Fund Flow[1] - Copy

8/2/2019 Fund Flow[1] - Copy

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A PRESENTATION BY :

Ralf

Sandeep WSandeep KRupaliDipika


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The funds-flow-statement is a report on financial

operations changes, flow or movements during theperiod.

It is a statement, which shows the sources andapplication of funds or it shows how the activities of a

business is financed in a particulate period.

In other words, such a statement shows how thefinancial resources have been used during a particularperiod of time.

It is, thus, a historical statement showing sources andapplication of funds between the two dates designedespecially to analyze the changes in the financialconditions of an enterprise.

Cont


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In the words of Foulke, it is-A statement of Sources and Application of Funds is atechnical device designed to analyze the changes in

the financial condition of a business enterprisesbetween two dates.

Funds Flow Statement is not an income statement.Income statement shows the items of income and

expenditure of a particular period, but the Funds flowstatement is an operating statement as it summariesthe financial activities for a period of time. It coversall movements that involve an actual exchange ofassets.

Various titles are used for this statement such as-'Statement of sources and Application of Funds,Summary of Financial operations. Changes inFinancial Position, Fund received and Disbursed,

Funds Generated and Expended, Changes in WorkingCapital, Statement of Fund etc.


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Title of Funds Flow Statement has been modifiedfrom time to time.

A new interpretation of the term Funds, has nowbeen adopted as to include assets or financialresourceful which do not flow through the workingcapital accounts.

It seems to be the most suitable meaning for the term'funds' but the most commonly used interpretation ofthe term 'funds' is Working Capital'.


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Funds Flow Statement is an analytical tool in the

hands of financial manager.

The basic purpose of this statement is to indicate onhistorical basis the changes in the working capital i.e.,where funds came from and were there is used duringa given period.

The utility of this statement can be measured on thebasis of its contributions to the financial management.

It serves the following major purposes :

Analysis of Financial Position Evaluation of the Firm's Financing An Instrument for Allocation of Resources A Tool of Communication to Outside World Future Guide


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The basic purpose of preparing the statement is to

have a rich into the financial operations of theconcern.

It analyses how the funds were obtained and used inthe past.

In this sense, it is a valuable tool for the financemanager for analyzing the past and future plans of thefirm and their impact on the liquidity.


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One important use of the statement is that it evaluates

the firms financing capacity.

The analysis of sources of funds reveals how thefirm's financed its development projects in the pasti.e.,from internal sources or from external sources.

It also reveals the rate of growth of the firm.


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Funds Flow Statement helps in gathering the financial

states of Business.

It gives an insight into the evolution of the presentfinancial position and gives answer to the problem'where have our resources been moving'?

In the present world of credit financing, it provides auseful information to bankers,creditors,financialinstitutions, Government etc.

It provides information regarding amount of loanrequired, its proposes, the terms of repayment ansources for repayment of loan etc.

The financial manager gains a confidence born out of astudy of Funds Flow Statement.

In fact, it carries information regarding firm's financial

policies to the outside world.


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An analysis of Funds Flow Statements of several years

reveals certain valuable information for the financialmanager for planning the future financialrequirements of the firm and their nature too i.e. Shortterm, long-term or mid term.

The management can formulate its financial policiesbased on information gathered from the analysis of

such statements.

The above were the purposes the Fund Flow StatementServes.


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CURRENT ASSETS:

These are those assets, which are expected to be realizedor sold or consumed within the normal operating cycle.

These assets change and fluctuate within a shorter periodof time. It includes-

Cash and Bank Balances Temporary investments Bills Receivable Trade Debtors Stock Prepaid Expenses Advances for Suppliers

Short Term Loan and Advances Accrued Incomes etc.

Cont


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CURRENT LIABILITIES:

These are those liabilities that are short-termobligations, which are either to be paid out of current

assets or by creating current liabilities.

Provisions against current assets are to be consideredas current liabilities, as these provisions reduce theamount realizable from the respective current assets. Itincludes-

Trade Creditors Bills Payable Bank Overdraft Outstanding expenses

Provision for Doubtful Debts Provision for Discount on Debtors etc


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Transactions that increase working capital are

sources of funds.

Some of them are-

Funds from Operations.

Funds from issue of Share Capital.

Funds from Issue of Debentures, Acceptance ofPublic Deposits and other Long-term Loans

Sale of Fixed Assets.

Net Decrease in Working Capital. etc


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Loss from operations

-Loss from operations either decreases the currentassets or increases the current liabilities or in otherwords reduces the funds.

Purchase of Fixed Assets

-If any fixed asset like building,machinery,furnitureor investments is purchased, it will reduce thecurrent asset (cash) without any correspondingdecrease in current liability.

Repayment of loans, Redemption of Debenturesor preference share capital

-Any such repayment including the payment ofpremium on redemption of debentures orpreference shares is an application of fundsbecause it reduces the current assets. Cont


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Schedule of changes in working capitalParticulars Previous Year

Rs.Current YearRs.

Changes in Working Capital

IncreaseRs.

DecreaseRs.

A.CURRENT ASSETS

StockDebtorsBills ReceivableCash/BankPrepaid ExpensesAccrued IncomesMarketable Investments

(A)

B. CURRENT LIABILITIES

CreditorsBills payableOutstanding expensesBank overdraft

Provision for Doubtful DoubtsProvision for Discount on DebtorsUnclaimed/Unpaid Dividend

(B)

Working Capital(A-B)

Increase/Decrease in Working Capital


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Liabilities 31.12.2005Rs. 31.12.2004Rs. Assets 31.12.2005Rs. 31.12.2004Rs.

Equity Share Capital 5,00,000 3,00,000 Fixed AssetsLess :

AccumulatedDepreciation

7,95,000

(-)1,86,0006,09,000

8,22,000

1,49,0006,73,000Preference ShareCapital 2,00,000 3,00,000 Investments 2,65,000 2,00,000Securities Premium 80,000 50,000 Stocks of Materials 85,0000 1,10,000Capital Reserve 50,000 20,000 Stock of Finished

Goods1,65,000 1,25,000

Profit and Loss a/c 1,20,000 1,66,000 Sundry Debtors 1,92,000 1,60,00010% Debentures - 3,00,000 Bills Receivable 1,42,000 1,20,00015% Debentures 2,20,000 1,20,000 Cash on Hand 22,000 10,000Sundry Creditors 1,10,000 90,000 Cash at Bank - 40,000Bills Payable 45,000 50,000 Prepaid Expenses 15,000 25,000Outstanding Expenses 10,000 15,000 Preliminary

Expenses10,000 30,000

Bank Overdraft 40,000 -Proposed Dividend 70,000 30,000Provision for Taxation 60,000 52,000

15 05 000 14 93 000 15 05 5000 14 93 000


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1. During the year 2005, an Interim Dividend of

Rs.25,000/- was paid.2. Income- tax paid of Rs.48,000/-

3. During the year 2005,Fixed Assets Rs.1,29,000/- werepurchased and Depreciation provided on Fixed Assetsamounted to Rs. 77,500/-

4. Old Machinery was sold at profit, which was creditedto Capital Reserve .

5. Preference Shares were Redeemed at 10%Premium on1st January,2005.Premium paid on redemption wasdebited to Securities Premium Account

6. Investments costing Rs.42,000/- were sold forRs.51,000/-


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Particulars Previous Year(2004) Rs.

Current Year(2005) Rs.

Changes in working capital

Increase Rs. Decrease Rs.

A.CURRENT ASSETSStock of Materials

Stock of Finished GoodsSundry DebtorsBills ReceivableCash on HandCash at BankPrepaid Expenses

(A)

1,10,000

1,25,0001,60,0001,20,00010,00040,00025,000

85,000

1,65,0001,92,0001,42,00022,000-15,000

-

40,00032,00022,00012,000--

25,000

40,00010,000

5,90,000 6,06,000

B. CURRENT LIABILITIESSundry CreditorsBills payableOutstanding expensesBank overdraft

(B)

Working Capital(A-B)

Net Decrease in Working Capital

90,00050,00015,000-

1,10,00045,00010,00040,000

-5,0005,000-

19,000

20,000--40,000

1,55,000 2,05,000

34,000

4,35,000 4,35,000 1,35,000 1,35,000


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Sources Rs. Application Rs.

Sale proceeds offixed

assets(Machinery)

1,45,000 Purchase of fixedassets

1,29,000

Sale of investments 51,000 Purchase ofinvestments

1,07,000

Proceeds of equityshare

(2,00,000+40,000)

2,40,000 10% debenturesrepaid

3,00,000

Issue of 15%debentures

1,00,000 Redemption ofpreference shares(1,00,000 +10,000)

1,10,000

Net decrease inworking capital 19,000 Proposed dividendof last year 30,000

Funds fromoperation

1,93,500 Income tax paid 48,000

Interim dividendpaid

25,000

7,49,000 7,49,000


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PARTICULARS RS. PARTICULARS RS.

To ProposedDividend

70,000 By Balance c/d 1,66,000

To provision for tax 56,000 By profit on sale ofinvestment

9000

To preliminaryexpenses

20,000

To depreciation onfixed assets

77,500

To interim dividend 25,000

To Balance c/d 1,20,000 By funds formoperation (balancingfigure)

1,93,500

3,68,500 3,68,500


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Particulars Rs. Particulars Rs.

To Balance b/d 2,00,000 By cash/bank(sold) 51,000

To P&L Adjustment 9,000 By Balance c/d 2,65,000To Cash/Bank(Balancing Figure) 1,07,000

3,16,000 3,16,000

Particulars Rs Particulars Rs.

To Balance b/d 8,22,000 By transfer to fixed assets-sold(Balancing Figure)

1,56,000

To cash/bank 1,29,000 By Balance b/d 7,95,000

9,51,000 9,51,000

Particulars Rs Particulars Rs.

To transfer to fixedassets(balance figure)

40,500 By Balance b/d 1,49,000

To Balance b/d 1,86,000 By Profit and Loss

Adjustment Account

77,500

2,26,500 2,26,500


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Particulars Rs Particulars Rs

By Balance b/d 20,000

To Balance c/d 50,000 By transfer from fixedasset s sold a/c

30,000

50,000 50,000


To transfer from fixedassets

1,56,000 By provision fordepreciation

40,500

To transfer to capitalreserve(profit on saletransfer to capital reserve)

30,000 By cash/bank (balancingfigure)

1,45,000

1,86,000 1,86,000


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To cash/bank a/c 48,000 By Balance c/d 52,000

To Balance c/d 60,000 By P&L Adjustment

(balancing figure)

56,000

1,08,000 1,08,000


To cash/bank(Last Year) 30,000 By Balance c/d 30,000

To Balance c/d 70,000 By P&L Adjustment(balancing figure)

70,000

1,00,000 1,00,000


To premium on redemption 10,000 By balance c/d 50,000

To balance c/d 80,000 By cash/bank (balancingfigure)

40,000

90,000 90,000


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