UNIT 3 Module 4. Fund Flow Statement. Practical Problems and Solutions

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 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 2003 4,00,000 2,50,000 60,000 80,000 25,000 40,000 8,55,000 Assets 2002 Buildings Machinery Stock Debtors Prepaid expenses 1,20,000 3,00,000 90,000 1,40,000 15,000 6,65,000 2003 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 40,000 after charging depreciation. 2. During the year depreciation charged was 30,000 on building and 40,000 on machinery. 3. The company purchased during the year buildings worth 1, 60,000. 4. Dividend paid during the year amounted to 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 DECREASE Current Assets Stock 90,000 80,000 10,000 Debtors 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 10,000 B.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 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 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 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 Sources of Funds Fund Flow Statement Application of Funds 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 31 st December, 2007 and 2008 are as under: Liabilities 2007 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 2008 15,00,000 50,000 4,25,000 3,80,000 5,20,000 25,000 50,000 29,50,000 Assets 2007 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 2008 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 75,000 for 25,000. The accumulated depreciation on the said machinery was 40,000. 2. Depreciation written off during the year 2008 was 90,000. 3. Taxation paid during the year amounted to 90,000. From the above information prepare a statement of Sources and Application of Funds for the year 2008. Solution 2 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2007 2008 INCCREASE DECREASE 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 Opening Bal 7,50,000 To Purchase building 4,00,000 By Closing balance 11,50,000 To Opening bal 11,50,000 11,50,000 Machinery Account 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 Sources of Funds Fund Flow Statement Application of Funds 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 31 st December, 2002 and 2003. Liabilities 2003 Sundry creditors Prov. for taxation Bank loan (secured) Res. and surplus Share capital ( 100 shares) 2,98,000 1,72,000 3,12,000 2,30,000 10,12,000 2002 2,51,450 65,000 87,000 1,48,000 1,97,000 7,48,450 Assets 2003 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 2002 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: Balance on 1 st 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 1,80,000 and on 31 12 02 1,60,000. Machinery costing 20,000 which was half depreciated was discarded and written off in 2002; Depreciation for the year 2003 amounted to 30,000. (c) Investment costing 5,000 were sold during the year 2003 for 4,800 and government securities of the face value 4,000 were purchased during the year for 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 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2002 2003 INCCREAS E DECREASE 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 Current Liabilities Total (A) 3,77,200 4,02000 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 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 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 Particular Investment Account Particular 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 Adjusted Profit & Loss Account 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

Sources of Funds Fund Flow Statement Applicationof Funds Issue of shares 33,000 Repayment of loan to bank 87,000 Sale of investment 4800 Dividend paid 34500 Decrease in working capital 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 2005 Share capital: Eq. shares each of 10 10% pref. shares of 15,00,000 12,00,000 10 each 8 called up 8,00,000 Share premium 30,000 Capital reserve 50,000 Capital Red. Fund 7,00,000 General reserve 4,00,000 9,00,000 P & L A/c 5,00,000 4,00,000 Provident fund 1,00,000 80,000 Creditors 1,50,000 2,00,000 Bills payable 6,00,000 3,90,000 40,00,000 40,00,000 Assets 2006 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 2005 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 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. 1,50,000 were provided for depreciation on plant. During the year one plant, whose book value was 50,000 was sold at a loss of 10,000. 5. A piece of land has been sold out and profit was transferred to capital reserve. Solution 4 From the above information prepare: (A) A statement of sources and applications of funds. (B) A statement of changes in working capital. STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2005 2006 INCREASE DECREASE Current Assets Debtors 10,56,000 8,46,000 2,10,000 Cash 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 2,10,000 Provident fund 80,000 1,00,000 20,000 Sundry 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 To Opening balance 4,00,000 By Bank (sold) 2,50,000 To Capital reverse A/C 50,000 By Closing bal. 2,00,000 4,50,000 4,50,000 Building Account To Opening balance 3,45,000 To 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. 9,00,000 To 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) 40,000 To 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. Adjusted Profit & Loss Account To Depreciation 1,50,000 By Opening bal. 4,00,000 To Loss on sale of plant 10,000 To Preference share 80,000 By Stock (difference amt 27,111 dividend in opening stock) To Red. Preference 20,000 By Adjusted Profit 8,32,889 Premium To Provision for general 2,00,000 reserve To Balance c/f. 5,00,000 12,60,000 12,60,000 Fund Flow Statement Sources of Funds Application of Funds Equity shares 3,00,000 Purchase of Building 1,35,000 Preference shares 2,00,000 Equity share dividend 3,00,000 Plant sale 40,000 Preference dividend 80,000 Land sale 2,50,000 Paid to preference 10,50,000 share cap. Decrease in working 3,52,111 Plant purchase 4,00,000 capital 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: Creditors (a) A statement showing changes in working capital (b) A statement of source and application of funds. Bills payable Liabilities 31 3 10 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 31 3 11 41,135 12,645 50,000 55,000 36,220 2,60,000 4,55,000 Assets 31 3 10 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 31 3 11 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 35,000 and 39,000 respectively. 2. The assets of another company were purchased for 60,000 payable in fully paid equity shares of the company. The assets consisted of stock 21,640, plant 18,360 and remaining amount was for goodwill. 3. During the year the purchase price is 5,650 for a plant. Solution 5 STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2010 2011 INCCREASE DECREASE Current Assets Stock 1,11,040 97,370 Less: Asset Purchase 21,640 Correct Stock 1,11,040 75,730 35,310 Cash at bank 2520 4820 2300

Sundry Advances 2315 735 1580 Debtors 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 1615 B.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.) 20,760 To Machinery(business) 18,360 To 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 40,000 To Balance c/f 50,000 By Profit &loss 45,000 (provision) 85,000 85,000

Particular Equity share Capital Account Particular By Balance b/d. 2,00,000 By Machinery 18,300 By Stock 21,640 By 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. 39,690 To Goodwill written off 1,000 To Prov. for taxation 45,000 By Adjusted profit 1,11,540 TO Interim Dividend 39,000 To Dep. Land building 4,250 To Dep. Machinery 20,760 To Balance c/f 36,220 1,51,230 1,51,230 Sources of Funds Fund Flow Statement Application of Funds Purchase of machinery 5,650 Tax paid 35,000 Interim Dividend 39,000 31,890 capital Adjusted Profit 1,11,540 Increase in working 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 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 2012 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 Assets 2011 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 During the year 1985 the company: 1. Sold the machines for 25,000 the cost of which was 50,000 and the depreciation provided on it was 21,000. 2. Provided 95,000 as depreciation. 3. Redeemed 30% of debentures at 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 54,000. The stock on 31 12 12 was correctly valued at cost 75,000. 6. Write off fixed assets costing 14,000 which is fully depreciated. 2012 9,50,000 2,90,000 6,60,000 80,000 3,30,000 10,000 10,80,000

Solution 6 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2011 2012 INCCREASE DECREASE Current Assets 2,86,000 3,30,000 44,000 Current Liabilities Total(A) 2,86,000 3,30,000 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 Fixed Assets Account Particular 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

Adjusted Profit &Loss Account 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 Sources of Funds Application of Funds 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 31 st 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. Authorised Capital: 15,000 shares of 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 Particulars 31 3 02 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 31 3 03 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 10, 00,000) On machinery and plant @ 8% p.a. (cost 4, 00, 000) On furniture @ 5% p.a. (cost 10,000) No depreciation has been written off on newly acquired buildings and plant and machinery. 2. Shares in other companies were purchased for 1,60,000 cash and dividends amounting to 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 31 st march, 2003 was duly paid and in addition, an interim dividend of 52,000 was paid. Solution 7 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2002 2003 INCCREASE DECREASE 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 Current Liabilities Total(A) 3,83260 3,56,280 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 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 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 To Balance b/d. 6000 By Dep.(P &L Adj) 500 By Balance c/f 5500 6000 6000 Adjusted Profit &Loss Account 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 Sources of Funds Fund Flow Statement Application of Funds 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 Decrease in working capital Adjusted profit 1,85,500 1,21,500 Purchase of shares 1,60,000 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 31 st December, 2007. Prepare a fund flow Statement. During the year 2007 equipment whose book value was 15000 was sold for 6000 and it had an accumulated depreciation of 8000. Balance Sheets Capital Liabilities 2006 2,50,000 2007 4,60,000 Assets 2006 Building & Equip. 4,20,000 2007 4,80,000 Retained Earnings 2,31,000 2,11,000 Less: Depreciation 1,05,000 1,20,000 Debentures 2,20,000 60,000 3,15,000 3,60,000

Prov. for income tax 86,000 12,000 Land 60,000 60,000 Prov. for Social 3,000 5,000 Patents 55,000 65,000 Security tax Cash 74,000 37,000 Accounts payable 58,000 94,000 Inventories 3,12,000 2,77,000 Bills payable 28,000 8,000 A/c's Receivables 54,000 47,000 Pre paid Expenses 6,000 4,000 8,76,000 8,50,000 Income Statement (for the year ended 31 12 2007) 8,76,000 8,50,000 Particulars Net Sales Less: Cost of goods sold Gross Profit Less: Operating Expenses (includes depreciation on buildings and equipment of 23000 and patent amortization of 6000) Net Loss form operation Less: other revenue Net Loss: Add: Retained earnings () 19,70,000 14,80,000 4,90,000 5,00,000 (10,000) 7,000 (3,000) 2,31,000 Less: Dividend Paid 16,000 Loss on sale of asset 1,000 Retained earnings (31 12 2007) 2,28,000 17,000 2,11,000

Solution 8 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2006 2007 INCCREASE DECREASE 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 Current Liabilities Total(A) 4,46,000 3,65,000 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 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 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 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 Adjusted Profit &Loss Account Particular 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

Sources of Funds Fund Flow Statement Application of Funds 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 Decrease in working capital 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 Eq. Share capital of 10 1,00,000 General reserve 60,000 P & L A/c 10,000 10% Debenture Creditors 25,000 Bills Payable 20,000 Provision of taxes 15,000 2006 1,50,000 Goodwill 20,000 Building 12,000 Machinery 50,000 Investment 31,000 Stock 20,000 Debtors 17,000 Bank balance Preliminary expenses Assets 2005 30,000 60,000 40,000 15,000 16,000 49,000 12,000 8,000 2006 28,000 1,00,000 95,000 12,000 25,000 21,000 13,000 6,000 2,30,000 3,00,000 2,30,000 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 14,000 and interim dividend of 8,000 was also paid. 3. Depreciation charged on building is 6,000 and on machinery is 4,000. 4. A machine having cost value of 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 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 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2005 2006 INCCREASE DECREASE Stock (16000+4000) 20,000 25,000 5000 Debtors 49000 21000 28000 Cash & Bank 12000 13000 1000 Current Liabilities Total(A) 81000 59000 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 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 Particular Machinery Account Particular 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 Particular Investment Account To Balance b/d. 15000 Particular To Bank (purchase) 2000 By Bank (sales) (5000+1000) 6000 To Profit & loss (Profit) 1000 By Balance c/f 12000 Particular 18,000 18,000 Provision for Taxes Account Particular 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

General Reserve Account 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 Adjusted Profit &Loss Account Particular To Depreciation By Balance b/d 10,000 Building 6000 By Stock 4000 Machinery 4000 By Investment(profit) 1000 10,000 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 Application of Funds 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 2006 07 Assets 2005 06 2006 07 Eq. Share capital 3,00,000 5,40,000 Goodwill 40,000 30,000 Pref. Sh. Capital 10 each 50,000 Fixed assets 8,15,000 9,02,000 Capital reserve 2,000 5,000 Investments 1,55,000 1,60,000 General reserve 3,80,000 2,40,000 Stock 45,000 60,000 P & L A/c 30,000 45,000 Debtors 37,000 42,000 13.5% Deb. of 100 each 1,50,000 1,00,000 Bills Rec. 46,000 38,000 Proposed dividend 45,000 64,800 Cash & Bank 12,000 29,000 Provision for income tax Depreciation fund Creditors 40,000 90,500 40,000 65,000 1,19,000 46,000 Preliminary expenses 9,000 Outstanding Expenses 8,000 11,000 Bills Payable 14,500 34,200 11,50,000 12,70,000 11,50,000 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 37,000 for the year ending 31 3 2006 and also paid proposed dividend for the year 2005 06

4. Investment is sold 7000 with profit and profit is transferred to capital reserve account. 5. Real valued of machinery is 20000 and accumulated depreciation is 7500 on machinery, which is sold at 15,000. 6. 1/3 Debentures out of total debentures are redeemed at 104. 7. Expenses for issuing Right shares is to be written off in nine equal instalments from 2006 07. Solution 10 Current Assets STATEMENT OF CHANGIES IN WORKING CAPITAL PARTICULAR 2005 06 2006 07 INCCREASE DECREASE Stock 45000 60000 15000 Bills Receivable 46000 38000 8000 Debtors 37000 42000 5000 Cash & Bank 12000 29000 17000 Current Liabilities Total(A) 1,40,000 1,69,000 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 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 Equity Share Capital Account 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 General Reserve Account 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 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

Particular Investment Account Particular 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 Fixed Assets Account 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 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 = 500 Debentures. Redeemable : 500 * 104 = 52,000 Premium = 52000 50000 = 2000

Particular Adjusted Profit &Loss Account Particular To General Reserve 10,000 By Balance b/d 30,000 To Provision of tax 62,000 By Profit due to sale of machinery To Depreciation fund To Debenture Red. Premium 36,000 To Goodwill written off 10,000 To Proposed Dividend 64,800 To Balance c/d 45,000 2,500 2,000 By Adjusted Profit 1,97,300 2,29,800 2,29,800 Sources of Funds Equity Share (right share) Fund Flow Statement Application of Funds 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