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CMA Intermediate · Financial Management and Business Data Analytics · Fund Flow Statement - Preparation and Analysis

In a fund flow statement prepared on the working capital basis, which one of the following transactions would appear as a source of funds?

Sale of a long-term investment for cash is a source of funds, because it converts a non-current asset into working capital. Dividend payments are applications, and changes in debtors appear only in the schedule of working capital changes, not as sources or applications.

  1. ASale of a long-term investment at book value for cashCorrect
  2. BPurchase of machinery on credit from a supplier
  3. CPayment of final dividend to shareholders
  4. DIncrease in sundry debtors during the year

Explanation

Sale of a long-term investment brings in funds from a non-current item, so it is a source. Dividend payment is an application. Purchase of machinery on credit is a non-fund transaction in the sense of affecting only current liabilities and fixed assets and is shown as an application of funds, not a source. An increase in debtors affects working capital only and is shown in the schedule of changes.

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