tear, lapse of time, obsolesce and accident. Depreciation is taken as an operating expense while calculating operating profit. When we make the entry of depreciation profit and loss account is debited while fixed asset account is credited with the amount of depreciation. Since, both the accounts are non-current accounts so depreciation is treated as a non-fund item. It is neither a source nor a application of funds so it is added back to operating profit to find out funds from operations. Illustration 4.4: The following schedule shows the balance sheets in condensed form of Bharat Carbons Limited at the beginning and end of the year. Particulars Cash Sundry Debtors Temporary Investment Prepaid Expenses Inventories Surrender Value of Life Policies Land Other Fixed Assets(Including Machinery) Debenture Discount 1/1/2002 50,409 77.180 1,10,500 1,210 92,154 4,607 25,000 31-12-2002 40,535 73,150 84,000 1,155 1,05,538 5,353 25,000 1,47,778 1,82,782 4,305 5,13,143 2,867 5,20,380 Sundry Creditors 1,03,087 95,656 t23 Outstanding Expenses 12,707 21,663 4% Mortgage Debentures 82,000 68,500 Accumulated Depreciation 96.618 81,633 Allowance for Inventory Loss 2.000 8,500 Reserve for Contingency 1,06,731 1,34,178 Surplus in P/L A/C 10,000 10.250 Equity Share Capital 1,00,000 1,00,000 5,13,143 5.20,380 Additional Information: 1. Net profit for the year 2002 as P/L A/c is Rs. 49,097. 2. 10% cash dividend was paid during the year. 3. The premium on life policies Rs. 2,773 was paid during the year, which Rs. 1,627 has been written off from P/L A/c. 4. New machinery was purchased for Rs. 31,365 and machinery costing Rs. 32,625 was sold during the year. Depreciation on machinery sold had accumulated to Rs. 29,105 at the date of the sale. It was sold as scrap for Rs. 1,500. 5. The Mortgage debentures mature at the rate of Rs. 5,000 per year. In addition to the above The Company purchased and retired Rs. 8,500 of the debentures at Rs. 103. Both the premium on retirement and the applicable discount were charged to PL A/c. 6. The allowance for inventory loss was credited by a charge to expenses in each year to provide for obsolete items. 7. A debit to reserve for contingencies of Rs. 11,400 was made during year. This was in respect of settlement of past tax liability You are required to prepare a statement showing the sources and applications of funds for the year 2002