# Adjusted Profit and Loss Account method for calculating Funds from Operations

Under this method, we make up an account by name Adjusted Profit and Loss a/c posting the Net Profit along with all the postings representing losses, gains, appropriations and adjustments.

This account is the same as the second part of the account prepared in the direct method. We start with posting the net profit and obtain the funds from operations as a balancing figure. Whereas in the direct method we start with the funds from operations and obtain the net profit as the balancing figure.

## Problem

From the information provided in the following profit and loss account, find out the Funds from Operations
Dr Profit and Loss a/c Cr
Particulars Amount Particulars Amount
To Salaries and Wages
To Rent and Rates
To Interest
To Provision for Taxes
To Depreciation on Machinery
To Depreciation on Furniture
To Loss on Sale of Motor Car
To General Reserve
To Special Reserve
To Goodwill Written off
To Discounts on issue of Shares
To Net Profit
3,42,000
1,24,000
76,000
1,32,000
87,000
39,000
91,000
42,000
1,25,000
75,000
50,000
40,000
5,25,000
By Gross Profit
By Commission
By Miscellaneous Income
By Profit on Sale of Asset
12,50,000
2,80,000
1,54,000
64,000
16,84,000  16,84,000

## Finding/Calculating Funds from Operations

Dr Profit and Loss Adjustment a/c Cr
Particulars Amount Particulars Amount
To Provision for Taxes
To Depreciation on Machinery
To Depreciation on Furniture
To Loss on Sale of Motor Car
To General Reserve
To Special Reserve
To Goodwill Written off
To Discounts on issue of Shares
To Net Profit
1,32,000
87,000
39,000
91,000
1,25,000
75,000
50,000
40,000
5,25,000
By Funds from Operations
By Profit on Sale of Asset
11,00,000
64,000
11,64,000  11,64,000

## Why call it Adjusted Profit and Loss a/c method?

Since we arrive at funds from operations by adjusting all the losses, incomes, appropriations and adjustments that have affected the net profit as revealed by the profit and loss account we call this the adjusted profit and loss account method.
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