Presentation on FUND FLOW STATEMENT

Presented By:
LOKESH KUMAR PGDM-07003

Why we prepare fund flow statement?

The balance sheet and income statement are the traditional basic financial statement of a business enterprise. A serious limitation of these statements is that they do not provide information regarding changes in the firm‟s financial position during a particular period of time. They fail to answer following question What funds were available during the accounting period and for what purpose these funds were utilized? Have long term sources been adequate to finance fixed asset purchase? Does the firm possess adequate working capital? How much funds have been generated from operations? Why did the firm not pay dividend in spite of adequate profit?


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 The fund flow statement overcomes these limitations of basic financial statement.The balance sheet is merely a static statement. Fund flow statement will provide us information about different sources of fund and their various uses in particular time. It is statement of asset and liabilities of the business as on particular date. .

2. Capital fund –Here fund means all financial resources used in the business. material.Cash fund –In a narrow sense. as there are many such transactions which do not affect cash but represent the flow of fund . machine & others.funds generally refers to cash or cash equivalent or to working capital. 3. . „Cash flow statement‟ portrays net effect of the various business transactions on cash into account receipts & disbursement of cash. for example: purchase of furniture on credit does not affect cash but there is flow of fund. 1. whether in the form of men.MEANING OF FUND The term fund has a variety of meaning such as cash fund.Net working capital -Net working capital means difference between current asset and current liabilities . capital fund and working capital fund. money. fund means only cash. This concept of preparing fund flow statement is not accepted.

from one liability to another.e. The term „flow‟ refers to changes or transfer and therefore the „flow of funds‟ means transfer of economic values from one asset to another. So flow of fund refers to increase or decrease in net working capital. it does not amount to flow of fund.e.is a current account i. fixed asset or long term liability or capital. It is because. from one asset to liabilities or vice-versa or a combination of these.  When a change in non current account is followed by a change in another non current account. in such case.  The increase or decrease in net working capital will take place only when one account. MEANING OF FLOW . current asset or current liabilities and the other account is non current account i. neither the working capital increase nor decrease. out of two accounts to be affected in a transaction .

thus there will be no net changes in the amount of working capital.e.  When changes in one current account results in a changes in other current account . 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 . although the composition of working capital will be affected . Therefore working capital will remain unaffected i.it also does not affect working capital i.e.For example Machinery a/c Dr To share capital a/c (Machinery purchase in consideration of share)  In the above transaction both accounts are non current accounts which do not at all affect current asset and current liability. . there will be no flow of fund.

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

Schedule of Changes in Working Capital  It discloses the changes in individual item of current asset & current liabilities between two period & there effect on working capital. Statement or Schedule of Changes in Working Capital. whereas. 1. Therefore.  Net increase in working capital is treated as use of funds & the net decrease in working capital is treated as source of funds. working capital will decrease when there is a decrease in current asset & increase in current liabilities. Preparation of Fund Flow Statement . following two statements under this techniques . Working capital will increase when there is an increase in current asset and decrease in current liabilities. 2.The changes which occurred in the current accounts as a result flow of fund are reflected in a statement known as „schedule of changes in working capital’ . Statement of Sources and Uses of Funds or Funds Flow Statement. The similar changes in non current accounts are shown in ‘Fund Flow Statement’.

Statement or Schedule of Changes in Working Capital. 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) Unclaim dividend Total (B) Net Working Capital (A-B) Incraese / Decrease in Working Capital Total Incraese Rs. . Previous Year Current Year Effect on Working captial Decrease Rs.

Definitions of fund flow statement : In the words of Foulke. The effectiveness of financial management in procuring funds from various sources & using them effectively for generating income without sacrificing the financial position of the firm is reflected in fund flow statement . “ The fund flow statement summarizing the significant financial changes which were occurred between the beginning & the end of a company‟s accounting periods”.   . R. “a statement of source and application of fund is a technical device design to analysis the changes in the financial condition of business enterprises between two dates”.A.Meaning of fund flow statement :  This statement reveals resources from which funds were obtain by the firm hand the specific uses to which such funds were applied. According to : Almond Coleman..

The amount of net increase or decrease as shown in fund flow statement should be equal to the amount shown by schedule of working capital changes. Sources of fund 2. This fund flow statement has two parts : 1.  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 net decrease in working capital. . Application of fund  The difference between these two parts that is sources & uses of funds represents net changes in working capital.

Fund Flow Statement Sources of Fund Fund from operation Issue of share Issue of debenture long term loans Sale of fixed assets / Investment Non trading receipts Decrease in working capital (if any) Amount Uses Of Funds Loss from operation Redemption of preference shares Redemption of debentures Repayment of long term loans Purchase of fixed assets / Investments Payment of dividend & taxes Increase in working capital (if any) Amount .

. The amount of sales as shown in the P&L A/c is a source of funds by way of increase in cash . debtor and B/R.Fund from operations : The profit made by a firm through normal operations is a major source of funds.

Profit & loss Adjustment a\c Particular Amount Particular Profit or gain on sale of fixed asset Dividend received Interest received of investment Profit on revaluation of asset 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) Fund from operation .

Q-Comparative Balance sheet of Z Ltd. As year 2000 and 2001 were as follow Liabilities Account payable Notes payable Loan on Mortgage Capital Sinking fund Retained Earning Provision for DD Accumulated DepreciationBuilding furniture on 2001 8500 23500 30600 12000 10000 60000 7000 2000 2001 15000 10000 40000 50000 16000 13950 1350 12000 3200 161500 18000 75000 40000 45000 12000 16275 1425 9000 2400 151600 Assets Cash Account receivable Stock Sinking fund investment Land Building Furniture 2000 11200 21300 35000 16000 10000 60000 8000 161500 151600 .

You are giving information:• Net profit for the year 2001 amounted 6675. . • Prepare a statement of sources and uses of fund.5000 was paid during the year. • Dividend amounted to Rs.

Schedule of Changes in Working Capital Items CURRENR ASSETS:Cash Account receivable Stock TOTAL of CA (A) CUURENT LIABILITIES:Account payable Note payable Provision for D D TOTAL of CL (B) Difference b/w (A-B) Decrease in W C 2000 Amount 11200 21300 35000 67500 2001 Amount 8500 23500 30600 62600 Change in Increase Working capital Decrease 2700 2200 4400 15000 10000 1350 26350 41150 41150 18000 7500 1425 26925 35675 5475 41150 3000 2500 75 5475 10175 10175 .

Fund flow statement Sources of fund Amount Application of fund Sale of sinking fund investment Fund from operation Decrease in working capital Amount 4000 525 5475 10000 Redemption of share capital Dividend paid 5000 5000 10000 .

On building By fund flow operation Amount 13950 4000 3000 525 21475 21475 . On furniture To Dividend paid To Balance c/d Amount Particular 200 5000 16275 By balance b/d By sinking fund By accumulate dep.Profit & loss adjustment a\c Particular To Accumulate dep.

Accumulative deprecation Building Furniture Particul ar To P/L a/c To balance c/d Amo unt 3000 9000 12000 Particula r By balance b/d Amoun t 12000 Particular To furniture a/c To balance c/d Amou nt 1000 2400 3400 Particula Amoun t r By balance b/d By P/L a/c 3200 200 12000 3400 Furniture a\c Particular To balance b/d Amoun Particular t 8000 By deprecatio n By balance c/d Amoun t 1000 7000 8000 8000 .

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