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B) The second method is to prepare the Profit & Loss account afresh by taking into consideration only funds and operational items, which involves funds and are related to the normal operations of the business. The balancing figure in this case will be either funds from operation or funds lost in operations depending upon whether income or credit side of profit and loss ac exceeds the expenses or debit side of the profit and loss ac or vice-versa. Funds from operations can also be calculated by preparing Adjusted Profit & Loss Ale Adjusted Profit and Loss Account Particulars To Depreciation & Depletion Amount Amount Particulars By Opening Balance of P&L A/C t21 To Appropriation of retained earnings To Loss on sale of fixed assets To Dividend To Proposed Dividend To Provision for Taxation To Closing Balance of P&L AC To Funds lost in Operations (B/F) By Transfer from excess provisions By Appreciation in the value of fixed assets By Dividend received By Profit on the sale of fixed assets By Funds from Operations Let us take an example of the funds from operations. Illustration 4.2: Following are Balance Sheet of a Limited Co. as on 31 Dec.2003 and 2004 Balance Sheet Liabilities 2003 2004 Assets 2003 2004 Share Capital 61,000 74,000 Plant 45,000 43,000 Reserves 13,000 15,500 Building 50,950 48.000 Creditors 28.000 24,000 Stock 20,500 18,800 Bank Overdraft 18,000 Debtors 20,000 16,200 Provision for Taxation 8,000 8,500 Cash 150 180 Profit & Loss A/C 8,600 8,800 Cash at Bank 2.100 Goodwill 2,520 1,36,600 1,30,800 1,36,600 1,30.800 Taking into account the following information, calculate funds from operations:- 1) Interim Dividend was paid Rs.2,000. 2) Dividend proposed for Rs. 4.000. 3) Provision of Rs.9,000 was made for Income Tax. 4) Rs. 2000 was written off as depreciation on Plant and Rs.2,950 on Building 5) Profit on Sale of Fixed Investment Rs. 1,500

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