Page 215 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Solution:

Schedule of Changes in Working Capital
2004 2005 Increase in Decrease in
Working Capital Working Capital
Current Asset:
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.

12.3 Preparing Funds from Operations

The following are the key methods of preparing fund from operations:
Net Profi t Method

Sales Method
Figure 12.1 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

!
Caution The first method is widely used method by all in determining the volume of

Fund from Operations (FFO).

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