February 2011 Bachelor of Computer Application (BCA) – Semester 3 BC0044 – Accounting and (Book ID: B0805) Assignment Set – 1 Financial

Management – 4 Credits

1. Journalise the following transactions: 01.01. 09 02.01. 09 03.01. 09 04.01. 09 05.01. 09 06.01. 09 07.01. 09 Bought goods for Rs. 10000 Purchased goods from X Rs. 20000 Bought goods from Y Rs. 30000 against a current dated cheque Purchased goods from Z [price list is Rs. 30000 and trade discount is 10%] Bought goods of the list price of Rs. 125000 from m less 20% trade discount and 2% cash discount. Paid 40% of the amount by cheque Returned 10% of the goods supplied by X Returned 10% of the goods supplied by Y

Ans. Journal Entries Date Particulars 01.01.09 Purchase A/c Dr. To Cash A/c 02.01.09 Purchase A/c Dr. To X A/c 03.01.09 Purchase A/c Dr. To Bank A/c 04.01.09 Purchase A/c Dr. To Z A/c To Discount Received A/c 05.01.09 Purchase A/c Dr. To Bank A/c To M A/c To Discount Received A/c 06.01.09 X A/c Dr. To Purchase Return A/c 07.01.09 Y A/c Dr. To Purchase Return A/c Debit 10000 20000 20000 30000 30000 30000 27000 3000 123000 39200 58800 25000 2000 20000 3000 3000 Credit 10000

1. Explain errors of omission and errors of commission. Ans. There are certain errors which will disturb the Trial Balance in the sense that the Trial Balance will not agree. These errors are easy to

then it is a case of a compensating error. the possibilities may be a casting error in any account. However. Y. These errors are very difficult to detect because you will not be aware of such errors. it will not be reflected in the ledger and subsequently. (b) An error affecting two or more accounts in such a way that a complete journal entry can be passed for its rectification. There are mainly two stages in the accounting process when errors can be detected: Stage 1: Before preparation of the Trial Balance. it becomes easy to rectify errors detected at this stage.000 and say. wages paid for installation of machinery is debited to Wages Account instead of Machinery Account. In other words. these errors get cancelled and hence will not affect the Trial Balance. in the Trial Balance. when you will be using software packages for accounting purposes. This is an error of omission. errors of omission. . If the amount received from Mr. An error committed because of lack of knowledge of the basic accounting principles is called an error of principle. if the effect of one error is set off by another error. there are certain errors which are not detected through a Trial Balance. a Trial Balance would agree in spite of these errors.detect and their rectification is also simple. If a transaction is not recorded in the journal. These errors are easy to detect and you can.. compensating errors. (a) An error affecting only one account or more than one account in such a way that no journal entry is possible for its rectification. Stage 1: Before preparation of the Trial Balance As the Trial Balance is not prepared it implies that the ledger balances are not drawn. the possibility of these types of errors and consequently. In the era of advanced information technology. within a short time. an error of commission has occurred. X is wrongly posted in the account of Mr. if the debit column total of the Trial Balance exceeds the credit column total. account is not closed. i. For example. errors of commission. the salary account is also undercast by the same amount. Finally. posting of a wrong amount and a balancing error. arrive at an agreed Trial Balance. The examples of such errors are errors of principle. For example. For example. etc.e. Stage 2: After the Trial Balance but before preparation of the final accounts. There can be two types of errors. So.10. if the Sales Account is undercast by Rs. a disagreed Trial Balance is nil. Rectification of Errors Rectification of errors depends on the stage at which the errors are detected.

) 900 Particular JF s Amount (Rs. Cash received from Ram posted to Shyam account Rs. Salary paid Rs.5. No journal entry is necessary.560) Amount (Rs.) Date Particular JF s Amount (Rs. Example 1. Mr.6505. 7.650 has been posted in the Return Inward Account as Rs. Goods returned by the customer Mr. we have to go to the relevant account(s) and put the figure on the right side of the account. Here. now rectified) 2.000 To Ram’s Account 7.650) JF Date Return Inward Account Dr. has been posted to Rent account The rectification entry will be: Salary Account Dr. Cr. now rectified) .In case of type (a) errors. Particulars JF To Rectification (5. 2.000 (Cash received from Ram wrongly Credited to Shyam.550 – 5.) 90 In case of type (b) errors rectifications will be done with the help of a journal entry. X A/c. Dat e Cr.560 and in Mr. X of R 5.000 (Salary paid wrongly debited to Rent Account.000 To Rent Account 6. please note that rectification entries are passed in the Journal Proper.) Particulars To Rectification (6. The rectification entry to be passed will be: Shyam’s Account Dr. Here both Ram’s and Shyam’s accounts are affected by an equal amount. as Rs.550.6.6. X’s Account Dr. Dat e Amount (Rs.

if an account is to be debited for rectification. these are to be rectified by passing journal entries and. The difficulty arises with type (a) errors of stage 1. The existence of the ‘Suspense Account’ in the Trial Balance implies that there exist type (a) errors.640 has been posted to the debit of Madhu’s Account. Thus. This is because type (a) errors do not have necessary information to complete a journal entry. In order to rectify the error both Jadu’s and Madhu’s accounts are to be credited. Dat Particular JF e s Amount (Rs. to rectify any error. all ledger balances are drawn. if you are in a hurry and your Trial Balance is not tallying. In that case. Such an artificial account is called the Suspense Account. Cr. to rectify the error we have to straightway open the ledger accounts: Jadu’s Account Dr. You may note here that type (a) errors are of such a nature that the Trial Balance will not agree if there exist such errors. The technique for passing journal entries in these cases is to put the .640 Stage: 2 After the trial but before the final accounts Once the Trial Balance is prepared. upon rectification of all such errors. Once type (a) errors are detected.) Date Particulars By Rectification Madhu’s Account Dr.3. Cash received from Jadu Rs. you can put the difference to an artificial account created temporarily and make the Trial Balance tally.) Amount (Rs. the Suspense Account will be automatically eliminated from the Trial Balance. the Trial Balance will not tally. This is possible only if the rectification is done with the help of journal entries.) 8. Amount (Rs. In other words. it should be done in such a way that the Trial Balance agrees. Otherwise. another account has to be credited by the same amount. Dat Particular JF e s Cr. a journal entry is not possible for rectification because the error is on the same side of both the accounts. The same journal entries are to be passed.640 Date Particulars JF By Rectification 8. So far as type (b) errors of stage 1 are concerned.8.) JF Amount (Rs. the process of rectifying the errors is exactly the same in stage 2 as well. Here although both Jadu’s and Madhu’s accounts are affected. So.

56.500 To Suspense Account 1.650 was debited in his account. The unknown side will be taken care of by the Suspense Account. his account should be credited by double the amount – one for setting off the error and the other for making the correct entry. 70700 3000 3000 102000 56000 45000 5000 4000 6000 7000 12000 10000 2000 8000 10000 1000 4000 .1. Thus. 1. The closing stock at the end of the period is Rs.300 2. But erroneously. i. To rectify the error. Here. prepare Trading Account. the rectification entry will be: Suspense Account Dr. the rectification entry will be: Purchases Account Dr. Purchase Account undercast by Rs.1. his account has been debited. Example 1.. purchases account. Thus. we need at least two accounts.500 Cash received from Ram Rs.300 To Ram’s Account 1. Ram’s account should have been credited. From the following balances extracted from Trial balance. But to complete the journal entry.Suspense Account to fill in the unknown side or the difference in amount.000 Particulars Stock on 1-1-2004 Returns inwards Returns outwards Purchases Debtors Creditors Carriage inwards Carriage outwards Import duty on materials received from abroad Clearing charges Rent of Business shop Royalty paid to extract materials Fire insurance on stock Wages paid to workers Office salaries Cash discount Gas.500 Here we have only one account.e. electricity and water Amount in Rs.

The firm’s investment rationale and financing decisions are continuous. 250000 Trading Account Amount Particulars (Rs. Electricity and Water To Import duty To Clearing charges To Royalty paid to extract materials To Gross Profit Amount (Rs. Pricing of goods is a very important function and is determined by the type of economy in which the firm is functioning. Profit Maximization: Profit maximization means increasing the rupee income of firms. Firms in a market economy can function the best only if they produce goods and services desired by the customers and prices are as .) 25000 0 3000 247000 56000 3. This may be done by market competitive forces if the economy is a market economy and by Government in a Government -controlled economy. It is generally agreed that the financial goal of the firm should be the maximization of the owners’ economic welfare. The owners’ economic welfare can be maximized by maximizing the shareholders’ wealth as reflected in the market value of shares. Why wealth maximization is superior to profit maximization? Ans.Sales Ans.) By Sales 70700 1020 00 3000 Less Return Inwards By Closing 99000 Stock 5000 8000 2000 4000 6000 7000 10000 91300 303000 303000 Particulars To Opening Stock To Purchases Less Returns Outwards To Carriage Inwards To Wages To Fire Insurance on stock To Gas. Profit maximization and wealth maximization are two important aspects.

This objective developed in the early 19th century when private property. the objectives of these two constituents – owners and managers may conflict with each other. Increasing the shareholders’ economic welfare is equal to increasing the utility of their consumption over time. profit maximization is regarded as unrealistic and difficult. An alternative to profit maximization is the objective of wealth maximization which is discussed below. Today’s corporates are financed by shareholders and lenders but are run by professional managers. businessmen pursuing their own self-interests also serve the interest of society. In investment and financing decisions the flow of cash is important and not the accounting profits. With the passage of time. businesses have had a complete change-over and now there is a divorce between ownership and management. Other Objectives Besides the above objectives. Ensuring financial discipline in the management. there are other objectives of financial management. It is generally held that under conditions of free competition. self-financing and single entrepreneurship were the order of the day.competitive as possible for the customers to have a wide choice of products available at very competitive prices. A financial action that creates wealth for shareholders is desirable. In reality. When individual firms pursue the interest of maximizing the profits. SWM is the maximization of the net present value or wealth of a course of action to shareholders. society’s resources are efficiently used. The benefits are measured in terms of cash flows. . The wealth created by the company is echoed in the market value of company’s shares which in other words is a reflection of the firm’s financial decisions. These include: • • Ensuring operational efficiency by efficient and effective utilization of finances and other resources. The profit maximization objective has been criticized in recent years. Shareholders’ Wealth Maximization (SWM) is an appropriate an operationally feasible criterion to choose among the alternative financial actions. In the present circumstances. Wealth Maximization: This is also known as value maximization and net present worth maximization.

Additional Bad Debts required Rs. 4000 2. To Sundry Debtors A/c Provision for Doubtful Debts A/c Dr. 10000 1800 3000 1000 Additional Information: 1. Maintain a provision for bad debts @10% on debtors 4.• Building reserves for growth and expansion. To Bad Debts A/c P & L A/c Dr. Ans. 205000 Cr. Journal entries as on 31 March 20X7 Particulars Bad Debts A/c Dr. 1000 3. Following are the extracts from the Trial Balance of a firm as on 31 March 20X7 Sundry Debtors Provision for Doubtful Debts Provision for Discount on Debtors Bad Debts Discount Dr. Maintain a provision for discount @ 2% on debtors Required: Pass the necessary journal entries and show the relevant accounts including final accounts. Additional Discount allowed to Debtors Rs. 4. To Provision for Doubtful debts A/c Provision for Discount A/c To Discount on Debtors A/c P & L A/c Dr. To Provision on Doubtful Debts A/c Debit 4000 7000 7000 17100 17100 1000 1000 2818 2818 Credit 4000 Provision for Doubtful Debts A/c Particulars To Bad Debts A/c To Bal c/d Amount 7000 20100 27100 Particulars By Bal b/d By P & L A/c Amount 10000 17100 27100 .

Provision for Discount on Debtors A/c Particulars To Discount on Debtors A/c To Bal c/d Amount 1000 3618 4618 Bad Debts A/c Particulars To Bal b/d To Sundry Debtors Amount 3000 4000 7000 7000 Particulars By Provision for Doubtful Debts A/c Amount 7000 Particulars By Bal b/d By P & L A/c Amount 1000 2828 4618 Calculation of Provision required Debtors as per Trial Balance 205000 Less Additional Bad Debts 4000 201000 10% on 201000 = 20100 Opening Balance in Provision Account 10000 Less Bad Debts w/o .7000 3000 Provision needed 201000 Therefore Provision required to be made 20100-3000 = 17100 Calculation of Provision of Discount Debtors as per Trial Balance 205000 Less Additional bad Debts 4000 201000 Less Additional Provision .20100 180900 2% of 180900 Profit and Loss Account = 3618 .

D.D.D -Reserve for Discount on Debtors Amount 205000 -4000 -20100 180900 -3618 177282 .D.Particulars To Bad Debts +New Bad Debts +New R .D Amount 3000 4000 20100 27100 -10000 17100 1000 3618 4618 1800 2818 Particulars Amount Discount as per Trial Balance +New Provision -Old Provision Balance Sheet Particulars Amount Particulars Current Assets Sundry Debtors -Bad Debts -R.D -Old R.

A firm is said to be over- . There is excess capital available in the company than the actual requirement.February 2011 Bachelor of Computer Application (BCA) – Semester 3 BC0044 – Accounting and (Book ID: B0805) Assignment Set – 2 Financial Management – 4 Credits 1. Over-capitalization Over-capitalization arises when the present capital of the company is not effectively or properly used. What is over capitalization? How do we know overcapitalization has occurred? Ans.

The money may be insufficient to meet its daily requirements and the company may resort to borrowings.33% and this is less than the fair rate return of the industry. Borrowing beyond a certain limit leads to over-capitalization Effects of over-capitalization • Fall in profits • Fall in dividend rates • Loss of investors’ confidence • Fall in market prices of shares. over-capitalization occurs. Excessive taxation by government leaves very little money with the company. Raising more capital than the required amount. How do we know over-capitalization has occurred? • • • • Actual capitalization of the company exceeds the capitalization warranted by the activity levels. There is a fall in the rate of dividends declaration. Fair rate of return is 1200000*12% which is Rs. Company borrows money at high rates of interest than the moneys could be put into profitable use. The company is said to be overcapitalized because the earning of the company is (100000/1200000)*100 which is 8. if the company’s rate of return is 12% and it earns a profit of Rs. . A company postponing plant repairs and maintenance will find itself over-capitalized as the efficiency of the plant stands reduced. 1200000. 100000 on an investment of Rs. Acquiring unproductive assets.capitalized when its earnings are not sufficient to pay dividends to the investors. 144000. mostly intangible in nature like goodwill. There is a fall in the market value or the market price of the shares of the company. Once the boom time subsides. Causes of over-capitalization: • • • • • • • • If a company acquires assets at inflated prices than the book values. it will find the capital over capitalized. High initial costs by way of preliminary expenses. The company is earning less than the fair return in the industry. Earnings are lower than the expected returns. etc. patents. we get the fair rate of return to be less than the profits earned. For example. A company being set up in boom time pays more on acquisition of assets.

work-in-progress. Explain permanent and temporary working capital. It is an effort to try to maintain a healthy relationship between these two so that a satisfactory level of working capital is maintained.2. Working capital management involves managing the different components of current assets and current liabilities. The interface between CA and CL is therefore very important and forms the main subject under working capital management. Ans. stores and book debts to facilitate uninterrupted operations in a firm. This minimum level is called the permanent or fixed working capital. otherwise there are chances of the firm becoming insolvent and going bankrupt. It is very important for a firm to maintain a satisfactory level of working capital. It is permanent like the firm’s fixed assets are. This is referred to as the variable or fluctuating or temporary working capital. Over and above this. the firm’s working capital requirements fluctuate depending upon the cyclicality and seasonality of product demands. These two aspects can be graphically shown as follows: . Permanent and Temporary Working Capital: Permanent working capital is the minimum investment in the form of inventory of raw materials. finished goods.

nevertheless. The optimum level of inventory is referred to as the Economic Order Quantity. It is that level one unit beyond which is additional cost to the firm and one unit below may hamper production process. Constant ordering costs: Ordering costs are assumed to be constant whatever the number of orders are and whatever the size is. Economic Order Quantity (EOQ) EOQ refers to the optimal order size that will result in the lowest ordering and carrying costs for an item of inventory based on its expected usage. EOQ is defined as that level of inventory order that minimizes the total cost associated with the inventory management. how many orders should be placed to get the raw materials or should the entire requirement be procured once or in installments and if installments. . Firms derive economies of scale by increasing order size. the EOQ model assumes the carrying costs to be constant. What are the assumptions of EOQ Model? Ans. The model is based on the following assumptions. Constant unit price: The EOQ model is based on the assumption that the per unit price of material does not change and is constant irrespective of the order size. how many of them – these are sought to be explained by the EOQ model. Answers to questions such as: What should be the quantity ordered for each replenishment of stock.3A. it is the most widely used technique in inventory control. Constant carrying costs: Unit carrying costs are known to vary substantially as the size of inventory increases or decreases. However. Constant or uniform demand: The firm knows with certainty the annual consumption of a particular item of inventory. It is the economic lot size.

EOQ = sqrt2 x A x S/C A = Annual Usage S = Ordering Cost C = Cost of carrying inventory per unit per annum Annual Usage = 10000 units Cost per order = Rs. 20 Carrying cost= 25% Ans. 150 Purchase price per unit= Rs. The firm should keep sufficient cash at all times. Consider the following data of X Ltd.20 EOQ = sqrt2 x 10000 x 150/5 EOQ = sqrt2 x 1500000/5 EOQ = sqrt2 x 300000 EOQ = sqrt600000 EOQ = 774.59 Note: (C = 20 x 25% = 5) 4. Calculate EOQ Annual Usage = 10000 units Fixed cost per order= Rs.B. Excessive cash will not contribute to the firm’s profits and shortage of cash will disrupt its manufacturing operations. Cash Management Cash is the most important current asset for a business operation.150 Carrying Cost = 25% Purchase price per unit = Rs. It is the force that drives business activities and also the ultimate output expected by the owners. Explain the objectives of cash management Ans. The term .

competition. availability of cash at low rates of interests and investment opportunities available. Cash budgets can be prepared to aid this activity Managing cash flows: The flow of cash should be properly managed. These can be broadly summarized as: Cash planning: Cash flows should be appropriately planned to avoid excessive or shortage of cash. collection program. infrastructure bills. The firm should therefore evolve strategies to manage cash in the best possible way. There is always an element of uncertainty about the inflows and outflows. Generally. drafts and demand deposits in banks. T-Bills. it does not earn any revenue. etc. Many investment avenues to invest surplus cash are available in the market such as. Both these do not happen . (b) cash management within the firm and (c) management of cash balances held by the firm – deficit financing or investing surplus cash. inter corporate lending etc. It will also receive cash through sales of its products and collection of receivables.‘cash’ can be used in two senses – in a narrow sense it means the currency and other cash equivalents such as cheques. The ideal cash management system will depend on a number of issues like. In a broader sense. Investing surplus cash: The surplus cash should be properly invested to earn profits. bank short term deposits. Cash management is concerned with (a) management of cash flows into and out of the firm. payment of outstandings and arranging for deficit funding or surplus investment. a firm will have to make many payments by cash to its employees. At some points of time. Cash in its own form is an idle asset. It is very difficult to predict cash flows accurately. it includes near-cash assets like marketable securities and time deposits in banks. Cash management tries to accomplish at a minimum cost the various tasks of cash collection. Meeting payments schedule: In the normal course of functioning. there is no correlation between inflows and outflows. firm’s product. cash inflows may be lower than outflows because of the seasonal nature of product sale thus prompting the firm to resort to borrowings and sometimes outflows may be lesser than inflows resulting in surplus cash. Steps to speed up cash collection and inflows should be implemented while cash outflows should be slowed down. The distinguishing nature of this kind of asset is that they can be converted into cash very quickly. Unless employed in some form or another. delay in payments. Optimum cash level: The firm should decide on the appropriate level of cash balance. suppliers. Motives of Holding Cash Objectives of Cash Management: This can be studied under two heads: (a) meeting payments schedule and (b) minimize funds committed to cash balances. Balance should be struck between excess cash and cash deficient stage.

5. Trade credit does not involve explicit interest charges. Timely payments will help the firm to maintain its creditworthiness in the market and to foster good and cordial relationships with creditors and suppliers. net 30. Seasonal industries are classic examples of mismatches between inflows and outflows. but there is an implicit cost involved. Minimize funds committed to cash balances: Trying to achieve the second objective is very difficult. cash is not paid immediately for purchases but after an agreed period of time. A high level of cash balances will help the firm to meet its first objective discussed above. If the credit terms are. Since the net amount is due within 30 days. but keeping excess reserves is also not desirable as funds in its original form is idle cash and a non-earning asset. The other advantage of meeting the payments in time is that it prevents bankruptcy that arises out of the firm’s inability to honour its commitments. At the same time. Creditors give a cash discount if payments are made in time and the firm can avail this discount as well. 2/10. care should be taken not to keep large cash reserves as it involves high cost. There is deferral of payment and is a source of finance. A low level of cash balances may mean failure to meet the payment schedule. The aim of cash management is therefore to have an optimal level of cash by bringing about a proper synchronization of inflows and outflows and check the spells of cash deficits and cash surpluses. It is not profitable for firms to keep huge balances. The income statement of Vignesh Ltd is as follows: To Opening Stock Purchases Direct Expenses Gross Profit To Admn Expenses Selling Expenses Non-Operating exp Net Profit 200000 By Sales 800000 Closing Stock 100000 200000 1300000 100000 By Gross Profit Profit on sale 80000 of investments Dividends 40000 received 80000 1200000 100000 1300000 200000 60000 40000 . Generally.simultaneously. Trade credit refers to the credit extended by the supplier of goods and services in the normal course of business transactions. A basic objective of cash management is therefore to meet the payment schedule in time. say. it means the company will get a cash discount of 2% for prompt payment made within 10 days or else the entire payment is to be made within 30 days. not availing discount means paying an extra 2% for 20-day period.

(60000 + 40000) = 120000 .100000 = 1000000 = Administrative expenses + Financial expenses 100000 + 80000 180000 (1000000 + 180000)/1200000 1180000/1200000 x 100 98. Explain the steps involved in Funds Flow Statement. Ans.00 % 6.67% 300000 (Cost of Goods sold + Operating Expenses)/Net = Opening stock + Purchases + Direct Stock 200000 + 800000 + 100000 . Operating Profit Ratio and Expense Ratio.00. Net Profit Ratio.000/ 12.000 x 100 15. Operating Ratio.67% Net Profit Ratio = = = Operating Ratio = Sales Cost of Goods sold Expenses – Closing = Operating Expenses Expens4es + Selling = = = = = (Net Profit/Net Sales) x 100 (80000/1200000) x 100 6.80.3000000 Calculate the Gross Profit Ratio.67% Expense Ratio Expense Ratio = = = Operating Expenses/Net Sales x 100 1. Gross Profit Ratio = (Gross Profit/Net Sales) x 100 = (200000/1200000) x 100 = 16. .100000 = 200000 Operating Profit Ratio = (200000/1200000) x 100 = 1.33% Operating Ratio Operating Profit Ratio = (Operating Net Profit/Net Sales) x 100 Operating Net Profit = Net Profit + Non-Operating Expenses – Non-Operating Incomes = 80000 + 40000 .

. Different Names of Fund-flow Statement A Funds Statement A statement of sources and uses of fund A statement of sources and application of fund Where got and where gone statement Inflow and outflow of fund statement Objectives of Fund Flow Statement The main purposes of Fund Flow Statement are: 1. The flow of fund will occur in a business. the Fund Flow Statement describes the sources from which additional funds were derived and the uses to which these funds were put.Ans. (b) Total current assets. 3. To inform as to how the loans to the business have been used. increase or decrease in the amount of fund. To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statement.e. For the purpose of fund flow statement the term fund means net working capital. According to Robert Anthony. Format of Fund Flow Statement Sources Fund from operation Non-trading incomes Issue of shares preference share Issue of debentures Borrowing of loans Acceptance of deposits Sale of fixed assets Sale of investments (Long Term) Decrease in working capital Applications -Fund lost in operations -Non-operating expenses -Redemption of redeemable -Redemption of debentures -Repayment of loans -Repayment of deposits -Purchase of fixed assets -Purchase of long term instruments -Increase in working capital Steps in Preparation of Fund Flow Statement . Meaning of Fund Flow Statement Fund may be interpreted in various ways as (a) Cash. (c) Net working capital. To point out the financial strengths and weaknesses of the business. (d) Net current assets. when a transaction results in a change i. 2.

1. Format of Adjusted Profit and Loss Account . 4.Preparation of the fund flow statement. 2.Preparation of schedule changes in working capital (taking current items only). Format of Schedule of Changes in Working Capital Particulars Previous Year Current Year Increase in W/c Decrease in W/c Current Assets Cash in hand Cash at bank Bills Receivable Debtors Inventory Prepaid expenses Short-term investment (A)Total Current Liability Bills payable Creditors Outstanding expenses Accrued Expenses Income received in advance Bank overdraft Cash credit from banks Short-term loan Short-term deposit Provision for taxation Proposed dividend Provision against current assets (B)Total Working Capital © (C=A-B) Increase in W/C Decrease in W/C Fund from operation can be ascertained by preparing adjusted profit and loss account. 3. It may be prepared in statement form or account form.Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations).Preparation of accounts for non-current items (Ascertain the hidden information).

we have to prepare accounts for all non-current items of assets and liabilities (whether adjustment is given or not) then only easier to find the inflow and outflow of funds. B/d(P&L account Cr.) To Non-operating expenses To Depreciation on fixed assets investment To Goodwill written-off To Patent & trademark off To Preliminary expenditure By Bal. . B/d (P&L Account Dr. By Non-operating incomes By Profit on sale of By Profit on sale of Fixed asset By Dividend on investment By Interest on investment To Discount on issue of shares and By Rent received. gift received debentures To Loss on sale of investment By Damages received under law To Loss on sale of fixed assets By Transfer from general reserve To Damages paid under law To Premium on redemption of profit share and debentures To Interim dividend To Dividend declared (A)Total To ascertain the hidden information. Bal.) Bal.To Bal.

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