fundsflowstatement-150402074123-conversion-gate01.pdf

Fund flow stay

1. CHAPTER –IV
FUNDS FLOW SATEMENT

2. FlowofFundmeanstheinwardandoutward
movementofafundofanenterprise.
Forthepurpose,FundreferstoWorking
Capitalandflowmeansmovement or
changes.
Therefore,FlowofFundmeansmovementof
orchangesintheWorkingCapital(i.e.,
current)items.

3. Flow of Fund is identified by the means of inward or outward
movement of Current Assets and Current Liabilities.
When Current Assets increase or Current Liabilities
decrease—Inflows of Fund.
Working
Capital

4. TheFundsflowstatementcontainallthedetailsof
thefinancialresourceswhichhavebecame
availableduringanaccountingperiod.
Thisstatementdisclosestheamountsraisedfrom
varioussourcesoffinanceduringaperiod.
Itexplainsthathowfinancehasbeenusedinthe
business.
Itisaveryusefultoolinanalysisoffinancial
statementswhichanalysesthechangestaking
placebetweentwobalancesheetdates.

5. FundFlowStatementactsasanimportanttoolfor
financialanalysisandshowsthebriefreasonsforchange
intheWorkingCapitalbetweentwoBalanceSheet
dates.
FundFlowStatementexplainshowthefinancial
positionhaschangedfromthebeginningofan
accountingperiodtotheendofthatperiod.
Itactsasanimportantinstrumentforallocationof
resourcesofaconcern.
Itcanbeusedinplanningasounddividendpolicy.
Itisusefulinforecastingtheflowoffundsandin
projectingtheworkingcapitalrequirements.

6. FundFlowStatementisnotabasicFinancialStatement,butisa
supplementarystatement.Itdoesnotdiscloseanynewfactwhichisnot
reflectedintheIncomeStatementandtheBalanceSheet.
It provides a partial financial information to the management.
Itcannotpresentthecontinuouschangesinthefinancialposition.
It does not indicate the structural change of an asset or a liability.
It is prepared on the basis of historical data.
ItexhibitsthechangesintheFundposition,butdoesnotindicatethe
changesinthecashposition,whichismostimportantforeverybusiness
concern.

7. Thechangeswhichoccurredinthecurrent
accountsasaresultflowoffundarereflectedin
astatementknownas‘scheduleofchangesin
workingcapital’.
Thesimilarchangesinnoncurrentaccountsare
shownin‘FundFlowStatement’.
Therefore,followingtwostatementsunderthis
techniques.
1.StatementorScheduleofChangesin
WorkingCapital.
2.StatementofSourcesandUsesofFundsor
FundsFlow Statement.

8. A funds flow statement depicts change in working capital.
It will, therefore, be better for the
students to prepare first a
Schedule of Changes in Working
Capital before preparing a funds
flow statement.
The primary purpose of the statement is to explain the net
change in Working Capital, as arrived in Funds Flow Statement.
Itcanbepreparedbycomparingthe
currentassetsandthecurrent
liabilitiesoftwoperiods.

9. Item
(A) Current Assets
Cash at bank
Cash in hand
Stock in trade
Debtors
Bills receivable
Advance payment
Short term investment
Prepaid expense
Accrued income
Total (A)
(B) Current Liabilities
(1) Short term loans
(2) Bank overdraft
(3) Creditors
(4) Bills payable
(5) Outstanding expenses
(6) Unclaimdividend
Total (B)
Net Working Capital (A-B)
Incraese/ Decrease in Working Capital
Total
Previous YearCurrent Year
Effect on
IncraeseRs.
Working captial
Decrease Rs.
Statement or Schedule of Changes in Working Capital.

10. A decrease in current liabilities, increases working capital
An increase in current liabilities, decreases working capital
A decrease in current assets, decreases working capital
An increase in current assets, increases working capital

11. InordertoprepareaFundsFlowStatement,itis
necessarytofindoutthe“sources”and“applications”of
funds.
Whilepreparingafundsflowstatement,currentassets
andcurrentliabilitiesaretobeignored.
ConsiderthechangesinFixedAssetsandFixed
Liabilities.

12. Sources ofFunds Amount Application of Funds Amount
Issueof share capital ……. Redemption of pref. share ……..
Issue of debenture ……. Redemption of debenture ……..
Raising of long term loan ……. Payment of long term loan ……..
Salesof fixed assets ……. Purchase of fixed assets ……..
Interest received ……. Interest paid ……..
Dividend received ……. Dividendpaid .…….
Refund ofTaxes ……. Payment ofTaxes ……..
Decrease in working capital……. Increase in working capital……..
Fundfrom operation …….
TOTAL …….. TOTAL ……..

13. Particular Amount
Depreciation
Loss on sale of fixed assets
Under writing commissions
Discount on issue of shares &
debentures
Preliminary expense written off
Deferred revenue expenses
Goodwill written off
Patent or trademark
Provision for taxes
(If treated non current)
Particular Amount
Profit or gain on sale of
fixed asset
Dividend received
Interest received of
investment
Profit on revaluation
of asset
Fund from operation

14. Balance Sheet of M/s ______
Liabilities
as on 31
st
March
Assets
as on 31
st
March
2006 2007 2006 2007
Capital
Profit/Loss
Appropriation
Bank Loan
Bills Payable
Sundry Creditors
Reserve for
Taxation
18,50,000
14,78,000
12,00,000
4,00,000
14,00,000
2,00,000
21,00,000
17,64,000
9,00,0000
6,80,000
12,20,000
1,80,000
Goodwill (at Cost)
Land and Buildings
Plant and
Machinery
Furniture and
Fittings
Stock/Inventories
Sundry Debtors
Bills Receivable
Bank
Cash
6,00,000
18,50,000
4,74,000
1,94,000
8,26,000
12,00,000
8,00,000
5,00,000
84,000
6,00,000
22,00,000
5,24,000
1,94,000
7,24,000
12,80,000
7,21,000
4,83,000
1,18,000
TOTAL 65,28,000 68,44,000 TOTAL 65,28,000 68,44,000

15. Balance Sheet of M/s ______
Liabilities
as on 31
st
March
Assets
as on 31
st
March
2006 2007 2006 2007
Capital
Profit/Loss Appropriation
Bank Loan
Bills Payable
Sundry Creditors
Reserve for Taxation
18,50,000
14,78,000
12,00,000
4,00,000
14,00,000
2,00,000
21,00,000
17,64,000
9,00,0000
6,80,000
12,20,000
1,80,000
Goodwill (at Cost)
Land and Buildings
Plant and Machinery
Furniture and Fittings
Stock/Inventories
Sundry Debtors
Bills Receivable
Bank
Cash
6,00,000
18,50,000
4,74,000
1,94,000
8,26,000
12,00,000
8,00,000
5,00,000
84,000
6,00,000
22,00,000
5,24,000
1,94,000
7,24,000
12,80,000
7,21,000
4,83,000
1,18,000
TOTAL 65,28,000 68,44,000 TOTAL 65,28,000 68,44,000
Current Items
Non-Current Items

16. Schedule/Statement of Changes in Working Capital for the period from 31/03/06 to 31/03/07
Particulars/Account
Balance as on 31
st
March Working Capital Change
2006 2007 Increase Decrease
a) CURRENT ASSETS
1) Stock/Inventories
2) Sundry Debtors
3) Bills Receivable
4) Bank
5) Cash
826,000
1,200,000
800,000
500,000
84,000
724,000
1,280,000
721,000
483,000
118,000
80,000
34,000
102,000
79,000
17,000
TOTAL 3,410,000 3,326,000 114,000 198,000
b) CURRENT LIABILITIES
1) Bills Payable
2) Sundry Creditors
3) Provision for Taxation
400,000
1,400,000
200,000
680,000
1,220,000
180,000
180,000
20,000
280,000
TOTAL 2,000,000 2,080,000 200,000 280,000
Working Capital [(a) -(b)] 1,410,000 1,246,000
TOTAL 314,000 478,000
Net Change in Working Capital 164,000

17. Thereisadecreaseinworkingcapitaltotheextentof
164,000.
Thenetchangecanalsobeobtainedfromtheworking
capitalfiguresrelatingtothetwobalancesheetdates.
ChangeinWorkingCapital=
WorkingCapitalason31/03/07-WorkingCapitalason
31/03/06
=1,246,000–1,400,000
=-164,000
Negativevalueindicatesadecreaseinworkingcapital.

18. Whenthereisnoadditionaldataapartfromthe
balancesheetsandwearesurethatthereareno
othertransactionsthathaveaffectedthenon-
currentaccounts.
Therefore,wemayderivetheinflow/outflowby
comparingtheopeningandclosingfigures.

19. Statement of changes in Non -Current Accounts
Account
Balance as on 31
st
Dec Change
Type Result
2006 2007 Amount Direction
Capital
Profit/Loss
Appropriation
Bank Loan
Land and Building
Plant and Machinery
18,50,000
14,78,000
12,00,000
18,50,000
4,74,000
21,00,000
17,64,000
9,00,000
22,00,000
5,24,000
2,50,000
2,86,000
3,00,000
3,50,000
50,000
Increase
Increase
Decrease
Increase
Increase
Liability
Liability
Liability
Assets
Assets
Inflow
Inflow
outflow
outflow
outflow

20. Statement of Sources and Applications of Funds for the period from 31/03/06 to
31/03/07
Sources/Inflows of Funds Amount
Applications/Outflows
of Funds
Amount
Capital
Funds from Operations
[P/L Appropriation a/c]
2,50,000
2,86,000
Land and Buildings
Plant and Machinery
Bank Loan
3,50,000
50,000
3,00,000
5,36,000 7,00,000
Change in Fund (Working
Capital)
1,64,000
SincetheApplications/outflowsaremorethantheSources/InflowsofFundsthereisaNet
decreaseinFund(WorkingCapital)=700,000–536,000=164,000

24. Balance Sheet of M/s ___
Liabilities
As on 31st December
Assets
As on 31st December
2004 2005 2004 2005
Share Capital
Profit and Loss
Appropriation account
Long Term Loan
Sundry Creditors
Bills Payable
10,000
5,000
4,000
8,000
5,000
15,000
8,000
6,000
12,000
3,000
Cash
Debtors
Stock
Machinery
Land
5,000
10,000
10,000
3,000
4,000
8,000
15,000
12,000
5,000
4,000
32,000 44,000 32,000 44,000

25. By
Dr.SureshVadde
M.Com;MFA;MBA;M.Phil;Ph.D
Associate Professor
Dept. of Management
Samara University, Ethiopia.