Fund flow statement practical problems and solutions
Question 1
Prepare fund flow statement from the following:
1. Increase in working capital: $4,000
2. Net profit $10,750 before written off goodwill
3. Depreciation on fixed assets: $1,750
4. Dividend paid: $3,500
5. Goodwill written off $5,000 out of profits
6. $5,000 share capital was issued for cash
7. Machinery purchased for $10,000
Solution
Fund from operations:
| Net Profit before writing off goodwill | $10,750 |
| Add: Depreciation | 1,750 |
| 12,500 |
Fund Flow Statement
| Sources of Funds | $ | Application of Funds | $ |
| Income from operations | 12,500 | Payment of Dividend | 3,500 |
| Issue of share capital | 5,000 | Purchase of machinery | 10,000 |
| Increase in working capital | 4,000 | ||
| 17,500 | 17,500 |
Problem 2
Prepare the fund flow statement from the below-given balance sheet of John Trading Co. for the year 2018-19.
Balance sheet of John Trading Co.
For the year 2018-19
| 2018 | 2019 | 2018 | 2019 | ||
| $ | $ | $ | $ | ||
| Share Capital | 5,00,000 | 6,50,000 | Goodwill | 20,000 | 15,000 |
| Share premium | 50,000 | – | Investments | 1,50,000 | 2,00,000 |
| P & L A/C | – | 25,000 | Fixed Assets | 5,50,000 | 5,50,000 |
| Debentures | 2,00,000 | – | Debtors | 60,000 | 40,000 |
| Bank overdraft | 80,000 | 1,00,000 | Stock | 1,20,000 | 80,000 |
| Creditors | 60,000 | 75,000 | Cash | 12,000 | 5,000 |
| Proposed dividend | 10,000 | 15,000 | Prepaid | – | – |
| Provision of tax | 20,000 | 25,000 | Expenses | 8,000 | – |
| 9,20,000 | 8,90,000 | 9,20,000 | 8,90,000 |
Adjustments: Net profit before tax and dividend $63,000, provision of tax during the year $23,000. Actual tax paid $18,000, Provision of dividend $15,000.
Depreciation charged: $80,000
Bonus shares $50,000 out of share premium
Solution
Income from operations
| $ | ||
| Net Proft | 63,000 | |
| Less: Income tax dividend provision | 23,000 + 15,000 | 38,000 |
| Add: Depreciation (Fixed Assets) | 80,000 | 25,000 |
| Goodwill written off 5,000 | 5,000 | 85,000 |
| Proposed tax 23,000 + Proposed dws 15,000 | 38,000 | |
| 1,48,000 |
Change in Working Capital
| Current Assets (Dr.) | $ Increase |
$ Decrease |
| Drs. | 20,000 | |
| Stock | 40,000 | |
| Cash | 7,000 | |
| Prepaid expenses | 8,000 | |
| Current Liabilities | ||
| Bank overdraft | 20,000 | |
| Crs. | 15,000 | |
| Decrease in working capital | 1,10,000 |
Proposed dividend
| $ | $ | ||
| To bank | 10,000 | By b/d | 10,000 |
| To c/d | 15,000 | By P&L | 15,000 |
| 25,000 | 25,000 |
Proposed income tax
| $ | $ | ||
| To balance c/d | 25,000 | By balance b/d | 20,000 |
| To bank | 18,000 | By P&L | 23,000 |
| 43,000 |
Fixed Assets
| $ | $ | ||
| To b/d | 5,50,000 | By Depreciation | 80,000 |
| To Bank | 80,000 | By Balance c/d | 5,50,000 |
| 6,30,000 | 6,30,000 |
Fund flow statement
| Sources of funds | $ | Application of funds | $ |
| Share capital (50,000 Bonus share out of premium) | 1,00,000 | Deb. redemption | 2,00,000 |
| Income from operations | 1,48,000 | Tax Paid | 18,000 |
| Decrease in Working Capital | 1,10,000 | Dividend Paid | 10,000 |
| Investment purchased | 50,000 | ||
| Fixed Assets purchased | 80,000 | ||
| 3,58,000 | 3,58,000 |
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