Question

A Machinery valued in the books at $Rs.80,000$ was sold $Rs.1,00,000$. The Net profit is $Rs.80,000$. What is the amount of funds from operation?

• A. Rs$1,80,000$
• B. Rs$1,60,000$
• C. Rs$60,000$
• D. Rs$1,00,000$

Answer 1

Answer: (C)

Rs$60,000$

Funds from operations represents the net profit generated from the actual business operations. All abnormal items have to be excluded from the net profit.

Funds from business operations:

Net Profit Rs.80000

Less: Profit on sale of Machinery Rs.20000*

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Funds from operations Rs.60000

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*Profit on sale of Machinery:

Sale proceed Rs.100000

Less: Book Value Rs.80000

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Profit on sale of Machinery Rs.20000

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