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Problems and Solutions – Fund Flow Statement

[ PROBLEMS AND SOLUTIONS ]

 

Problem 1. The following are the summarised balance sheets of M/s .Krishna Ltd. as on 31.12.1999 and 2000. 

Liabilities 

1999                                        2000

$.                                             $

10% preference shares                                    1,00,000                                  1,10,000

Equity Shares                                                  2,20,000                                 2,50,000

Share premium                                                    20,000                                    26,000

Profit & Loss A I c                                          1,04,000                                 1,34,000

12% debentures                                                   70,000                                    64,000

Creditors                                                             38,000                                    46,000

Bills Payable                                                         5,000                                      4,000

Provision for tax                                                  10,000                                    12,000

Dividend Payable                                                  7,000                                      8,000

                                                                         5,74,000                                 6,54,000 

 

Assets                                                                            1999                                     2000

                                                                                           $                                                $

Machinery                                                       2,00,000                                    2,30,000

Buildings                                                          1,50,000                                   1, 76,000

Land                                                                    18,000                                       18,000

Cash                                                                    42,000                                       32,000

Debtors                                                               38,000                                       38,000

Bills receivable                                                    42,000                                       62,000

Stock                                                                    84,000                                       98,000

                                                                                  5,74,000                                    6,54,000

 

You are required to prepare a statement of sources and application of funds. 

 

Solution:

Fund Flow Statement 

Particulars                              Amount            Particulars                              Amount

$                                                               $

Issue of preference shares       10,000            Purchase of machinery            30,000

Issue of Equity shares             30,000            Purchase of Building              26,000

Share premium received             6,000           Increase in working capital       14,000

Fund from operation                30,000            Redemption of debenture         6,000

76,000                                                                    76,000 

 

Workings:      (i) Statement of changes in working capital 

                                                                        1999                            2000   

                                                                               $                                  $

Current Assets :

Cash                                                                42,000                         32,000

Debtors                                                           38,000                         38,000

Bills receivables                                              42,000                         62,000

Stock                                                               84,000                         98,000

Total current assets                                      2, 06,000                       2, 30,000

 

Current Liabilities :

Creditors                                                         38,000                         46,000

Bills payable                                                      5,000                           4,000

Provision for Tax                                            10,000                         12,000

Dividend payable                                              7,000                           8,000

Total current liabilities                                    60,000                         70,000

Working capital                                            1,46,000                      1,60,000

Increase in working capital : $ 14000 (1,46,000 – 1,60,000)

 

[Transfer to Fund Flow Statement]

(ii) Profit and Loss Account

 

To Balance b/d (closing)                      1,34,000          By Balance c/d                                    1,40,000

                                                                                    By Fund from operation                 30,000

1,34,000                                                            1,34,000

 

 

Problem 2. From the following balance sheets, prepare schedule of changes in working 

capital. 

Liabilities                     Dec 1980         Dec1981         Assets             Dec1980         Dec1981

                                     $                        $                                             $                      $       

Share capital               2,00,000          2,50,000          Cash                30,000             47,000

Creditors                        70,000             45,000          Debtors       1,20,000           1,15,000

Retained}                                                                     Land                50,000             66,000

Earnings                         10,000             23,000          Stock                80,000              90,000 

                                             2,80,000          3,18,000                               2,80,000          3,18,000 

 

Solution

Fund Flow Statement 

Source of funds                        $                                 Application of fund                     $

 

Issue of shares                                     50,000                         Purchase of Land                    16,000

Fund from operation                           13,000                         increase in working capital      47,000

                                                            63,000                                                                         63,000 

Workings: (i) Statement of changes in working capital 

Current Assets :                                   Dec. 1980                                Dec. 1981

                                                                          $                                            $

Cash                                                  30,000                                    47,000

Debtors                                               1,20,000                                     1,15,000

Stock                                                       80,000                                        90,000

Total current assets                               2,30,000                                    2,52,000

 

Current liabilities :

Creditors                                                 70,000                                       45,000

Total current Liabilities                           70,000                                       45,000

Working capital                                   1,60,000                                    2,07,000

Increase in working capital     (1,60,000 – 2,07,000)                               47,000 

 

(ii) Profit and Loss Accounts

To Balance b/d            23,000                        By Balance C/D                     10,000

By Fund from operation (B/f)            13,000

23,000                                                                     23,000

 

Problem 3. The following are the summarized balance sheets of X Ltd., as on 31 December 1999 and 2000. 

Liabilities                                        31st Dec.                          Assets                          31., Dec.

                                                               1999                2000                                           1999               2000 

                                                                 $                      $                                               $                    $

Redeemable preference

Shares                                                                         10,000         Fixed Assets        41,000             40,000

Equity shares                           40,000             40,000    Less: Depreciation   11,000             15,000

General Reserve                        2,000             2,000                                      

 Profit and loss A/c                   1,000              1,200                                      30,000             25,000

Debentures                              6,000              7,000               Debtors           20,000             24,000

Creditors                                 12,000           11,000               Stock                30,000              35,000

Provision for Tax                      3,000               4,200             Prepaid exp.        300                   500

Proposed dividend                   5,000               5,800            Cash                1,200               3,500

Banal overdraft                       12,500               6,800

                                                      81,500             88,000                                     81,500             88,000 

You are required to prepare: 

1. A statement showing changes in the working capital

2. A statement of sources and application of funds. 

 

Solution:                                                                                            Fund Flow Statement

Workings: (i) Statement of changes in working capital                                                                                                     

                                                                                                    1999                            2000

                                                                                                            $                                  $

Current assets :

Debtors                                                                                   20,000                         24000

Stock                                                                                       30,000                        35000

Prepaid Expenses                                                                    300                             500

Cash                                                                                        1,200                           3500

Total Current Assets                                                               51,500                        63000

 

Current liabilities :

Creditors                                                                                 12,000                         11000

Provision for tax                                                                     3,000                           4200

Proposed Dividend                                                                 5,000                           5800

Bank Overdraft                                                                       12,500                         6800 

Total Current   Liabilities                                                        32,500                         27800 

Working capital                                                                                   19,000                         3500

Increase in working capital                                                                 16,200

Hint : Provision for taxation and proposed dividend taken as current liabilities.

 

(ii) Profit and Loss Account

 

Problem 4. From the following balance sheets, prepare a statement showing changes in working capital during 1995.

Balance sheet of Pioneer Ltd as on 31 December. 

Liabilities                                                                                 1994                            1995

                                                                                                        $                                  $ 

Share capital                                                                           5,00,000                      6,00,000

Reserves                                                                                  1,50,000                      1,80,000

P.L. A/c

Debentures                                                                              40,000                         65,000

Creditors for goods                                                                 3,00,000                      2,50,000

Provision for income tax                                                         60,000                         80,000

                                                                                                12, 20,000                   13, 35,000

 

Assets                                                                                      1994                            1995

                                                                                                  $                                  $

Fixed assets                                                                             10,00,000                    11,20,000       

Less : Depreciation                                                                 3,70,000                      4,60,000         

                                                                                                6,30,000                      6,60,000

 

Stock                                                                                        2,40,000                      3,70,000

Book debts                                                                               2,50,000                      2,30,000

Cash in hand and at Bank Balance                                         80,000                         60,000

Preliminary Expenses                                                             20,000                         15,000

                                                                                                12,20,000                    13,35,000 

 

Solution:                                             Fund Flow Statement

Workings: (i) Statement of changes in working capital

                                                                                                            1994                            1995

                                                                                                            $                                  $

Current Assets:

Stock                                                                                       2, 40,000             3, 70,000

Book Debts                                                                             2, 50,000            2,30,000

Cash in hand & Bank Balance                                                80,000                60,000

 

Total Current assets                                                                5, 70,000             6, 60,000

 

Current liabilities:

 

Creditors for goods                                                                 1, 70,000           1, 60,000

Provision for income tax                                                         60,000                80,000

Total current liabilities                                                            2, 30,000             2, 40,000

 

Working capital                                                                       3, 40,000             12, 40,000

Increase in working capital                                                                 80,000                  4, 20,000

 

(ii) Profit and Loss Account

 

Problem 5. Calculate fund from operation from the information given below as on 31.3.2000.

  1. 1.      Net profit for the year ended 31.3.200 $ 6,50,000.
  2. 2.      Gain on sale of buildings $ 35,500.
  3. 3.      Goodwill appears in the books at $ 1,80,000 out of that 10% has been written off during the year.
  4. 4.      Old machinery worth $ 8,000 has been sold for $ 6,500 during the year.
  5. 5.      $ 1,25,000 have been transferred to reserve fund.
  6. Depreciation has been provided during the year on machinery and furniture at 20% whose value is $ 6,50,000. 

Solution : Calculation of Fund from operation

                                                                                                            $                         $

 

Net profit for the year ended 31.3.2000                                                                     6,50,000

Add : Non fund items : [P.L. Nc Debit side items]

Goodwill written off 18,000                                         18,000

(1,80,000 X 10/100)

Loss on sale of machinery

(8000 – 6500)                                                                   1,500

Transferred to Reserve fund

Depreciation

(6,50,000 X 20/100)                                                        1,30,000

                                                                                                                                    2,74,500

                                                                                                                                    9,24,500 

Less : Non fund items [P.L A/c credit side items]

Gain on sale of Buildings                                                                               35,500

Fund from operation                                                                                     8,89,000

 

Problem 6: From the following balance sheets of a sole trader, prepare a fund flow statement.

 

Liabilities         1999                2000                            Assets             1999                2000

                                     $                      $                                                          $                      $

Capital                   63,000           1,00,000                             Cash         15,000               20,000

Long term loans    50,000          60,000                          Debtors        30,000              28,000

Trade creditors      42,000         39,000                          stock building  55,000                   72,000

Bank overdraft        35,000      25,000                             land & building      80,000     1,00,000

Outstanding expenses5,000      6,000                              furniture                15,000     10,000

                               195000   2,30,000                                                          1,95,000   2,30,000

 

Solution:                                                                                       Fund Flow Statement

 

Workings : (i) Statement of changes in working capital

 

                                                                                                            1999                            2000

                                                                                                            $                                  $

Current Assets :                                                                           

Cash                                                                                             15,000                                20,000

Debtors                                                                                        30,000                                28,000

Stock                                                                                           55,000                                 72,000

 

Total current assets                                                                   1,00,000                             1,20,000 

Current Liabilities :

Trade creditors                                                                           42,000                                  39,000

Bank overdraft                                                                           35,000                                  25,000

Outstanding expenses                                                                            5,000                                    6,000

Total current liabilities                                                               82,000                                  70,000

Working capital                                                                          18,000                                  50,000

Increase in working capital                                                        32,000

 

(ii) Capital Account

(iii) Profit and Loss Account

Workings: (i) Statement of changes in working capital

Current Assets:                                                            2002                                        2003

                                                                                    $                                              $

Stock                                                               6,00,000                                  7,00,000

Bank                                                                40,000                                     80,000

Debtors                                                           1,38,000                                  1,22,000

Total current assets                                         7,78,000                                  9,02,000 

Current Liabilities:

Creditors                                                         2,30,000                                  1,80,000

Provision for doubtful debts                           12,000                                     6,000

Total current liabilities                                    2,42,000                                  1,86,000

Working capital                                               5,36,000                                  7,16,000

Increase in working capital                             1,80,000          (5,36,000-7,16,000)

(ii) Profit and Loss Account

Problem 14. From the following balance sheets of a Indian company Ltd. you are

required to prepare fund flow statement.

Balance Sheet

Liabilities                                Jan.                  Dec.                 Assets              Jan.                  Dec.

2002                2002                                        2002                2002

$                      $                                              $                      $

Current Liabilities                   30,000             32,000             Cash                40,000             44,400

Bonds payable                                    22,000             22,000 Accounts receivable    10,000             20,700

 

Bonds payable discount          2,000               1,800               Inventories       15,000             15,000

Capital stock                           35,000             42,500             Land                4,000               4,000

Retained earnings                   15,000             19,500             Buildings         15,000             17,000

Equipment

                                                                                    Accumulated  

 Depreciation  5,000               2,800

Patents                        1,000               900

                                                1,00,000          1,15,000                      1,00,000          1,15,000         

The following additional information is also available :

a)      Income for the period $. 10,000

b)       A building that costs $ 4,000 and which had a book value of $ 1,000 was sold for $. 1,400.

c)       The depreciation charged for the period was $. 800.

d)       There was an issue of common stock $. 5,000.

e)       Cash dividend of $. 2,000 and $. 3,500 stock dividend were declared.

Solution : Fund. Flow Statement

Workings : (i) Statement of changes in working capital

Current Assets :                                              2002                                                                2002

$                                                                      $

Cash                                                                40,000                                                             44,400

Account receivable                             10,000                                                             20,700

Inventories                                          15,000                                                             15,000

Total current assets                             65,000                                                             80,100

Current Liabilities :

Current Liabilities                               30,000                                                             32,000

Total current liabilities                        30,000                                                             32,000

Working capital                                   35,000                                                             48,100

Increase in working capital                    -                                                                    13,100

[48,100 - 35,000]

 

(ii) Profit and Loss Account

NOTE : Journal for find Adjustment

 

Cash A/c                                             Dr.       1400                                        [Sale of Building]

Accumulated Depreciation A/c          Dr.       3000                                        [Depreciation]

To Building Ale                                                          4000

To Profit & Loss Ale                                                  400

 

Problem 15. From the following balance sheets of Kavin Ltd., prepare a statement of changes in working capital and fund flow statement for the year ended 31.3.2002.

Liabilities                    2001                2002                Assets              2001                2002

                                                $                      $                                              $                      $

Share capital                3,00,000          3,50,000          Goodwill         1,00,000          80,000

Debentures                  1,50,000          2,50,000          Machinery       4,10,000       5,40,000

General reserve           1,00,000          1,50,000          Investment      30,000              80,000

Profit & loss AI c        60,000             70,000             Discount on

Provision for                                                               issue of

depreciation on                                                           Debentures     5,000

machinery                    90,000            1,30,000         Cash at bank   1,20,000        1,30,000

Sundry creditors         75,000             1,10,000          Sundry debtors 80,000         1,90,000

Bills payable                10,000             15,000            Stock              40,000             55,000

7,85,000          10,75,000                                7,85,000     10,75,000

During the year investments costing $ 30,000 were sold for $ 28,000 and a new machine was purchased for $ 45,000. The payment was made in fully paid shares.

Solution :

 Fund Flow Statement

Workings : (i) Statement of changes in working capital

Current Assets :                                                          1999                                        2000

$                                              $

Cash at bank                                                   1,20,000                      1,30,000

Sundry Debtors                                               80,000                        1,90,000

Stock                                                               40,000                         55,000

 

Total current assets                                                                 2,40,000                     3,75,000

Current Liabilities :

Sundry creditors                                                         75,000                         1,10,000

Bills payable                                                                10,000                         15,000

 

Total current liabilities                                                            85,000                         1,25,000

Working capital                                                                       1,55,000                      2,50,000

Increase in working capital                                                     95,000