Cross Transaction - Transactions influencing Fund (Working Capital) - illustrations

Funds Flow Cash Flow • Funds Flow Analysis • Study Notes •     n~6 t~3 «Note~6_Topic~4 » n~7 t~1
Consider, the following consolidated balance sheet
Balance Sheet of M/s __ as on 30th June __
LiabilitiesAmountAssetsAmount
Non-Current Liabilities
Current Liabilities 		89,00,000
15,00,000 		Non-Current Assets
Current Assets 		80,00,000
24,00,000
 1,04,00,0001,04,00,000

From the above balance sheet,

Working Capital = Current Assets - Current Liabilities
= 24,00,000 - 15,00,000
= 9,00,000
(Or) = Non-Current Liabilities - Non-Current Assets
= 89,00,000 - 80,00,000
= 9,00,000

An accounting transaction will influence the fund or working capital when it brings about a change in

• A Current Asset and a Non-Current Asset in opposing directions

  • Purchase of an Asset valued 4,00,000 for cash
    Dr. Fixed Asset a/c
    Cr. Cash a/c     		Non-Current Asset
    Current Asset     		Increase
    Decrease

    After taking into account the affect of the above transaction,

    Current Assets (Changed) = Current Assets (old) - Decrease
    = 24,00,000 - 50,000
    = 23,50,000

    Non-Current Asset (Changed) = Non-Current Asset (old) + Increase
    = 80,00,000 + 4,00,000
    = 84,00,000

    Working Capital (Changed) = Current Assets (Changed) - Current Liabilities
    = 20,00,000 - 15,00,000
    = 5,00,000
    (Or) = Non-Current Liabilities - Non-Current Assets (Changed)
    = 89,00,000 - 84,00,000
    = 5,00,000

    Working capital has changed from 9,00,000 to 5,00,000.

  • Sold Land 5,60,000 and received consideration through a cheque
    Dr. Bank a/c
    Cr. Land a/c     		Current Asset
    Non-Current Asset     		Increase
    Decrease

    After taking into account the affect of the above transaction,

    Current Assets (Changed) = Current Assets (old) + Increase
    = 24,00,000 + 5,60,000
    = 29,60,000

    Non-Current Asset (Changed) = Non-Current Asset (old) - Decrease
    = 80,00,000 - 5,60,000
    = 74,40,000

    Working Capital (Changed) = Current Assets (Changed) - Current Liabilities
    = 29,60,000 - 15,00,000
    = 14,60,000
    (Or) = Non-Current Liabilities - Non-Current Assets (Changed)
    = 89,00,000 - 74,40,000
    = 14,60,000

    Working capital has changed from 9,00,000 to 14,60,000.

• A Current Asset and a Non-Current Liability in the same direction

  • Issued a cheque for 2,35,000 to clear a Long term loan
    Dr. Long Term Loan a/c
    Cr. Bank a/c     		Non-Current Liability
    Current Asset     		Decrease
    Decrease

    After taking into account the affect of the above transaction,

    Current Assets (Changed) = Current Assets (old) - Decrease
    = 24,00,000 - 2,35,000
    = 21,65,000

    Non-Current Liability (Changed) = Non-Current Liability (old) - Decrease
    = 89,00,000 - 2,35,000
    = 86,65,000

    Working Capital (Changed) = Current Assets (Changed) - Current Liabilities
    = 21,65,000 - 15,00,000
    = 6,65,000
    (Or) = Non-Current Liabilities (Changed) - Non-Current Assets
    = 86,65,000 - 80,00,000
    = 6,65,000

    Working capital has changed from 9,00,000 to 6,65,000.

  • Partner introduced capital by endorsing bills receivable worth 85,000
    Dr. Bills Receivable a/c
    Cr. Partners Capital a/c     		Current Asset
    Non-Current Liability     		Increase
    Increase

    After taking into account the affect of the above transaction,

    Current Assets (Changed) = Current Assets (old) + Increase
    = 24,00,000 + 85,000
    = 24,85,000

    Non-Current Liability (Changed) = Non-Current Liability (old) + Increase
    = 89,00,000 + 85,000
    = 89,85,000

    Working Capital (Changed) = Current Assets (Changed) - Current Liabilities
    = 24,85,000 - 15,00,000
    = 9,85,000
    (Or) = Non-Current Liabilities (Changed) - Non-Current Assets
    = 89,85,000 - 80,00,000
    = 9,85,000

    Working capital has changed from 9,00,000 to 9,85,000.

• A Current Liability and a Non-Current Asset in the same direction

  • Purchased an Asset and accepted a Bills Payable for the amount due 5,00,000
    Dr. Fixed Asset a/c
    Cr. Bills Payable a/c     		Non-Current Asset
    Current Liability     		Increase
    Increase

    After taking into account the affect of the above transaction,

    Non-Current Assets (Changed) = Non-Current Assets (old) + Increase
    = 80,00,000 + 5,00,000
    = 85,00,000

    Current Liability (Changed) = Current Liability (old) + Increase
    = 15,00,000 + 5,00,000
    = 20,00,000

    Working Capital (Changed) = Current Assets - Current Liabilities (Changed)
    = 24,00,000 - 20,00,000
    = 4,00,000
    (Or) = Non-Current Liabilities - Non-Current Assets (Changed)
    = 89,00,000 - 85,00,000
    = 4,00,000

    Working capital has changed from 9,00,000 to 4,00,000.

  • Settled creditors account 2,90,000 by giving away long term investments
    Dr. Creditors a/c
    Cr. Investments a/c     		Current Liability
    Non-Current Asset     		Decrease
    Decrease

    After taking into account the affect of the above transaction,

    Current Liability (Changed) = Current Liabilities (old) - Decrease
    = 15,00,000 - 2,90,000
    = 12,10,000

    Non-Current Asset(Changed) = Non-Current Assets (old) - Decrease
    = 80,00,000 - 2,90,000
    = 77,10,000

    Working Capital (Changed) = Current Assets - Current Liabilities (Changed)
    = 24,00,000 - 12,10,000
    = 11,90,000
    (Or) = Non-Current Liabilities - Non-Current Assets (Changed)
    = 89,00,000 - 77,10,000
    = 11,90,000

    Working capital has changed from 9,00,000 to 11,90,000.

• A Current Liability and a Non-Current Liability in the opposite directions

  • Issued Debentures to creditors worth 4,00,000
    Dr. Creditors a/c
    Cr. Debentures a/c     		Current Liability
    Non-Current Liability     		Decrease
    Increase

    After taking into account the affect of the above transaction,

    Non-Current Liabilities (Changed) = Non-Current Liabilities (old) + Increase
    = 89,00,000 + 4,00,000
    = 93,00,000

    Current Liability (Changed) = Current Liability (old) - Decrease
    = 15,00,000 - 4,00,000
    = 11,00,000

    Working Capital (Changed) = Current Assets - Current Liabilities (Changed)
    = 24,00,000 - 11,00,000
    = 13,00,000
    (Or) = Non-Current Liabilities (Changed) - Non-Current Assets
    = 93,00,000 - 80,00,000
    = 13,00,000

    Working capital has changed from 9,00,000 to 13,00,000.

  • Bills payable accepted for the amount due to a partner on his capital account 1,20,000
    Dr. Partners Capital a/c
    Cr. Bills Payable a/c     		Non-Current Liability
    Current Liability     		Decrease
    Increase

    After taking into account the affect of the above transaction,

    Current Liabilities (Changed) = Current Liabilities (old) + Increase
    = 15,00,000 + 1,20,000
    = 16,20,000

    Non-Current Liabilities(Changed) = Non-Current Liabilities (old) - Decrease
    = 89,00,000 - 1,20,000
    = 87,80,000

    Working Capital (Changed) = Current Assets - Current Liabilities (Changed)
    = 24,00,000 - 16,20,000
    = 7,80,000
    (Or) = Non-Current Liabilities - Non-Current Assets (Changed)
    = 87,80,000 - 80,00,000
    = 7,80,000

    Working capital has changed from 9,00,000 to 7,80,000.

n~6 t~3 «Note~6_Topic~4 » n~7 t~1
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