Indicate the correct code as regards the sources of funds for a Funds Flow Statement from the following : (a) Increase in working capital (b) Decrease in working capital (c) Writing off the intangible/fictitious assets (d) Issuing equity shares for acquisition of a building for office (e) Charging depreciation on fixed assets Codes :
(b), (c), (e)
A Funds Flow Statement explains changes in working capital (current assets minus current liabilities) between two balance sheet dates. A source increases working capital; an application uses it.
(a) Increase in working capital is not a source. It means funds have been locked up in net current assets, so it appears as an application (balancing figure on the application side).
(b) Decrease in working capital is a source. Funds released from net current assets are available to finance other uses, so it appears on the sources side.
(c) Writing off intangible or fictitious assets (goodwill, preliminary expenses, discount on issue) is a non-fund charge. It reduces book profit without any outflow, so it is added back while computing funds from operations, and is therefore treated as a source item.
(d) Issuing equity shares to acquire an office building is a non-fund transaction: both items are non-current, working capital is unaffected, and it does not appear in the statement.
(e) Depreciation on fixed assets is likewise a non-fund charge added back to profit to arrive at funds from operations, so it is treated as a source item.
Hence, (b), (c), (e).
Similar Questions
Study the following transactions :
(a) Raising of short term loans
(b) Goods purchased for cash
(c) Payment of bonus in the form of shares
(d) Issue of shares in lieu of raw materials
Flow of funds is :
Important Questions from Fund Flow Analysis
Study the following transactions :
(a) Raising of short term loans
(b) Goods purchased for cash
(c) Payment of bonus in the form of shares
(d) Issue of shares in lieu of raw materials
Flow of funds is :
