During the year a business was bought by issue of Rs 25 000 debentures and Rs 25 000 shares The busi...........

General Accounting Principles Fund flow statement

During the year, a business was bought by issue of Rs 25,000 debentures and Rs 25,000 shares. The business bought had machine worth Rs 20,000, Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000. Determine the effect of this transaction on flow of funds.

Net outflow of Rs 15,000

Net inflow of Rs 15,000

Neither inflow nor outflow

None of the above

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Explanation:

GIVEN:During the year, a business was bought by issue of Rs 25,000 debentures and Rs 25,000 shares. The business bought had machine worth Rs 20,000, Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000

A journal entry will be passed for purchase of business as follows:

Machinery a/c Dr. Rs. 20,000S

Stock a/c Dr. Rs. 5.000

Debtors a/c Dr. Rs. 15,000

Goodwill a/c Dr. Rs. 15,000 (balancing figure)

To Creditors a/c Rs. 5,000

To Share capital a/c Rs. 25,000

To Debentures a/c Rs. 25,000

Net inflow in the form of goodwill is Rs. 15,000