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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