Funds Flow Statement- Adjustments 2/2
Subject: Principles of Accounting
Overview
Share capital and debentures are the sources of funds in funds flow statement. The interim dividend is the dividend paid out by the company to its shareholders, before the determination of its current year profit. Investments can be either current assets or fixed assets. Investments are treated as fixed assets if they are on long-term run, such as trade investments.Funds Flow Statement- Adjustments 2/2
Adjustment related to provision for tax & dividend
Provision for tax is treated as below:
Dr. Provision for Taxation a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Cash/Bank (paid) To Balance c/d | xxx xxx | By Balance b/d By Adj. P/L a/c (provision-Dr.) | xxx xxx |
| xxx | xxx |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Provision for taxation | xxx | ||
| xxx |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Payment of tax | xxx | ||
| xxx |
Illustration:
| Liabilities | 2072 (in Rs.) | 2073 (in Rs.) |
| Provision for tax | 1,00,000 | 1,50,000 |
Required:
- Provision for taxation
- Adjusted Profit or Loss account
- Funds flow statement
Solution:
Dr. Provision for Taxation a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Cash (last yr tax paid) To Balance c/d | 1,00,000 1,50,000 | By Balance b/d By Adj. P/L a/c (this yr tax) | 1,00,000 1,50,000 |
| 2,50,000 | 2,50,000 |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Provision for taxation | 1,50,000 | ||
| 1,50,000 |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Payment of tax | 1,00,000 | ||
| 1,00,000 |
Note: Last year’s balance is assumed to be paid and current year’s balance is assumed to be provisioned.
Adjustment related to share capital & debentures
Share capital and debentures are the sources of funds in funds flow statement. Premium or discount on shares or debentures is calculated as below:
Dr. Preference shares/Debenture a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Cash (redemption) To Discount on redemption To Balance c/d | xxx xxx xxx | By Balance b/d By Premium on redemption By Cash (issue) | xxx xxx xxx |
| xxx | xxx |
Dr. Share capital a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Balance c/d | xxx | By Balance b/d By Stock dividend/Bonus share (if) By Cash (issue) | xxx xxx xxx |
| xxx | xxx |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Premium on redemption To Stock dividend/Bonus share (if) | xxx xxx | By Discount on redemption | xxx |
| xxx | xxx |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Issue of shares/debentures/capital | xxx | Redemption on shares/debentures | xxx |
| xxx | xxx |
Illustration:
| Liabilities | 2072 (in Rs.) | 2073 (in Rs.) |
| Equity share capital 12% preference share capital 7% debenture | 3,00,000 2,00,000 2,50,000 | 5,50,000 1,80,000 1,50,000 |
Required:
- Equity share capital a/c
- 12% preference share capital a/c
- 7% debenture a/c
Solution:
Dr. Equity share capital a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Balance c/d | 5,50,000 | By Balance b/d By Cash (issue)- bal. figure | 3,00,000 2,50,000 |
| 5,50,000 | 5,50,000 |
Dr. 12% Preference shares a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Cash (redemption) To Balance c/d | 20,000 1,80,000 | By Balance b/d | 2,00,000 |
| 2,00,000 | 2,00,000 |
Dr. 7% debentures a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Cash (redemption) To Balance c/d | 1,00,000 1,50,000 | By Balance b/d | 2,50,000 |
| 2,50,000 | 2,50,000 |
Adjustment related to interim dividend
Interim dividend is the dividend paid out by the company to its shareholders, before the determination of it’s current year profit. It is added back with profit for the year and goes to (+) in funds from operation and goes to (-) in funds flow statement because it is an application of funds.
| Funds from operation | xxx (Adj. P/L a/c – Dr. side) |
| Funds flow statement | xxx (Uses side) |
Adjustment related to Investment account (non-depreciable)
Investments can be either current assets or fixed assets. Investments are treated as fixed assets if they are on long term run, such as trade investments. On the other hand, if they represent surplus, temporarily invested in marketable securities, they are current assets.
Dr. Investment a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Balance b/d To Profit on sale To Cash & purchase | xxx xxx xxx | By Cash/Bank (sale) By Loss on sale By Balance c/d | xxx xxx xxx |
| xxx | Xxx |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Loss on sale | xxx | By Profit on sale | Xxx |
| xxx | Xxx |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Cash/Bank (sale) | xxx | Cash & purchase | Xxx |
| xxx | Xxx |
Illustration:
| Liabilities | 2072 (in Rs.) | 2073 (in Rs.) |
| Investment in shares | 1,00,000 | 2,50,000 |
Additional information:
- Investment costing Rs. 25,000 was sold for Rs. 15,000.
- The loss was charged to P/L a/c.
Required: Investment in shares a/c
Solution:
Dr. Investment in shares a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Balance b/d To Cash a/c – bal. figure | 1,00,000 1,75,000 | By Cash a/c (sale) By Loss on sale (P/L a/c) By Balance c/d | 15,000 10,000 2,50,000 |
| 2,75,000 | 2,75,000 |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Loss on sale | 10,000 | ||
| 10,000 |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Cash a/c (sale) | 15,000 | ||
| 15,000 |
Adjustments related to Retained earnings or Profit & Loss appropriation a/c
If not given any provision for dividend, the amount of dividend paid is found out by preparing profit & loss a/c like below:
Dr. Retained earnings a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Cash/Bank (dividend paid) To Balance c/d | xxx xxx | By Balance b/d By Net profit b/d (profit for the year) | xxx xxx |
| xxx | Xxx |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Net profit b/d (profit for the year) | xxx | ||
| xxx |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Cash/Bank (dividend paid) | xxx | ||
| xxx |
Illustration:
Find out the dividend paid.
| Liabilities | 2072 (in Rs.) | 2073 (in Rs.) |
| Profit & Loss a/c | 1,00,000 | 1,50,000 |
Additional information: Net profit for the year Rs. 1,20,000.
Solution:
Dr. Retained earnings a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Dividend paid (bal. figure) To Balance c/d | 70,000 1,50,000 | By Balance b/d By Net profit b/d (profit for the year) | 1,00,000 1,20,000 |
| 2,20,000 | 2,20,000 |
Dr. Adjusted P/L a/c Cr.
| Particulars | Rs. | Particulars | Rs. |
| To Net profit b/d (profit for the year) | 1,20,000 | ||
| 1,20,000 |
Funds Flow statement
| Sources of fund | Rs. | Uses of fund | Rs. |
| Cash/Bank (dividend paid) | 70,000 | ||
| 70,000 |
References:
Koirala, Madhav et.al., Principles of Accounting -XII, Buddha Prakashan, Kathmandu
Shrestha, Dasharatha et.al., Accountancy -XII, M.K. Prakashan, Kathmandu
Bajracharya, Puskar, Principle of Accounting-XII, Asia Publication Pvt. Ltd., Kathmandu
Things to remember
- Share capital and debentures are the sources of funds in funds flow statement.
- Investments are treated as fixed assets if they are on long term run, such as trade investments.
Funds Flow Statement: Adjustments
- Related to tax & dividend
- Related to share capital & debentures
- Related to interim dividend
- Related to investment accounts (non depreciable)
- Related to retained earnings & P/L appropriation account
- It includes every relationship which established among the people.
- There can be more than one community in a society. Community smaller than society.
- It is a network of social relationships which cannot see or touched.
- common interests and common objectives are not necessary for society.
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