Following information are given: Particular Year I (Rs.) Year II (Rs.) : : : Share capital 400,000 4,50,000 10% Debentures 200,000 150,000 Profit & Loss account 40,000 80,000 Goodwill 24,000 22,000…

i) Funds from Operations (FFO)

Funds from operations is calculated as: $$\text{FFO}=\text{Net Profit}+\text{Non-Cash Expenses}-\text{Non-Operating Items}$$ Given:

• Net Profit (Year II) = Rs. 80,000
• Depreciation (Non-Cash Expense) = Rs. 15,000
• Dividend Paid (Non-Operating) = Rs. 25,000

$$\text{FFO}=80,000+15,000-25,000=\text{Rs. 70,000}$$

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ii) Funds Flow Statement

Step 1: Calculate Changes in Working Capital

• Increase in Share Capital = Rs. 4,50,000 – Rs. 4,00,000 = Rs. 50,000
• Decrease in Debentures = Rs. 2,00,000 – Rs. 1,50,000 = Rs. 50,000
• Increase in Goodwill = Rs. 22,000 – Rs. 24,000 = Rs. (2,000) (Decrease)
• Increase in Profit & Loss A/c = Rs. 80,000 – Rs. 40,000 = Rs. 40,000

Step 2: Determine Funds Flow

Using the formula: $$\text{Total Funds Available}=\text{FFO}+\text{Increase in Non-Current Liabilities}+\text{Decrease in Non-Current Assets}$$ $$\text{Total Funds Applied}=\text{Purchase of Fixed Assets}+\text{Dividend Paid}+\text{Increase in Current Assets}$$

From the given data:

• Funds from Operations (FFO) = Rs. 70,000
• Increase in Share Capital = Rs. 50,000
• Decrease in Debentures = Rs. 50,000
• Purchase of Fixed Assets = Rs. 70,000
• Dividend Paid = Rs. 25,000
• Depreciation = Rs. 15,000

Step 3: Prepare the Funds Flow Statement

Final Funds Flow Statement: The company generated Rs. 70,000 from operations. After accounting for fixed asset purchases (Rs. 70,000), dividends (Rs. 25,000), and depreciation (Rs. 15,000), the net increase in current assets is Rs. 60,000. The funds flow is consistent with the changes in working capital and financing activities.