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Purchases Land

Fixed Assets

Issue Share

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1 NWC + - when transaction involves CA & NCA 2 NWC remains unaffected when both are CAs 3 NWC remains unaffected when both are NCAs

Current Account

Non-Current Account Impact

Current Account

No-Impact

Non-Current Account

Impact

No Impact

Effect Of Changes in Accounts on Working Capital

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Construction of SCFP

1 Funds from Operations ( Income Statement) 2 Statement of Sources & Uses (Application) 3 Schedule of Changes in Working Capital

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Funds Flow Statement

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Inflow of Funds Operations Profit Sale of Assets Sale of Investments Issue of Share Cap. Long term Loans
Non-Operating Incomes

Uses Of Funds Operations Loss Purchase of Assets Investments SC Redemption Debentures Red Payment of Dividend Repayment of Loans

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Other way of describing FFS

Sources Of Funds
Increase in Liabilities Increase in Capital Decrease in Assets & Investments

Uses Of Funds
Decrease In Liabilities Decrease in Capital Increase in NC Assets & Investments

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Funds Flow Statement (Sources)

funds from Operations (adjusted net income)

+depreciation & Amortization +loss from sale of Assets/Investments + Tax Provisions - Non operating income - Profit on sale of Asset/Investment

sale of Non-Current Assets

sale of long term investments sale of tangible fixed assets sale of intangible fixed assets

long term financing

Long Term borrowings Issuing equity & preference shares

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Funds Flow Statement (Uses)

adjusted net loss from operations

Depreciation & Amortization Gain or Loss from NCA

purchase of non-current assets

purchase of LT investments purchase of tangible fixed assets purchase of intangible fixed assets

repayment of long term debt redemption of pref shares payment of cash dividend
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Sources

Funds Flow Statement (Horizontal)

Amount

Uses Loss From Operations Redemption of SC Redemption Of Deb. Repayment of Loans Purchase of Assets Investments Payment of Dividend Any other Use Increase in WC (Bal )

Amount

Funds From Operations Issue Of Share Capital Issue Of Debentures LT Borrowings Sale of Assets Sale Of Investments Non Operating Incomes Any other Source Dec in WC (Balance)

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Funds Flow Statement (vertical)

Sources Of Funds Funds from Operations Issue of Share Capital Issue of Debentures Long Term Borrowings Sale of Assets/Investments Non Operating Incomes Any Other Source Total Sources (A)

Uses Of Funds
Loss from Operations Redemption Of Shares/Deb Repayment of Loans Purchase Of Assets/Investments Payment of Dividend Any other Use Total Uses (B) Increase/Decrease in WC (A-B) sharma

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Funds from Operations

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Funds from Operations

FFO refers to the funds provided by regular activities Difference between profit & FFO due to few transactions No flow of funds depreciation, amortization, prelim Exp Adjustments are required All exp dont involve flow of funds- added back to profit
All non operating Profit/income be deducted- sale of assets

All non operating losses be added back- sale of assets

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Calculation of FFO
Net Profit as per IS XXXX

Add
Depreciation ***** Amorti. of Intangible Assets ***** Loss on Sale of Assets/Invt *****

XXXX

Less
Non Operating Incomes ***** Profit on Sale of Assets/Invst***** Funds from Operations xxxx xxxx

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Calculation of FFO

1 WHEN THE CURRENT YEAR IS GIVEN IN COMPLETE Approach I Redraft the income statement, starting from Sales taking only those operating items involving flow of funds balancing figure is FFO

Approach II Start from profit and adjust non cash/non-operating items add/deduct items which affected profit but not funds

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Calculation of FFO
Net Profit as per IS XXXX

Add
Depreciation ***** Amorti. of Intangible Assets ***** Loss on Sale of Assets/Invt *****

XXXX

Less
Non Operating Incomes ***** Profit on Sale of Assets/Invst***** Funds from Operations xxxx xxxx

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Calculation of FFO
When income statement is not given
P&L adjustment Account is prepared to find FFO Particulars
To depreciation To Loss on Sale of Ast To Loss on Sale of Inv To Amort of intangible To G Reserve (Transfer) To any other Reserve To Provision of Tax To Proposed Dividends To Interim Dividend To Cl Balance of P/L ( end of the year) xxxxx
Amt (Rs)

Particulars
By Balance b/d (Op Balance of P/L as in last year B/S)

Amt (Rs)

XXXX

By Inc. from invt xxxx By Prof from sale of Assets/ Invst xxxx By FFO (Balance) (Source) xxxxx

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A co. reported current year profit of Rs 70000 after incorporating the following
Loss on sale of equipment 9000 1500 gain from sale of assets 40000 Provision for Tax 22000 4000 5000 1000 2500

Example

premium on Red of Deb. Discount on issue of Deb

2000 Dividend Income

Depreciation on Machinery 20000 Transfer to G Reserve Depletion of Natural Res Interim Dividend Loss on Sale of Investment 10000 Preliminary Exp 25000 Profit on Revaluation 1000

Find out FFO?

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Calculation of Funds from Operations

Particulars
Current Year Profit

Amt(RS)

Amt(Rs) 70000

Add Loss on Sale of Equip 9000 Disc on Issue of Deb 2000 Depreciation 20000 Dep of Natural Resources 10000 Goodwill Written off 30000 Provision of Tax 22000 Transfer to G Reserve 5000 Preliminary Expenses 1000 Prem on Red of Deb 1500 Interim Dividend 25000 Loss on sale of Invst 1000 Less Profit on Revaluation 2500 Gain from sale of Assets 40000 Dividend Income 4000 Funds from Operations

126500 196500 46500 1,50,000

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From extracts of 2 years Balance sheet. Calculate FFO

As on 31st December 2005 Example Profit and Loss Account General Reserve Goodwill Preliminary Expenses Prov for Depreciation 30000 20000 10000 6000 10000 2006 40000 25000 5000 4000 12000

Find FFO?

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Profit and Loss account as on 31st dec 2006 Add Transferred to Gn Reserve Goodwill written Off Preliminary Exp Written off Provision for Depreciation Balance as on 31st December2005 Funds from Operations 40000 5000 5000 2000 2000 54000 30000 24000

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Adjusted Profit and Loss Account

Particulars

Amt(Rs)

Particulars By Balance b/d (Op Balance) By FFO

Amt(Rs) 30000 24000

To transfer to G Reserve 5000 To Goodwill written off 5000 To Preliminary Exp WO 2000 To Prov For Deprec 2000 To Balance c/d 40000 54000

54000

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Special Considerations for Calculating FFO

1 Significant transactions but involving NC Accounts Issue of shares/deb against purchase of Assets Issues of shares by redeeming/converting debentures Issue of Bonus shares using capital reserve Discharging liability by transferring an assets These exchange transactions be shown in FFS 2 Provision for Tax As a current Liability- SWC As a non-current Liability- not shown in SWC Op Balance- provided last year is shown application Cl Balance -considered non-operating for current year added back to Profit sharma

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Special Considerations for Calculating FFO

3 Interim Dividend and Proposed Dividend though current liability but not treated as CL in FFS Both are considered application of funds Both are adjusted in FFO added back - if provided after appropriation 4 Hidden information about Fixed Assets Assets purchased (uses of funds) Assets Sold ( Sources) Depreciation (FFO) Profit/loss on sale (FFO)

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Schedule of Changes in Working Capital

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Schedule of Changes in Working Capital

Op Bal 1 Current Assets Cash Debtors Stock Mkt Securities Any Other 2 Current Liabilities Creditors Bills Payable Accrued Expenses Bank Overdraft Any Other Total Total Total Total XX Net Increase or decrease in WC ------Cl Bal +In WC _ In WC

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Schedule of Changes in Working Capital

Few Observations
+ in CA during the year results in increase in WC - in CA during the year results in decrease in WC + in CL during the year results in decrease in WC - In CL during the year results in increase in WC

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Forms of Funds Flow Statement

Statement of Changes in Working Capital for the year ended March 31,200x
a) Sources and use of working capital

Sources Funds from operations Sale of Machine Issuance of debenture Issuance of equity shares Funds Provided 1,20,000 30,000 1,00,000 1,00,000 3,50,000 80,000 90,000 60,000 1,20,000 3,50,000

Uses
Purchase of Long term investments Payment of long term loans Payment of Cash Dividend
Increase in Working Capital sharma

Funds Applied

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Forms of Funds Flow Statement

Statement of Changes in Working Capital for the year ended March 31,200x
a) Sources and use of working capital

Sources Funds from operations Sale of Machine Issuance of debenture Issuance of equity shares Funds Provided 1,20,000 30,000 1,00,000 1,00,000 3,50,000 80,000 90,000 60,000 1,20,000 3,50,000

Another Way

Uses
Purchase of LT investments Payment of LT loans Payment of Dividend Increase in Working Capital Funds Applied

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b) Schedule of changes in working Capital

31 march 2005 Rs 31 march 2006 Rs

+
Rs
45000

Rs
5000

Current Assets Cash Debtors Inventory

80000 50000 115000

125000 45000 165000 335000 8000 47000 5000 60000 225000

50000 95000 12000 2000 20000 32000 127000 2000 5000

Total 245000 Current Liabilities Bills Payable 20000 Creditors 45000 Other C Liab 25000 Total 90000

Working Capital 155000 Increase in Working Capital Total

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7000 120000 127000 127000

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Question
The Comparative Balance Sheet as on December 31,2005 and 2006 and Profit and loss for the same periods for Acme company are given. The additional information is also given 1 Plant costing Rs 50000 (depreciation 20000) was sold 2 Debenture of Rs 30000 converted to share capital at par 3 declared cash dividend of Rs 40000 and bonus shares of Rs 20000 4 Issued 5000 additional share at par value of Rs 10 per share, at a premium of Rs 1 per share

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ACME Company
Comparative Balance Sheets for the year ended 31 December,2005 & 2006 2006 2005

(Rs)
Change

Current Assets
Cash Debtors Inventory Total CA 70000 40000 125000 235000 150000 220000 (82000) 288000 523000 50000 45000 90000 185000 100000 200000 (80000) 220000 405000 + 20000 + 5000 + 35000 + 50000 + 50000 + 20000 - 2000 + 68000 + 118000

Fixed Assets
Land & Building Plant & Machinery Less Acc. Dep. Net F Assets Total Assets

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ACME Company
Comparative Balance Sheets for the year ended 31 December,2005 & 2006 2006 Current Liabilities Creditors Salaries Payable Prov. For Tax Prov for Dividend Total CL Long Term Liabilities Institutional Loan Debentures Total LTL Total Liabilities Share Holders Equity Share Capital Share Premium Reserves & Surplus Net Worth Total Funds 25000 15000 50000 40000 130000 23000 120000 143000 273000 175000 12500 62500 250000 523000 2005 30000 10000 60000 40000 140000 15000 150000 165000 305000 75000 7500 17500 100000 405000

(Rs)
Change - 5000 + 5000 - 10000 ---- 10000 + 8000 - 30000 - 22000 - 32000 + 100000 + 5000 + 45000 + 150000 + 118000

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ACME Company

Profit & Loss Account for the year ended December 31 2006 SALES Less COGS Less Operating Expenses Office & Administration Selling & Dist Interest Depreciation Operation Profit Add gain on sale of plant Profit before Tax Less Income Tax 87000 45000 25000 12000 22000

(Rs) 500000 210000 290000

104000 186000 6000 192000

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Prepare
Funds Flow Statement Schedule of changes in working capital

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Workings
4 Funds from Operations Net Profit Add Depreciation Less gain on sale of plant Funds from operations 15 Sources of Funds Q) Sale of Plant Plant Cost Rs 50,000 Depreciation 20,000 30,000 Gain 6,000 Sale 36,000 B Increase in Loan Op Balance Cl Balance Difference Rs 105,000 22,000 127,000 6,000 121,000

15,000 23,000 8,000

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Workings
C) ISSUE OF SHARES Issue of 5000 Share @10 Share Premium 50000 5000

Application Of Funds 1 Purchase of Land & Building 2 Purchase of Plant

Plant at the end of Last year 2,00,000 Sale of Plant 50,000 1,50,000 Plant at the end of this year 2,20,000 New Purchases 70,000

Rs 50,000

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Workings
3
Conversion of Debentures Converted Rs 30000 debentures to equity shares both non current accounts Payment Of Dividend

Paid Cash dividend of Rs 40000 -use of WC Issued Bonus share of Rs 20000- Non Current

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ACME Company

Statement of Funds Flow for the year ended December 31 2006 Sources
Funds from operation Sale of Plant Institutional Loan Issue of Ordinary Shares Funds Provided Uses Purchase of Land & Building Purchase of Plant & Machinery Payment of Cash Dividend Funds Applied Increase in Working Capital 50000 70000 40000 121000 36000 8000 55000

(Rs)

220000

160000 60000

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ACME Company
Schedule of Change in Working Capital 2006 2005 +

(Rs) -

Current Assets
Cash 70000 Debtors 40000 Inventory 125000 Total (A) 235000 Current Liabilities Creditors 25000 Salaries Payable 15000 Prov. For Tax 50000 Prov for Dividend 40000 Total (B) 130000 W Capital (A-B) 105000 Increase in W Capital (C) Total sharma 70000 50000 45000 90000 185000 30000 10000 60000 40000 140000 45000 + 20000 - 5000 + 35000 + 55000 + 5000 + 10000 ---+ 15000 +70000 5000 - 5000 - 10000 60000 70000 - 5000

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ACME Company Statement of Funds Flow (Total Financial Resources Basis)

for the year ended December 31 2006 (Rs)

Sources
Working Capital from operation 121000 Sale of Plant 36000 Institutional Loan 8000 Issuance of Ordinary Shares 55000 F Resources Not Affecting WC Issue Of Shares to convert Deb 30000 Issue of Shares as bonus shares 20000 Funds Provided Uses
Purchase of Land & Building Purchase of Plant & Machinery Payment of Cash Dividend Fin. Resources not Affecting WC Payment of Debenture Payment as Bonus Share 50000 70000 40000 30000 20000

220000

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Funds Applied

160000

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QUESTION

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Liabilities Share Capital General Reserve

Comparative Balance Sheet of a Car Painting Workshop 2006 400000 60000 2005 360000 110000 20450 183650 28800 Investments Debtors Stock Bank Assets Fixed Assets 2006 520000 2005 480000 108000 372000 100000 118300 55600

less Depreciation 140000 380000 50000 167800 90500 47500 -

Profit and Loss A/c 53450 Sundry Creditors Proposed Dividend Prov. For Tax 49800 175000 15000 32000

Preliminary Exp 7200 sharma

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Additional Information
1 The NP for the year 2005-06 was Rs 58000(after providing Depreciation of Rs 40000,writing Off Rs 7200 and making Provision for tax of Rs 32000 2 Sold old Machinery costing Rs 9000 for Rs 3000 having Accumulated depreciation of Rs 8000 3 Paid interim dividend of Rs 10000 and directors declared
final dividend of Rs 15000 Prepare SCWC and FF Statement

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Workings
1 Profit from Machinery Sale proceeds of Machinery Cost of Machinery 9000 Less Accm Depreciation 8000 Profit on Sale 2 Funds from Operations Net Profit Add Depreciation 40000 Prelim Exp 7200 Prov For Tax 32000 Less Profit On sale of Mach Funds from Operations 3000 1000 2000 Rs 58000

79200 137200 2000 135200

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Workings
3 Fixed Assets Purchased Balance on 31,3.2006 Balance on 31.3.2005 480000 Less Cost of Machine sold 9000 Rs 520000 471000 49000

4 Provision for Tax is excluded from Current Liabilities 5 The Payment of Interim and final dividend are treated as application of funds

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Current Assets Bank Debtors Stock

Schedule of Change in Working Capital

As on 31,3 2005 31.3.2006 + in WC -IN WC

49800 118300 55600

47500 167800 90500

49500 34900

2300 -

Current Liabilities
Creditors Total Net Increase in Working Capital 183650 175350 8300 92700 2300 90400

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Funds Flow Statement

Sources Funds from Oper Issue of Shares Sale of Assets
Amt (Rs)

Uses Purchase of Assets Payment of Dividend Interim Final Increase in WC

Amt (Rs) 49000

135200 40000 3000

10000 28800 90400 178200

178200

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thanks

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