1) Given Net profit for the year Rs 2,50,000
transferred to general reserves Rs 40,000 and old
machinery bought for Rs 50,000 was sold for Rs
20,000. Calculate funds from operations.
Answers
The correct answer is 280,000
Explanation:
Funds from operations = Net income + interest expense + Depreciation + Loss on the sale of company's assets - interest income - gain on the sale of company's assets.
Given,
Net income of Company = 2,50,000
Buying price of Machinery= 50,000
Selling price of Machinery = 20,000
Loss by selling machinery = 50,000-20,000 = 30,000
Thus,
Funds from operation = Net income of company + loss by selling machinery
= 250,000 + 30,0000 = 280,000
Funds from operations is Rs. 280,000
Explanation:
As we know that
Funds from operations = Net profit + interest expense + Depreciation + Loss on the sale of assets - interest income - gain on the sale of assets
where
Net profit for the year is Rs 250,000
And, the loss on sale of machinery is
= Rs 50,000 - Rs 20,000
= Rs 30,000
So, the funds from operations
= Rs 250,000 + Rs 30,000
= Rs 280,000
All other values would be ignored
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