Page 222 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 12: Fund Flow Analysis

Additional Information: Notes

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 flow statement. (M.Com MKU, April 1980).

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 in Decrease in
Working capital Working capital
Current Asset:
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.
1-1-2006 31-12-2006
Written down value of the machinery extracted from the ` 80,000 ` 55,000
balance sheet as on dated
Add: Accumulated depreciation or
Provision for depreciation 25,000 40,000
Original Cost of Machinery 1,05,000 95,000

The ultimate aim is to find out the original cost of the machinery for the preparation of the
machinery account.
Before preparing the Machinery account, the worth of the sale transaction of the machinery
should be found out.

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