sandhya (CA Final) (185 Points)
23 March 2011
Krish
(CA Final )
(3331 Points)
Replied 24 March 2011
I am not confirm about solution. Please do correct me, if i m wrong.
sandhya
(CA Final)
(185 Points)
Replied 24 March 2011
thank you.. i just made a silly mistake in the assets a/c - took 90000 instead of 210000.that was why i was getting a difference of 120000.
just a small change in ur answer - you also have to include unpaid dividend in the statement of changes in working capital in the current liabilities...thus there will be an increase in the working capital of Rs. 241500
see below for the fund flow statement:
sources:
Increase in share capital 200000
fund from operations 1244400
issue of debentures 150000
sale of fixed assets 75000
sale of investments 150000
income from investments 8100
financial resources provided (a) 1827500
application :
tax paid 15000
purchase of fixed assets 860000
purchase of investments 270000
interim dividend paid 225000
interest on debentures paid 36000
proposed dividend of previous year paid 180000
financial resources applied(b) 1586000
Increase in W.C (a-b) 241500
correct me if i am wrong..
Thanks a lot once a again!!
sandhya
(CA Final)
(185 Points)
Replied 24 March 2011
i have a doubt ..not related to this sum. If there is an decrease in misc expenditure you add back this to operational profit while finding funds from operations but what if it increases..do u show it as currents asset in changes of W.C statement??
Krish
(CA Final )
(3331 Points)
Replied 24 March 2011
Nice Question Sandhya..............If it increases, we should treat it under application of funds. See, we were doing wrong in underwriting commission (this is also a miscellaneous expenditure) we should treat it under Application of funds because this is an utilisation of funds and we are capitalsing the same instead of deducting it from P&L A/c. That's why we cannot add back while calculating the Fund from operation and also we cannot treat it as a Current Assets as we were doing earlier.
Now see the answer again, i have rectified the same.
Krish
(CA Final )
(3331 Points)
Replied 24 March 2011
| Originally posted by : sandhya | ||
 |
just a small change in ur answer - you also have to include unpaid dividend in the statement of changes in working capital in the current liabilities...thus there will be an increase in the working capital of Rs. 241500 |
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and i think unpaid dividend is a part of proposed dividend which is still pending to pay. And we have adjusted the same while calculating proposed dividend i.e. 170000 instead of 180000, so there is no need to adjust it again while calculating statement of changes in working capital.
Refer Illustration 9 of study material (Cost Accounting and Financial Management) page no. 3.89.
sandhya
(CA Final)
(185 Points)
Replied 27 March 2011
sorry for the late reply...
you are right - the underwriting comm needs to be treated as application of funds.
we also have made another mistake - bank overdrafts decreases ,so money have gone out and hence we need to treat it as application of funds.
Regarding the unpaid dividend i saw the module question - it is excluded from current liability shown in statement of changes in W.C and subtracted from dividend paid shown as application of funds. But i came across these 2 websites given below where the unpaid funds are treated as current liability...which method is correct? should we follow the module itself?
see pg 10 of the document -
https://www.docstoc.com/docs/20052416/Fund-Flow
scroll down to pg 9 of the document
https://www.scribd.com/doc/23960241/Fund-Flow-Statement-Skv
i have the following doubts - please carify if time permits
1. if reserves decreases do you treat it as application of funds?
2.if the rate on interest on debentures is mentioned in the b/s and regarding its payment it is not mentioned in the additionnal information can we assume it as paid by providing a note?
3.if bad debts are written off against the provision for doubtful debts..how do you account this? saw this adjustment in padhuka guide..seems like this adjustment doesnt affect the fund flow at all..please explain concept to me.
Sarita
(Article)
(154 Points)
Replied 28 March 2011
Hi Sandhya,
Plz follow the institute module method.
Krish
(CA Final )
(3331 Points)
Replied 28 March 2011
1. if reserves decreases do you treat it as application of funds?
--> Yes, if the amount of reserves decreases, it is treated as application of funds, reason is at the time of calculating Fund From operation we add back it in the same (FFO) because it does not affect any fund and it is appeared in the balance sheet as Shareholder fund. But now if we utilise the same, it should be treated as uses of fund.
2.if the rate on interest on debentures is mentioned in the b/s and regarding its payment it is not mentioned in the additionnal information can we assume it as paid by providing a note?
--> Yes obviously we can mention it by providing proper note, because in both case answer will be same either we include or not.
3.if bad debts are written off against the provision for doubtful debts..how do you account this? saw this adjustment in padhuka guide..seems like this adjustment doesnt affect the fund flow at all..please explain concept to me.
--> Bad debts written off against the provision account have no significance for fund flow statement, as they do not affect working capital.
See provision for doubtful debt is an expenditure of operation for a company. Means it has already been treated as operating expenses. And again if we write off bad debts against provision, that means we are just adjusting it with already deducted provisions. And there is no need to treat it again as application of funds.
sandhya
(CA Final)
(185 Points)
Replied 29 March 2011
thank u namratha..i will follow the module itself
thanks a lot krish for clarifying my doubts..i think i am 95% done with this chapter..any new adjustments in the exams..i really have to face it.
Krish
(CA Final )
(3331 Points)
Replied 29 March 2011
Same situation is here, I wish questions will be in favour, Best of luck. 
Gaurav Dadu
(STUDENT)
(22 Points)
Replied 17 July 2012
I have doubt regarding treatment of Debenture interest in fund flow statement ?
whether it is considered as operating or non operating ?
please dont tell both... either one of the above please with your explaination !!
Regards and Thanks,
Gaurav Dadu
Ranjana
(NA)
(26 Points)
Replied 07 February 2015
Hi.
This is regarding cash flow. In my practise manual they have taken the bad debts and adjusted with the provision and since it is a non cash item they added it back. But, they've also added back the bad debts amount in the closing debtors
pk r
(2 Points)
Replied 04 October 2016
Point no.3 - "Provisoin For Doubtful Debts"
Why shouldn't we deduct current's year provision for doubtful debts(as it is a non cash expense) from profit while calculating funds from operations?
Please reply ASAP.
pk r
(2 Points)
Replied 04 October 2016
| Originally posted by : Krish | ||
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3.if bad debts are written off against the provision for doubtful debts..how do you account this? saw this adjustment in padhuka guide..seems like this adjustment doesnt affect the fund flow at all..please explain concept to me. --> Bad debts written off against the provision account have no significance for fund flow statement, as they do not affect working capital. See provision for doubtful debt is an expenditure of operation for a company. Means it has already been treated as operating expenses. And again if we write off bad debts against provision, that means we are just adjusting it with already deducted provisions. And there is no need to treat it again as application of funds. |
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Why shouldn't we add current's year provision for doubtful debts from profit while calculating funds from operations?
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