Following are the Balance Sheets of BROYHILL Industries Ltd, as on 31.12.2005 and 31.12.2006
Balance Sheet of M/s BROYHILL Industries Ltd, as on |
Liabilities |
31-12-2005 |
31-12-2006 |
Assets |
31-12-2005 |
31-12-2006 |
Share capital Debentures Reserve Profit & Loss a/c Creditors Bank Loan Provision for Depreciationon Buildings on Plant & Machinery Provision for:Bad & Doubtful Debts Taxation
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12,00,000 4,00,000 3,00,000 2,50,000 2,30,000 8,00,000
12,000 40,000
60,000 50,000
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16,00,000 6,00,000 3,50,000 5,00,000 1,80,000 13,00,000
6,000 48,000
70,000 1,20,000
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Goodwill (at Cost) Plant and Machinery (Cost) Buildings Land Debtors Stock Bank Preliminary expenses
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6,00,000 8,00,000 6,00,000 3,50,000 3,38,000 6,00,000 40,000 14,000
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5,50,000 14,90,000 10,00,000 4,70,000 3,72,000 8,00,000 80,000 12,000
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33,42,000 |
47,74,000 |
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33,42,000 |
47,74,000 |
You are required to analyse the Funds Flow and the Changes in working Capital in as much detail as possible, using the following additional details available.
1. |
A part of the machinery costing Rs. 1,40,000 (Accumulated depreciation Rs. 12,000 ) was sold for Rs. 1,20,000. |
2. |
Buildings costing Rs. 1,00,000 (Accumulated depreciation 10,000) was sold for Rs. 1,10,000. |
3. |
Land costing Rs. 1,50,000 was sold for Rs. 1,70,000. Profit of Rs. 20,000 transferred to reserve. |
4. |
Dividends of Rs. 1,00,000 were paid during the year. |
5. |
Provision for taxation in 2006 Rs. 1,10,000. |
6. |
During 2006 Assets of another company were purchased for a consideration of Rs. 1,00,000, payable in shares. These assets included buildings worth Rs. 50,000 and stock worth Rs. 50,000. |
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Solution » Schedule of Changes in Working Capital
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Schedule/Statement of Changes in Working Capital for the period from __ to __ |
Particulars/Account |
Previous Period |
Current Period |
Working Capital Change |
Increase |
Decrease |
A. CURRENT ASSETS
1) Debtors
Less: Bad and Doubtful Debts
Previous Period (3,38,000 − 60,000)
Current Period (3,72,000 − 70,000)
2) Stock
3) Bank
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2,78,000
6,00,000 40,000
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3,02,000
8,00,000 80,000
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24,000
2,00,000 40,000
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9,18,000 |
11,82,000 |
2,64,000 |
0 |
B. CURRENT LIABILITIES/PROVISIONS
1) Creditors
2) Provision for Taxation
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2,30,000 50,000
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1,80,000 1,20,000
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50,000
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70,000
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2,80,000 |
3,00,000 |
3,14,000 |
70,000 |
Working Capital (A − B) |
6,38,000 |
8,82,000 |
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Change in Working Capital |
(8,82,000 − 6,18,000) (Or) (3,14,000 − 70,000) |
2,44,000 |
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• Assumption
- In the absence of specific instruction to the contrary, Provision for Taxation is treated as a Current Liability
- The additional information indicates payment of dividends. Considering, Provision for Dividend to be a Current Account, this information would be of no importance in the Funds Flow analysis.
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Altered Fund Accounts
Fund accounts are all those accounts which have not been considered in the statement/schedule of changes in working capital.
Make up all those ledger accounts which have been influenced on account of transactions during the period for which the flow is being analysed. These are accounts within the Fund Area where there is a change in values.
Each Ledger account should be prepared so as to reveal all the information relating to that account and for that period
Please make it a habit to make the account holding the appropriated profits (Profit and Loss a/c here) towards the end.
» Share Capital a/c Hide/Show
To Balance c/d
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16,00,000
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By Balance b/d By Buildings By Stock By Cash/Bank a/c (?)
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12,00,000 50,000 50,000 3,00,000
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16,00,000 |
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16,00,000 |
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By Balance b/d |
16,00,000 |
- (6) : Assets of ... purchased ... consideration of Rs. 1,00,000, payable in shares. ... assets included buildings ... Rs. 50,000 ... stock Rs. 50,000.
- (?) : Capital is raised in exchange of current natured accounts (cash/bank).
» Debentures Hide/Show
To Balance c/d
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6,00,000
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By Balance b/d By Cash/Bank a/c (?)
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4,00,000 2,00,000
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6,00,000 |
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6,00,000 |
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By Balance b/d |
6,00,000 |
- (?) : Additional debentures are issued in exchange for current natured accounts (cash/bank).
» Reserve Hide/Show
To Balance c/d
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3,50,000
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By Balance b/d By Land a/c By P/L Appr. a/c (?)
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3,00,000 20,000 30,000
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3,50,000 |
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3,50,000 |
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By Balance b/d |
3,50,000 |
- (3) Profit of Rs. 20,000 transferred to reserve.
- (?) : Additional reserve appropriated from the profits.
» Bank Loan Hide/Show
To Balance c/d
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13,00,000
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By Balance b/d By Cash/Bank a/c (?)
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8,00,000 5,00,000
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13,00,000 |
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13,00,000 |
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By Balance b/d |
13,00,000 |
- (?) : Additional loan raised in exchange for current natured accounts (cash/bank).
» Goodwill Hide/Show
To Balance b/d
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6,00,000
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By P/L Appr. a/c (?) Balance c/d
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50,000 5,50,000
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6,00,000 |
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5,50,000 |
To Balance b/d |
5,50,000 |
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- (?) : Goodwill written off during the current period.
» Preliminary Expenses Hide/Show
To Balance b/d
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14,000
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By P/L Appr. a/c (?) By Balance c/d
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2,000 12,000
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14,000 |
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14,000 |
To Balance b/d |
12,000 |
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- (?) : Preliminary Expenses written off during the current period.
» Plant and Machinery Hide/Show
To Balance b/d To Cash/Bank a/c (?)
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8,00,000 8,30,000
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By Plant Disposal a/c By Balance c/d
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1,40,000 14,90,000
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Total |
16,30,000 |
Total |
16,30,000 |
To Balance b/d |
14,90,000 |
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- (1) : machinery costing Rs. 1,40,000 (__) was sold.
- (?) : Machinery acquired in exchange for current natured accounts (cash/bank).
Provision for Depreciation on Plant and Machinery a/c |
To Plant Disposal a/c To Balance c/d
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12,000 48,000
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By Balance b/d By P/L Appr. a/c (?)
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40,000 20,000
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60,000 |
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60,000 |
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By Balance b/d |
48,000 |
- (1) : A ... (Accumulated depreciation Rs. 12,000) was sold ...
- (?) : Depreciation provided for in the current period
To Plant/Machinery a/c
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1,40,000
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By Depr. Res a/c By Cash/Bank a/c By P/L Appr. a/c (?)
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12,000 1,20,000 8,000
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1,40,000 |
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1,40,000 |
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- (1) : A ... was sold for Rs. 1,20,000.
- (?) : Loss on sale of plant
» Buildings Hide/Show
To Balance b/d To Share Capital a/c To Cash/Bank a/c (?)
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6,00,000 50,000 4,50,000
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By Building Disposal a/c By Balance c/d
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1,00,000 10,00,000
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11,00,000 |
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11,00,000 |
To Balance b/d |
10,00,000 |
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- (2) : Buildings costing Rs. 1,00,000 ... was sold ...
- (6) : ... Assets ... purchased ... consideration payable in shares. ... included buildings ... Rs. 50,000 ...
- (?) : Building acquired in exchange for current natured accounts (cash/bank).
Provision for Depreciation on Buildings a/c |
To Building Disposal a/c To Balance c/d
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10,000 6,000
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By Balance b/d By P/L Approp. a/c (?)
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12,000 4,000
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16,000 |
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16,000 |
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By Balance b/d |
6,000 |
- (2) : Buildings ... (Accumulated depreciation 10,000) was sold ...
- (?) : Depreciation provided for in the current period
To Building a/c To P/L Appr. a/c (?)
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1,00,000 20,000
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By Depr. Res a/c By Cash/Bank a/c
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10,000 1,10,000
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1,20,000 |
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1,20,000 |
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- (2) : Buildings ... was sold for Rs. 1,10,000.
- (?) : Profit on Sale of Building.
» Land Hide/Show
To Balance b/d To Cash/Bank a/c (?)
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3,50,000 2,70,000
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By Land Disp a/c By Balance c/d
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1,50,000 4,70,000
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6,40,000 |
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6,40,000 |
To Balance b/d |
10,00,000 |
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- (3) : Land costing Rs. 1,50,000 was sold ...
- (?) : Land acquired in exchange for current natured accounts (cash/bank).
To Land a/c To Reserve a/c (*)
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1,50,000 20,000
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By Cash/Bank a/c
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1,70,000
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1,70,000 |
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1,70,000 |
- (3) : Land ... was sold for Rs. 1,70,000.
- (*) : ... was sold ... Profit of Rs. 20,000 transferred to reserve.
Making up the Funds Flow Statement from these
Every posting reading
- By Cash/Bank/Current-Natured a/c indicates a Source/Inflow of fund and
- To Cash/Bank/Current-Natured a/c indicates an Application/Outflow of Fund.
Filling these details in the Funds Flow Statement is all that you need to do.
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Working Notes » Funds From Operations
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Funds from operations may be required to be calculated as a part of the problem. Even if it is not asked to be prepared you need to prepare it as a part of working notes.
To complete the Funds Flow statement, Funds from operations are to be calculated and filled in the Funds Flow Statement.
Funds from Operations is a figure that can be derived by preparing the Profit and Loss Appropriation account.
Preparing the appropriation account requires you to
- Take the figures relating to the opening and closing balances from the Balance Sheet
(Only if there is any account that represents the account where accumulated profits are collected).
- Fill the other information from the ledger accounts prepared in the above working note.
(Complete the second posting relating to the postings To P/L Appr. a/c and By P/L Appr. a/c).
Profit and Loss (Appropriation) a/c |
To Reserve a/c To Goodwill a/c To Preliminary Expenses a/c To Prov. Depr. Plant/Mach To Loss on Sale of Plant/Mach To Prov. Depr. Bldgs
To Balance c/d (Net Profit)
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30,000 50,000 2,000 20,000 8,000 4,000
5,00,000
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By Balance b/d
By Profit/Loss a/c (FFO - ?)
By Profit on Sale of Bldgs
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2,50,000
3,44,000
20,000
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6,14,00 |
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6,14,000 |
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By Balance b/d |
5,00,000 |
Since the Funds From Operations appears on the credit side of the Appropriation account, it represents a Source of Funds.
Alternative » Statement Method Hide/Show
Statement for Calculation of Funds from Operations |
Particulars |
Amount |
Amount |
Profit and Appropriation a/c:
Closing Balance
Less: Opening Balance
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5,00,000 2,50,000
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2,50,000
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Current Period Profit
Add: Items of Expenses debited to Profit/Loss a/c not resulting in a flow of funds
1) Reserve
2) Goodwill written off
3) Preliminary Expenses written off
4) Provision for Depreciation on Plant and Machinery
5) Loss on Sale of Plant and Machinery
6) Provision for Depreciation on Buildings
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30,000 50,000 2,000 20,000 8,000 4,000
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2,50,000
1,14,000
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Less: Items of Incomes credited to Profit/Loss a/c not resulting in a flow of funds
1) Profit on Sale of Buildings
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20,000
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3,64,000
20,000
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Funds From Operations |
3,44,000 |
You may use a method that is convenient to you. We recommend that you know both the methods and we prefer the account method for most cases.
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• Statement Form
Funds Flow Statement for the period from __ to __ |
Particulars |
Amount |
Amount |
SOURCES (INFLOW) of FUNDS :
1) Share Capital (Stock)
2) Share Capital (Cash/Bank)
3) Debentures
4) Bank Loan
5) Plant Sale
6) Building Sale
7) Land Sale
8) Funds from Operations
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50,000 3,00,000 2,00,000 5,00,000 1,20,000 1,10,000 1,70,000 3,44,000
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17,94,000
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Less: APPLICATIONS (OUTFLOW) of FUNDS
1) Purchase of Plant and Machinery
2) Purchase of Buildings
3) Purchase of Land
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8,30,000 4,50,000 2,70,000
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15,50,000
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Change in Working Capital |
+ 2,44,000 |
There is an increase in Net Working Capital to the extent of Rs. 2,44,000
• T Form
Statement of Sources and Applications of Funds for the period from __ to __ |
Sources (Inflow) of Funds |
Amount |
Applications (Outflow) of Funds |
Amount |
1) Share Capital (Stock)
2) Share Capital (Cash/Bank)
3) Debentures
4) Bank Loan
5) Plant Sale
6) Building Sale
7) Land Sale
8) Funds from Operations
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50,000 3,00,000 2,00,000 5,00,000 1,20,000 1,10,000 1,70,000 3,44,000
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1) Purchase of Plant and Machinery
2) Purchase of Buildings
3) Purchase of Land
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8,30,000 4,50,000 2,70,000
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17,94,000 |
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15,50,000 |
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Change in Working Capital |
2,44,000 |
(Sources/Inflow of Funds) < (Applications/Outflow of Funds)
⇒ There is an increase in Net Working Capital to the extent of Rs. 2,44,000
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