Fund Flow Statement with Example

Fund flow statement with example MBA,BBA,BCOM,MCOM,BBM

1. Fund Flow Statement PRESENTED BY :- MUHAMMED FARSIN ELARAM NAVITHA NAYAR ANAS A

2. What Is Fund Flow Statement? FUND FLOW STATEMENT is a statement that reflects the relative position of funds of the company over a two-period horizon and enables analysis of sources and uses of funds for a particular period of time.

3. What Is Fund? The term “ fund ” generally refers to cash and cash equivalents, or to working capital . Working Capital = Current Assets – Current Liabilities Current Assets ( Liquid Asset) refers to a short term asset that a company expects to use up, convert into cash, or sell within one fiscal year or operating cycle. For example Cash including fixed deposit with bank, accounts receivable (trade debtors and bill receivables), inventory (stock of raw-material, work-in-progress, finished goods), advance receivable, prepaid expanses … etc.

4. Current liability refers to an obligation that is payable within one fiscal year or operating cycle. For example accounts payable (bill payable and trade creditors), outstanding expenses, bank overdraft, short term loan(payable within one year), advance payments received, current maturates of long term loans …. etc. Provisions against current assets, such as provision for doubtful debts, provisions for loss of stock and provision for discount on debtors, are treated as current liabilities, since they reduce the amount of current assets .

5. Non-current assets :- All assets other than current assets come within the category of non-current assets. For example, goodwill, land, building, machinery, furniture, long term investments, patent rights…etc. Non-current liabilities :- All liabilities other than current liabilities come within the category of non-current liabilities. For example, share capital, long term loans, debentures, share premium, credit balance in the P/L account….. etc.

6. Flow Of Fund The term ‘ flow of funds ’ means ‘ change in funds ’ or ‘ change in working capital ’. In other words, any increase or decrease in working capital means ‘ flow of funds ’. In case a transaction results in increase of funds , it will be termed as a ‘ source of fund ’. In case a transaction results in decrease of funds it will be taken as an application or use of funds . In case a transaction does not make any change in the funds position, it is said that it is a non-fund transaction .

7. Transaction includes, For example :- Issue of shares for cash. Cash A/c Dr To Share Capital A/c Transaction includes, For example :- Payment to creditors. Creditors A/c Dr To Cash A/c Transactions which results flow of fund Transaction which doesn't results flow of fund Current Asset Current Liability Non-Current Asset Non-Current Liability Current Asset Current Liability Non-Current Liability Non-Current Asset

8. Preparation Of Fund Flow Statement Schedule of changes in working capital. Calculate Fund from Operation. Preparation of fund flow statement.

9. 1. Schedule of changes in working capital The schedule of changes in working capital can be prepared by comparing the current assets and the current liabilities of two periods. Rules of preparing the schedule: Increase in current asset, results in [ + ]increase in ‘working capital’. Decrease in a current asset, , results in [ - ]decrease in ‘working capital’. Increase in a current liability, results [ - ] decrease in ‘working capital’. Decrease in current liability, results in [ + ]increase in ‘working capital’.

10. Particulars Previous Year (Rs.) Current Year (Rs.) Changes in working capital Increase (Rs.) Decrease (Rs.) Current Assets: Cash 5000 10000 5000 Bank 5000 2000 3000 Bill Receivable Debtors Stock Marketable Securities Prepaid Expenses Total (a) Current liabilities: Creditors 15000 20000 5000 Bills Payable 3000 1000 2000 Outstanding Expenses Bank Overdraft Total (b) Working Capital (a+b) Net Increase / Decrease in Working capital Statement of changes in working capital

11. 2. Adjusted Profit & Loss Account Adjusted P/L A/c Particulars Amount Particulars Amount Depreciation Opening Balance Provision for Taxation Dividend Received Proposed Dividend Income from Subsidiary Goodwill, Patents etc.. Written off Profit on Sale of fixed Asset Preliminary Expenses written off Income Tax Written Back Discount on issue of shares and debentures Rent Received Loss on Sale of Fixed Assets Funds from Operation (Balancing Figure) Transfer to Reserves Closing Balance XXXX XXXX

12. 3. Preparation of fund flow statement While preparing a fund flow statement, current assets and current liabilities are to be ignored. Attention is to be given to changes in fixed assets and fixed liabilities.

13. Fund Flow Statement Sources Amount Uses or Applications Amount Issue of shares Redemption of shares Issue of debentures Redemption of debentures Medium and long term borrowings Repayment of loans Sale of fixed assets Purchase of fixed asset Sale of investment Purchase of investment Fund from operation(profit)* Fund from operation(loss)* Non-trading income (Eg:- dividend received) Non-trading expenses (Eg:- dividend paid) Decrease in working capital* Increase in working capital* xxxxx xxxxx

14. ? The following are the Balance sheet of ABC Ltd as at 31 st December, 2010 and 2011. Additional Information:- Depreciation was written off against plant Rs. 14,000 in 2011. Dividend of Rs. 20,000 was paid during 2011. Income Tax provision made during the year was Rs. 25,000 A piece of land has been sold during the year at cost . Liabilities 2010 2011 Assets 2010 2011 Share Capital 2,00,000 2,50,000 Land & Building 2,00,000 1,90,000 General Reserve 50,000 60,000 Plant 1,50,000 1,74,000 Profit & Loss A/c 30,500 30,600 Stock 1,00,000 74,000 Bank Loan(Short-term) 70,000 - - - - - - - Debtors 80,000 64,200 Creditors 1,50,000 1,35,200 Cash 500 600 Prevision For Taxation 30,000 35,000 Bank - - - - - - - - 8,000 Prepare Fund Flow Statement for the year 2011.

15. Solution:- * We can take it has a current lability or an non current liability. For now we treat Prevision For Taxation is a non-current liability. Additional Information:- Depreciation was written off against plant Rs. 14,000 in 2011.[ prepare ledger for plant ] Dividend of Rs. 20,000 was paid during 2011.[ Non-trading expenses. show in the Cr side of Fund flow statement ] Income Tax provision made during the year was Rs. 25,000. [ prepare ledger for Prevision For Taxation ] A piece of land has been sold during the year at cos t.[2,00,000-1,90,000= 10,000 ] Liabilities 2010 2011 Assets 2010 2011 Share Capital ( Non CL ) 2,00,000 2,50,000 Land & Building( Non CA ) 2,00,000 1,90,000 General Reserve ( Non CL ) 50,000 60,000 Plant ( Non CA ) 1,50,000 1,74,000 Profit & Loss A/c ( Non CL ) 30,500 30,600 Stock( CA ) 1,00,000 74,000 Bank Loan(Short-term) ( CL ) 70,000 - - - - - - - Debtors ( CA ) 80,000 64,200 Creditors ( CL ) 1,50,000 1,35,200 Cash ( CA ) 500 600 Prevision For Taxation ( Non CL ) * 30,000 35,000 Bank ( CA ) - - - - - - - - 8,000

16. Particulars Previous Year [2010] (Rs.) Current Year [2011] (Rs.) Changes in working capital Increase (Rs.) Decrease (Rs.) Current Assets: Stock 1,00,000 74,000 26,000 Debtors 80,000 64,200 15,800 Cash 500 600 100 Bank - - - - - - 8,000 8,000 Total (a) 1,80,500 1,46,800 Current liabilities: Bank Loan 70,000 - - - - - - 70,000 Creditors 1,50,000 1,35,200 14,800 Total (b) 2,20,000 1,35,000 Working Capital (a-b ) -39,500 11,600 Net Increase / Decrease in Working capital 51,100 51,100 11,600 11,600 92,900 92,900 Particulars Previous Year [2010] (Rs.) Current Year [2011] (Rs.) Changes in working capital Increase (Rs.) Decrease (Rs.) Current Assets: Stock 1,00,000 74,000 26,000 Debtors 80,000 64,200 15,800 Cash 500 600 100 Bank - - - - - - 8,000 8,000 Total (a) 1,80,500 1,46,800 Current liabilities: Bank Loan 70,000 - - - - - - 70,000 Creditors 1,50,000 1,35,200 14,800 Total (b) 2,20,000 1,35,000 Working Capital (a-b ) -39,500 11,600 Net Increase / Decrease in Working capital 51,100 11,600 11,600 92,900 92,900

17. Plant Account Provision for Taxation Account Particulars Amount Particulars Amount To Balance b/d 1,50,000 By Depreciation A/c 14,000 To Cash A/c (Purchase) 38,000 By Balance c/d 1,74,000 1,88,000 1,88,000 Particulars Amount Particulars Amount To cash A/c (Tax paid) 20,000 By Balance b/d 30,000 To Balance c/d 35,000 By Adjusted P/L A/c 25,000 55,000 55,000 Dr Cr Dr Cr

18. Adjusted Profit & Loss A/c Fund Flow Statement Particulars Amount Particulars Amount To Transfer to General Reserve 10,000 By Balance b/d 30,500 To Depreciation 14,000 By Fund from operations 69,100 To Provision for Taxation 25,000 To Dividend 20,000 To Balance c/d 30,600 99,600 99,600 Particulars Amount Particulars Amount Issue of shares 50,000 Purchase of plant 38,000 Sale of Land & Building 10,000 Dividend paid 20,000 Funds from operation 69,100 Income Tax paid 20,000 Net increase in WC 51,100 1,29,100 1,29,100

19. Thank You