Page 83 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes
Preliminary expenses 20,000 15,000
12,20,000 13,35,000 12,20,000 13,35,000
Solution: Schedule of Changes in Working Capital
2005 2006 Increase in Working Decrease in
Capital Working Capital
Current Assets:
Stock 2,40,000 3,70,000 1,30,000 —
Book debts 2,50,000 2,30,000 — 20,000
Cash in hand 80,000 60,000 — 20,000
5,70,000 6,60,000 1,30,000 40,000
Current Liabilities:
Creditors for goods 1,70,000 1,60,000 10,000 —
Working capital 4,00,000 5,00,000 1,40,000 40,000
Increase in working capital 1,00,000 — — 1,00,000
5,00,000 5,00,000 1,40,000 1,40,000

Self Assessment

State whether the following statements are true or false:
3. Normally, working capital means current assets.
4. Increase in current assets means increase in working capital.

5. Purchase of plant and machinery ` 10 lakh through the issue of 1 Lakh shares at ` 10 per
share; affect the non-current asset and current liabilities accounts.
6. XYZ Ltd. has made a credit purchase of ` 1 lakh worth of goods led to ` 1 lakh worth
of additional stock of tradable goods for the enterprise, leads to increase in the working
capital.

5.3 Preparing Funds from Operations

The following are the key methods of preparing fund from operations:

Net Profi t Method
Sales Method
Figure 5.1 Methods of Funds from Operations

Method of Fund from
Operations

Net Profit Method Sales Method
Add: Non-operating Expenses Less: Payments (Application)
Less: Non-operating Incomes

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