Accounting & Finance On Computers

Funds from Operation

Q. What is meant by funds from operation? How is it determined ?

Funds from Operation = Net Sales – Cost of goods sold – Operating Expenses.

Funds from operation means Operating Profit, which is calculated after deducting cost of goods sold and operating expenses from the amount of net sales.

Funds from Operation may also be calculated in the following manner:

			Rs.
	Net Profit (for the current year)		XXX
	Add: Non-cash and non-operating items like
	Depreciation		XXX
	Profit transfer to General Reserve/other Reserves		XXX
	Profit transfer to Sinking Fund/other Funds		XXX
	Provisions made during the year (Except provision on debtors)		XXX
	Loss on sale of Investment		XXX
	Loss on sale of Fixed Assets		XXX
	Proposed Dividend		XXX
	Interim Dividend		XXX
	Premium on Redemption of Preference Shares/Debentures		XXX
	Writing off:		XXX
	Goodwill		XXX
	Preliminary Expenses		XXX
	Discount on issue of shares and debentures		XXX
	Patent Right/Copy Right/Trade Marks		XXX
	Underwriting Commission		XXX
			XXX
	Less: Non-cash and non-operating incomes like
	Gain on sale of Investment		XXX
	Gain on sale of Fixed Assets		XXX
	Appreciation		XXX
	Rent from Tenants		XXX
	Interest/Dividend received		XXX
	Refund of Tax		XXX
	Excess provision written back etc.		XXX
			XXX
	Funds From Operation		XXX

Working Capital: Schedule

Q. How is schedule of changes in working capital prepared?

Schedule of changes in working capital is prepared on the basis of current assets and current liabilities given in the balance sheet for two years. It is prepared in the following manner:

Particulars	Previous Year Rs.	Current Year Rs.	Increase Rs.	Decrease Rs.
Current Assets:
Cash in hand	XXX	XXX
Cash at Bank	XXX	XXX
Bills Receivable	XXX	XXX
Sundry Debtors	XXX	XXX
Stock	XXX	XXX
Accrued Income	XXX	XXX
Marketable Securities	XXX	XXX
Prepaid Expenses	XXX	XXX
	XXX	XXX
Current Liabilities:
Sundry Creditors	XXX	XXX
Bills Payable	XXX	XXX
Bank Overdraft	XXX	XXX
Outstanding Expenses	XXX	XXX
Amounts received in advance	XXX	XXX
	XXX	XXX
Working Capital (CA – CL)
Net increase/decrease in working capital
	XXX	XXX	XXX	XXX

Increase in the amount of current asset will be shown in the increase column and decrease in the amount of current assets will be shown in decrease column. Decrease in the amount of current liabilities will be shown in the increase column and increase in the amount of current liabilities will be shown in the decrease column.

If the total of increase column is more than that of the decrease column, net result will be net increase in working capital and if the total of decrease column is more than that of the increase column, result will be net decrease in working capital.