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When total sources of funds are Rs. 1,25,000 and total applications of funds are Rs. 1,50,000, The result would be

When total sources of funds are Rs. 1,25,000 and total applications of funds are Rs. 1,50,000, The result would be Correct Answer Net decrease in working capital by Rs. 25,000

Sources and Application of Funds:

The different sources and uses of funds are:

Sources (Inflows) Rs. Application (Outflows) Rs.

Issue of Shares

(after adjusting Securities Premium or Discount on the issue of shares)

 * Purchase of Fixed Assets/Investments *
Issue of Debentures(after adjusting premium or disc,) * Redemption of Pref. Shares *
Sale of Fixed Assets/Investments * Redemption of Debenture (after adjusting premium or disc.) *
Long term Loans * Repayment of any Loan *

 

  • The above list does not include the items of current assets and current liabilities.
  • There­fore, current assets exceed current liabilities, or, in other words, if net current assets increase, there will be an increase of funds (i.e. increase in working capital).
  • Similarly, if current liabilities exceed current assets or if net current assets decrease, there will be a decrease in funds (i.e. decrease in working capital).
  • In short, an increase in working capital is considered as an increase in net current assets or an application of funds whereas a decrease in working capital is considered as an increase in current liability or a source of funds.
  • If total sources of funds are Rs. 1,25,000 and total applications of funds are Rs. 1,50,000, then there is a decrease in the outflow of Rs. 25000 (i.e. decrease in working capital of Rs. 25000)
  • The increase or decrease is to be reconciled with the changes in the working capital statement.


Therefore, when total sources of funds are Rs. 1,25,000 and total applications of funds are Rs. 1,50,000, The result would be a Net decrease in working capital by Rs. 25,000.

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