23960241 Fund Flow Statement Skv

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Why we prepare fund flow statement?

The balance sheet and income statementare the traditional basic financial statement of abusiness enterprise. A serious limitation of these statements is that they do not provideinformation regarding changes in the firm’sfinancial position during a particular period of time. They fail to answer following question

What funds were available during theaccounting period and for what purpose thesefunds were utilized?

Have long term sources been adequate tofinance fixed asset purchase?

Does the firm possess adequate workingcapital?

How much funds have been generated fromoperations?

Why did the firm not pay dividend in spite of adequate profit?



The balance sheet is merely a staticstatement. It is statement of asset andliabilities of the business as on

particular date. The fund flow statementovercomes these limitations of basicfinancial statement. Fund flow

statement will provide us informationabout different sources of fund andtheir various uses in particular time.



MEANING OF FUND

The term fund has a variety of meaning such as cash fund,capital fund and working capital fund.

1.Cash fund –In a narrow sense, fund means only cash. ‘Cashflow statement’ portrays net effect of the various businesstransactions on cash into account receipts & disbursementof cash.

This concept of preparing fund flow statement is notaccepted, as there are many such transactions

which do not affect cash but represent the flow of fund .

for example: purchase of furniture on credit does not affectcash but there is flow of fund.

2. Capital fund –Here fund means all financial resources usedin the business, whether in the form of men, money,

material, machine & others.3.Net working capital -Net working capital means difference

between current asset and current liabilities .fundsgenerally refers to cash or cash equivalent or to workingcapital.



MEANING OF FLOW The term ‘flow’ refers to changes or transfer and

therefore the ‘flow of funds’ means transfer of economic values from one asset to another, from oneliability to another, from one asset to liabilities orvice-versa or a combination of these. So flow of fundrefers to increase or decrease in net working capital.

The increase or decrease in net working capitalwill take place only when one account, out of twoaccounts to be affected in a transaction ,is a currentaccount i.e. current asset or current liabilities and theother account is non current account i.e. fixed assetor long term liability or capital.

When a change in non current account is followedby a change in another non current account, it doesnot amount to flow of fund. It is because, in suchcase, neither the working capital increase nordecrease.



For exampleMachinery a/c Dr

To share capital a/c

(Machinery purchase in consideration of share)

In the above transaction both accounts are noncurrent accounts which do not at all affect currentasset and current liability. Therefore working capitalwill remain unaffected i.e. there will be no flow of

fund. When changes in one current account results in a

changes in other current account ,it also does notaffect working capital i.e. there is no flow of funds.

For example

Cash a/c Dr

To debtor a/c

(Cash received from debtor) It represents an increase of cash –a current asset account and

decrease of debtor again a current asset account .thus there will be nonet changes in the amount of working capital, although the compositionof working capital will be affected .



In the above figure the dotted line displays there will be no flow of fund &the dark line displays the flow of fund.



Preparation of Fund Flow Statement The changes which occurred in the current accounts as a result

flow of fund are reflected in a statement known as ‘scheduleof changes in working capital’ .

The similar changes in non current accounts are shown in ‘FundFlow Statement’.

Therefore, following two statements under this techniques.

1. Statement or Schedule of Changes in Working Capital.

2. Statement of Sources and Uses of Funds or Funds Flow

Statement.Schedule of Changes in Working Capital It discloses the changes in individual item of current asset &

current liabilities between two period & there effect on workingcapital. Working capital will increase when there is an increasein current asset and decrease in current liabilities, whereas,

working capital will decrease when there is a decrease incurrent asset & increase in current liabilities. Net increase in working capital is treated as use of funds & the

net decrease in working capital is treated as source of funds.



ItemItem

(A) Current(A) Current AssetsAssetsCash at bankCash at bank

Cash in handCash in hand

Stock in tradeStock in trade

DebtorsDebtors

Bills receivableBills receivable

Advance paymentAdvance payment

Short term investmentShort term investmentPrepaid expensePrepaid expense

Accrued incomeAccrued income

Total (A) Total (A)

(B) Current Liabilities(B) Current Liabilities

(1) Short term loans(1) Short term loans

(2) Bank overdraft(2) Bank overdraft

(3) Creditors(3) Creditors

(4) Bills payable(4) Bills payable

(5) Outstanding expenses(5) Outstanding expenses

(6) Unclaim dividend(6) Unclaim dividend

Total (B) Total (B)

Net Working Capital (A-B)Net Working Capital (A-B)

Incraese / Decrease in WorkingIncraese / Decrease in WorkingCapitalCapital

Total Total

Previous YearPrevious Year Current YearCurrent Year Effect onEffect on

Incraese Rs.Incraese Rs.

Working captialWorking captial

Decrease Rs.Decrease Rs.

Statement or Schedule of Changes in Working Capital.



Meaning of fund flow statement : This statement reveals resources from which

funds were obtain by the firm hand the specificuses to which such funds were applied. The

effectiveness of financial management inprocuring funds from various sources & usingthem effectively for generating income withoutsacrificing the financial position of the firm isreflected in fund flow statement .

Definitions of fund flow statement : In the words of Foulke, R.A., “a statement of

source and application of fund is a technicaldevice design to analysis the changes in thefinancial condition of business enterprises

between two dates”. According to : Almond Coleman, “ The fundflow statement summarizing the significantfinancial changes which were occurred betweenthe beginning & the end of a company’saccounting periods”.



This fund flow statement has two parts :1. Sources of fund2. Application of fund

The difference between these two parts that issources & uses of funds represents net changesin working capital.

The excess of sources of funds over uses of fund is the net increase in working capital &excess of uses over sources of fund is netdecrease in working capital.

The amount of net increase or decrease asshown in fund flow statement should be equal tothe amount shown by schedule of workingcapital changes.



FUND FLOW STATEMENT

Sources of FundSources of FundAAmountmount

Fund from operationFund from operation

Issue of shareIssue of share

Issue of debentureIssue of debenture

long term loanslong term loans

Sale of fixed assets /Sale of fixed assets /

InvestmentInvestment

Non trading receiptsNon trading receipts

Decrease in workingDecrease in working

capitalcapital

(if any)(if any)

Uses Of FundsUses Of Funds AmountAmount

Loss from operationLoss from operation

Redemption of Redemption of preference sharespreference shares

Redemption of Redemption of

debenturesdebentures

Repayment of Repayment of

long term loanslong term loansPurchase of fixed assetsPurchase of fixed assets

/ Investments/ Investments

Payment of dividend & taxesPayment of dividend & taxes

Increase in working capitalIncrease in working capital

(if any)(if any)



Fund from operations : The profit made by a firm through normal

operations is a major source of funds. The

amount of sales as shown in the P&L A/c is asource of funds by way of increase in cash ,

debtor and B/R.



PROFIT & LOSS ADJUSTMENT A\C ParticularParticularAmountAmount

DepreciationDepreciation

Loss on sale of fixed assetsLoss on sale of fixed assets

Under writing commissionsUnder writing commissions

Discount on issue of shares &Discount on issue of shares &

debenturesdebentures

Preliminary expense written off Preliminary expense written off

Deferred revenue expensesDeferred revenue expenses

Goodwill written off Goodwill written off

Patent or trademarkPatent or trademark

Provision for taxesProvision for taxes

(If treated non current(If treated non current))

Balance c/dBalance c/d

ParticularParticular AmountAmount

Balance b/dBalance b/d

Profit or gain on sale of Profit or gain on sale of

fixed assetfixed asset

Dividend receivedDividend received

Interest received of Interest received of

investmentinvestment

Profit on revaluationProfit on revaluation

of assetof asset

Fund from operationFund from operation (b/f)(b/f)



Q-COMPARATIVE BALANCE SHEET OF ZLTD. AS ON YEAR 2000 AND 2001 WERE AS

FOLLOWLiabilitiesLiabilities 20002000 20012001 AssetsAssets 20002000 20012001

AccountAccountpayablepayable

Notes payableNotes payableLoan onLoan onMortgageMortgage

CapitalCapital

Sinking fundSinking fund

RetainedRetainedEarningEarning

Provision for DDProvision for DD

AccumulatedAccumulatedDepreciation-Depreciation-

BuildingBuilding

furniturefurniture

1500015000

1000010000

4000040000

5000050000

1600016000

1395013950

13501350

1200012000

32003200

161500161500

1800018000

7500075000

4000040000

4500045000

1200012000

1627516275

14251425

90009000

24002400

151600151600

CashCash

AccountAccount

receivablereceivableStockStock

Sinking fundSinking fundinvestmentinvestment

LandLand

BuildingBuildingFurnitureFurniture

1120011200

21300213003500035000

1600016000

1000010000

600006000080008000

161500161500

85008500

23500235003060030600

1200012000

1000010000

600006000070007000

151600151600



YOU ARE GIVING INFORMATION:-

Net profit for the year 2001 amounted 6675.

Dividend amounted to Rs.5000 was paidduring the year.

Prepare a statement of sources and uses of fund.

CAPITAL



CAPITAL

ItemsItems

CURRENR ASSETS:-CURRENR ASSETS:-

CashCash

Account receivableAccount receivable

StockStock

TOTAL of CA (A) TOTAL of CA (A)CUURENTCUURENTLIABILITIES:-LIABILITIES:-

Account payableAccount payable

Note payableNote payable

Provision for D DProvision for D D

TOTAL of CL (B) TOTAL of CL (B)

Difference b/w (A-B)Difference b/w (A-B)

Decrease in W CDecrease in W C

20002000

AmountAmount

1120011200

2130021300

3500035000

6750067500

1500015000

1000010000

13501350

2635026350

4115041150

4115041150

20012001

AmountAmount

85008500

2350023500

3060030600

6260062600

1800018000

75007500

14251425

2692526925

3567535675

54755475

4115041150

Change inChange in

IncreaseIncrease

22002200

25002500

54755475

1017510175

WorkingWorkingcapitalcapital

DecreaseDecrease

27002700

44004400

30003000

7575

1017510175



FUND FLOW STATEMENT

Sources of Sources of fundfund

Sale of sinkingSale of sinkingfund investmentfund investment

Fund fromFund fromoperationoperation

Decrease inDecrease inworking capitalworking capital

AmountAmount

40004000

525525

54755475

1000010000

Application of Application of fundfund

Redemption of Redemption of

share capitalshare capital

Dividend paidDividend paid

AmountAmount

50005000

50005000

1000010000



PROFIT & LOSS ADJUSTMENT A\C

ParticularParticular

To Accumulate dep. To Accumulate dep.

On furnitureOn furniture To Dividend paid To Dividend paid

To Balance c/d To Balance c/d

AmountAmount

200200

50005000

1627516275

2147521475


By balance b/dBy balance b/d

By sinking fundBy sinking fundBy accumulate dep.By accumulate dep.On buildingOn building

By fund flowBy fund flowoperationoperation

AmountAmount

1395013950

40004000

30003000

525525

2147521475



ACCUMULATIVE DEPRECATIONBUILDING FURNITURE

ParticulParticularar

To P/L a/c To P/L a/c

To balance To balancec/dc/d

AmouAmountnt 30003000

90009000

1200012000

ParticulaParticularr By balanceBy balanceb/db/d

AmountAmount 1200012000

1200012000


To furniture To furniturea/ca/c

To balance To balancec/dc/d

AmounAmountt

10001000

24002400

34003400

ParticulaParticularrBy balanceBy balanceb/db/d

By P/L a/cBy P/L a/c

AmountAmount

32003200

200200

34003400


To balance To balanceb/db/d

AmountAmount

80008000

80008000


ByBydeprecatiodeprecationn

By balanceBy balancec/dc/d

AmountAmount

10001000

70007000

80008000

Furniture a\c

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23960241 Fund Flow Statement Skv

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