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 Reserve for Bad Debts
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

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

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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