The following informations are provided: Patent written off: Rs.10,000 Purchase of fixed assets: Rs.2,00,000 Sales of fixed assets: Rs.15,000 Depreciation on fixed assets: Rs.90,000 Issue of share…

i) Funds from Operation (FFO)

Funds from operation (FFO) is calculated by adjusting the net profit for non-cash items and changes in working capital. The formula is:

$$\text{FFO}=\text{Net Profit}+\text{Depreciation}-\text{Profit on Sale of Fixed Assets}+\text{Increase in Current Liabilities}-\text{Increase in Current Assets}$$

Given data:

• Net profit = Rs. 1,80,000
• Depreciation = Rs. 90,000
• Profit on sale of fixed assets = Rs. 6,000

Since no information is provided about changes in working capital (current assets and current liabilities), we assume no change in working capital for this calculation.

$$\text{FFO}=1,80,000+90,000-6,000=\text{Rs. 2,64,000}$$

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ii) Funds Flow Statement

A Funds Flow Statement shows the movement of funds (cash and cash equivalents) between different activities of a business. It is divided into three main sections:

1. Funds from Operating Activities
2. Funds from Investing Activities
3. Funds from Financing Activities

Step 1: Calculate Funds from Operating Activities

We already calculated Funds from Operations (FFO) as Rs. 2,64,000.

Step 2: Calculate Funds from Investing Activities

Investing activities include purchases and sales of fixed assets, as well as intangible assets like patents.

• Purchase of fixed assets = Rs. 2,00,000 (outflow)
• Sales of fixed assets = Rs. 15,000 (inflow)
• Patent written off = Rs. 10,000 (outflow, as it reduces assets)

$$\text{Net Funds from Investing Activities}=-2,00,000+15,000-10,000=\text{Rs. -1,95,000}$$

Step 3: Calculate Funds from Financing Activities

Financing activities include the issue of share capital.

• Issue of share capital = Rs. 2,00,000 (inflow)

$$\text{Net Funds from Financing Activities}=\text{Rs. 2,00,000}$$

Step 4: Prepare the Funds Flow Statement

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Final Answer:

• Funds from Operation (FFO) = Rs. 2,64,000
• Funds Flow Statement shows a total funds flow of Rs. 2,69,000.