Ms4 Assignment 2013

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1.Fairdeals Ltd. presents the balance sheets as at 31.12.2009 and 31.12.2010 as follows:

31.12.0931.12.10
AssetsRs.Rs.
Fixed Assets at cost 31,30,00036,05,000
Less: Depreciation 6,80.000 8,20,000
24,50,00027,85,000
Investments12,50,00013,50,000
Marketable Securities 60,000 30,000
Inventories 4,10,000 5,20,000
Book Debts 5,30,000 5,05,000
Cash and Bank 1,20,000 1,40,000
Preliminary Expenses 1,00,000 50,000
49,20,000 53,80,000
Liabilities
Share Capital 20,00,00025,00,000
Reserve and Surplus 4,20,000 4,70,000
Profit and Loss Account 3,80,000 4,00,000
13.5% Debentures (Convertible)10,00,000 8,00,000
Mortgage Loan 3,00,000 2,50,000
Current Liabilities 8,20,000 9,60,000
49,20,00053,80,000

You are informed that during 2010
(i)Rs. 2,00,000 of debentures were converted into shares at par; (ii)Rs. 1,00,000 shares were issued to a vendor of fixed assets; (iii)A machine costing Rs. 50,000 book value Rs. 30,000 as at 31st December, 2009 was disposed off for Rs. 20,000; (iv)Rs. 30,000 of marketable securities (cost) was disposed off for Rs. 36,000. You are required to prepare a schedule of working capital changes and funds flow statement of the company for 2010.

Solution: (i) Schedule of changes in Working Capital for the year 2010

Particulars2009
Rs.2010
Rs.Net effect on working capital
Increase
Rs.Decrease
Rs.
Current Assets

Marketable Securities
Inventories
Book Debts
Cash & Bank
Total (A)

Current Liabilities

Total (B)

Working Capital (A-B)
Decrease in Working Capital

60,000
4,10,000
5,30,000
1,20,000

30,000
5,20,000
5,05,000
1,40,000

-
1,10,000
-
20,000

-

65,000

30,000
-
25,000
-

1,40,000

-
11,20,00011,95,000

8,20,000
9,60,000
8,20,0009,60,000

3,00,000
-
2,35,000
65,000
3,000003,00,0001,95,0001,95,000

Preparation of Non-Current Account
(a)Calculation of Purchased of Fixed Asset for cash:
Fixed Asset Account
Particulars

To Balance b/d
To share Capital Purchase
To Bank (Purchase) (Balancing Fig.)Rs.

31,30,000
1,20,000

4,05,000Particulars

By Accumulated Depreciation A/C
By Bank (Sale)
By Adjusted profit & loss A/C (loss on sale)
By Balance c/dRs.

20,000
20,000

10,000
36,05,000
36,55,00036,55,000

(b)Calculation of depreciation on Fixed Asset:
Accumulated Depreciation A/C
Particulars

To Fixed Assets a/c (Depreciation on machine sold)
To Balance c/dRs.

20,000
8,20,000Particulars

By balance b/d
By adjusted profit & Loss a/c (Current year’s depreciation) (Balancing Figure)Rs.

6,80,000

1,60,000
8,40,0008,40,000

Calculations of Funds from Operation
Adjusted profit and Loss A/C
Particulars

To Proposed Dividend
To Depreciation
To Preliminary expenses

To loss on sale of machine
To bonus share
To Balance c/d Rs.

4,00,000
1,60,000
50,000

10,000
2,00,000
4,70,000Particulars

By balance b/d
By premium on issues of shares
By funds from operations (Balancing Fig.)Rs.

4,20,000
20,000
8,50,000

12,90,00012,90,000

(ii)Funds Flow Statement for the Year 2010
Sources

Funds from operations
Sale of Machine

Decrease in Working CapitalRs.

8,50,000
20,000

65,000
Applications

Payment of Dividend
Purchase of fixed asset (for cash)
Purchase of trade investments
Repayment of Mortgage Loan
Rs.

3,80,000
4,05,000
1,00,000
50,000
9,35,0009,35,000
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