Q5Managerial Economics & Financial Accounting
Question
From the following balance sheet of Brown and co. Ltd. as on 31st Dec. 2020 and 31st Dec. 2021: | Liabilities | 2020 (Rs.) | 2021 (Rs.) | Asset | 2020 (Rs.) | 2021 (Rs.) | |---|---|---|---|---|---| | Share capital | 5,00,000 | 7,00,000 | Land & Building | 80,000 | 1,20,000 | | Profit & loss a/c | 1,00,000 | 1,60,000 | Plant & Machinery | 5,00,000 | 8,00,000 | | General Reserve | 50,000 | 70,000 | Stock | 1,00,000 | 75,000 | | Sundry creditors | 1,53,000 | 1,90,000 | Sundry Debtors | 1,50,000 | 1,60,000 | | Bills payable | 40,000 | 50,000 | Cash at Bank | 20,000 | 20,000 | | Expenses O/S | 7,000 | 5,000 | | | | | TOTAL | 8,50,000 | 11,75,000 | TOTAL | 8,50,000 | 11,75,000 | Additional Information: a) Rs. 50,000 depreciation has been charged on Plant and Machinery during 2021. b) A piece of Machinery was sold for Rs. 8,000 during the year 2021. It had cost Rs. 12,000; depreciation of Rs. 7,000 had been provided on it. Prepare a Schedule of changes in Working Capital and a Statement showing the Sources and Application of Funds for 2021. (3+3+2+2=10) (Show Adjusted Profit & Loss Account and Plant & Machinery Account in working notes.)
Answer
The Schedule of Changes in Working Capital shows a net decrease of Rs. 60,000. The Fund Flow Statement shows total sources and applications of Rs. 3,95,000.
Current Assets: - Stock: 1,00,000 75,000 (Decrease of 25,000) - Sundry Debtors: 1,50,000 1,60,000 (Increase of 10,000) - Cash at Bank: 20,000 20,000 (No change) Total Current Assets: 2,70,000 (2020), 2,55,000 (2021)
Current Liabilities: - Sundry Creditors: 1,53,000 1,90,000 (Increase in liability = Decrease in WC of 37,000) - Bills Payable: 40,000 50,000 (Decrease in WC of 10,000) - Expenses O/S: 7,000 5,000 (Increase in WC of 2,000) Total Current Liabilities: 2,00,000 (2020), 2,45,000 (2021)
Working Capital (CA - CL): - 2020 WC: - 2021 WC: Net Decrease in Working Capital = Rs. 60,000
Plant & Machinery A/c: - Dr: Opening Bal (5,00,000), Profit on Sale (3,000), Purchases (Balancing Figure: 3,55,000) - Cr: Depreciation (50,000), Sale Proceeds (8,000), Closing Bal (8,00,000) Adjusted P&L A/c: - Dr: Transfer to Gen Reserve (20,000), Depreciation (50,000), Closing Bal (1,60,000) - Cr: Opening Bal (1,00,000), Profit on sale of P&M (3,000), Funds from Operations (1,27,000)
Sources of Funds: - Funds from Operations: 1,27,000 - Issue of Share Capital (700k - 500k): 2,00,000 - Sale of Plant & Machinery: 8,000 - Decrease in Working Capital: 60,000 Total Sources: 3,95,000
Applications of Funds: - Purchase of Land & Building (120k - 80k): 40,000 - Purchase of Plant & Machinery (from ledger): 3,55,000 Total Applications: 3,95,000