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 :
Only (d)
Under the working capital concept, funds flow only when a transaction involves one current account and one non-current account; transactions between two current accounts or two non-current accounts cause no flow.
(a) Raising short-term loans: cash (current asset) rises and short-term loan (current liability) rises – both current, no flow. (b) Goods purchased for cash: stock rises and cash falls – both current assets, no flow.
(c) Bonus shares: reserves are capitalised into share capital – both non-current, no flow.
(d) Issue of shares in lieu of raw materials: share capital (non-current) rises and stock of raw materials (current asset) rises – working capital increases, so there is a flow of funds.
Thus only transaction (d) results in a flow of funds.
Hence, the answer is Only (d).
Similar Questions
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 :
Important Questions from Fund Flow Analysis
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 :
