Page 91 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Solved Problems for Practice

1. Balance sheets of M/s Black and White as on 1-1-2006 and 31-12-2006 were as follows:
Balance Sheet

Liabilities 1-1-06 ` 31-12-06 ` Assets 1-1-06 ` 31-12-06 `
Creditors 40,000 44,000 Cash 10,000 7,000
Mrs.Whites’Loan 25,000 - Debtors 30,000 50,000
Loan from P.N.Bank 40,000 50,000 Stock 35,000 25,000
Captial 1,25,000 1,53,000 Machinery 80,000 55,000
Land 40,000 50,000
Building 35,000 60,000
2,30,000 2,47,000 2,30,000 2,47,000
Additional Information:
During the year, machine costing `10,000 (accumulated depreciation `3,000) was sold for
`5,000. The provision for depreciation against machinery as on 1-1-2006 was `25,000 and

on 31-12-2006 `40,000. Net profit for the year 2006 amounted to `45,000. You are required
to prepare funds fl ow statement.

The very first step is to prepare the statement of changes in working capital.
Changes in working capital between the various current assets and current liabilities are as
follows:
Current Assets:
Cash
Debtors

Stock
Current Liabilities:
Sundry creditors

Statement of changes in Working Capital
1-1-2006 ` 31-12-2006 ` Increase Decrease
in Working in Working
Capital Capital
Current Assets:
Cash 10,000 7,000 ----------- 3,000
Debtors 30,000 50,000 20,000 ----------
Stock 35,000 25,000 --------- 10,000
75,000 82,000
Current Liability:
Sundry creditors 40,000 44,000 ----------- 4,000
Working capital 35,000 38,000 20,000 17,000
Increase in working capital 3,000 3,000
38,000 38,000 20,000 20,000

The next step is to determine the cost of the machinery before the charge of depreciation
i.e. to find out the Gross value of the assets. In other, words, original cost of the assets to be

found out at the moment of purchase.

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