Question

During the year, a business was bought by issue of Rs 25,000 debentures and Rs 25,000 shares. The business bought had machine worth Rs 20,000, Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000. Determine the effect of this transaction on flow of funds.

Answer 1

Answer:

transaction 247900(7)+ determined

Answer 2

The effect of this transaction on flow of funds will be: net inflow of Rs. 15000.

We are given,

During the year, a business was bought by issue of Rs 25,000 debentures and Rs 25,000 shares. The business bought had machine worth Rs 20,000, Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000.

And, we need to find the effect of this transaction on flow of funds.

Now,

We need to pass a journal entry for purchase of the business. Journal Entry is written as follows:

Machinery a/c Dr                                  20,000

Stock a/c Dr                                             5,000

Goodwill a/c Dr (Balancing figure)     15,000

     To Creditors a/c                                              5,000

     To Share Capital a/c                                     25,000

     To Debentures a/c                                        25,000

(Being a business was bought by issue of Rs 25,000 debentures and Rs 25,000 shares, which had machine worth Rs 20,000, Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000)

Therefore,

The Net Inflow of Rs. 15,000 is in the form of Goodwill.

Thus, the effect of this transaction on flow of funds will be: net inflow of Rs. 15000.

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