Page 151 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 7.5 Methods of Preparing Fund from Operations

Figure 7.1

Method of Fund from
Operations

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

The first method is widely used method by all in determining the volume of Fund from
Operations (FFO).

7.5.1 Net Profit Method

Under the Net Profit Method, fund flow from operations can be computed. Under this method,
fund from operations can be determined in two different ways:- The first method is through the
statement format.
Net Profit from the Profit & Loss A/c xxxxx

Add:
(A) Non-funding Expenses:
Loss on Sale of Fixed Assets xxxx
Loss on Sale of Long-term Investments xxxx
Loss on Redemption Debentures/Preference Shares xxxx
Discount on Debentures/Share xxxx
(B) Non-operating Expenses:
Depreciation of Fixed Assets xxxx
(C) Intangible Assets:
Amortization of Goodwill xxxx
Amortization of Patent xxxx
Amortization of Trade Mark xxxx

(D) Fictitious Assets:
Writing off Preliminary Expense xxxx
Writing off Discount on Shares/Debentures xxxx
(E) Profit Appropriation

Transfer to General Reserve xxxx
Less:
(F) Non-funding Profits:
Profit on Sale of Fixed Assets xxxx

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