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To answer these questions related with-The factors responsible for the difference in the owners equity, assets and liabilities of the firm at two consecutive balance sheet dates. The premier financing and investment activities of the firm during this period.
finance fixed assets purchases? Does the firm posses adequate WC? Why did the firm not pay the dividend in spite of adequate profits? How much funds have been generated from operations? Has the liquidity position improved?
A summary of a firms changes in financial position from one period to another; it is also called a sources and uses of funds statement or a statement of changes in financial position.
Source Funds from business operations. Other incomes Sale of non current assets. Long term borrowings Issue of additional share capital. Decrease in WC
Uses Loss from business operations. Purchase pf non current assets. Redemption of debentures or pref. shares. Payment of dividend and tax. Increase in WC
S U
A +
L + -
Transactions not affecting WC A simultaneous increase in CA and increase in CL does not affect WC. A simultaneous decrease in CL and decrease in CA does not affect WC. A simultaneous increase/ decrease in CA and CL does not affect WC. Eg. Payment of cr. (-cash and Cr.)
General Rules
Transactions affecting WC: An increase in CA Increases WC A decrease in CA- Decreases WC An increase in CL- Decreases WC A decrease in CL Increases WC.
Amt. PY
Amt. CY
Total current assets B. Current Liabilities Creditors Bills Payable Total current liabilities Net WC(A-B) Net Increase/ Decrease in WC.
2,000 Nil
Nil 3,000
3,000 7,000
7,000
Calculation of FFO/FLO
A. Net income as per C . Less: Premium on P&L a/c Debenture. B. Add: Revaluation of non Dep. Expenses CA. Amortization of Dividends and Goodwill, Patents interest received. and other intangibles. Discount on debenture or share. Extraordinary D. Funds from /lost in losses. Operations: Loss on sale of non (A+B-C) current assets.
Alternative method
simultaneously provides an explanation of why a firms cash position has changed between successive balance sheet dates and explains changes that have taken place in the firms noncash asset, liability, and stockholders equity accounts over the same time period.
(Cash in flows cash out flows) Net Cash flow from investing activities. (Cash in flows cash out flows) Net Cash flow from financing activities. (Cash in flows cash out flows)
3,30,000 4,65,000
2006 43,000
Inc. 34,000
Interest Payable 37,000 Dividend Payable 50,000 Total CL Net WC (A-B) Net Increase in WC 2,60,000 70,000 80,000 1,50,000
30,000
Nil
1,10,000
1,00,000 1,10,000
2005
3,00,000 20,000 69,000 3,89,000 1,15,000 6,000 1,21,000 2,68,000 90,000 3,58,000
2006
Inc.
Dec.
Nil Nil 8,000
3,50,000 50,000 40,000 20,000 61,000 Nil 4,51,000 90,000 25,000 3,000 93,000 3,58,000 3,000
Total B. Current Liabilities: Creditors Provision for Doubtful Debts Total Net Working Capital (A-B) Net Increase in WC
Nil Nil
Particulars
Amt. Rs
Total
Total
24,000
Total
24,000
Particulars To Prov for Dep P&M L&B To Pre. Exp W / off To Dividend To loss on sale To Bal C/d
5.
Sales 10,00,000 -Cost of sales 6,00,000 GP (1-2) 4,00,000 -OP exp 1,32,500 (inc int). Dep 10,000 OPBIT(3-4) 2,57,500
6. 7. 8. 9. 10. 11.
-Int
on Debt 7,500 NPBT(5-6) 2,50,000 -Taxes 1,00,000 Net PAT(7-8) 1,50,000 -Dividend 70,000 -Retained 80,000 Earning(9-10)