Format of Fund flow statement- Meaning, Steps, Numericals

October 10, 2021

TOPIC CONTENT – Format of fund flow statement

1. Meaning Of Fund Flow Statement

2. Steps to prepare Fund Flow Statement 3. Formats 4. Download PPT 5. Numericals

PPT IS AVAILABLE AT THE END OF THIS TOPIC

Meaning of fund flow statement

A fund flow statement shows the current position of funds of the company over a period and enables
analysis of sources and uses of funds for a particular period of time. It shows where the funds have been
received from and where the company spends them.

fund flow statement is not mandatory to make by any company as it is prepared due to analysis of
funds. But the cash flow statement is mandatory.

Steps To Prepare Fund Flow Statement

The steps involved in preparing thestatement are as follows:

  STEP1 Prepare statement of change in working capital

STEP2  Prepare funds from operation

STEP3 Preparation of fund flow statement

To learn steps in brief click here ( how to do numerical)

1. CHANGES IN WORKING CAPITAL

Step 1: Preparation of Statement of Changes in Working Capital: Statement of Changes in working
capital shows the net increase or decrease in the working capital of the business.
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The working capital of the firm increases if there is an increase in the current assets or a decrease in the
current liabilities. However, the working capital of the firm decreases if there is a decrease in the current
assets and an increase in the current liabilities. Watch the video on youtube for learning.

FORMAT OF CHANGES IN WORKING CAPITAL

2. FUNDS FROM OPERATION

Step 2: Determination of Funds from Operations:

 MEANING OF FUND FROM OPERATION-  Funds from operations refer to the profit earned or loss incurred
from the regular business operation.

Funds from the operation are necessary for the preparation of the fund flow statement. Fund from the
operation can be solved by direct or indirect method. The Indirect Method is more applicable.

DIRECT METHOD
 INDIRECT METHOD

Read More- Importance of Corporate Governance

3. FUND FLOW STATEMENT

 Preparation of Fund Flow Statement: After recognizing the funds/loss from operations, a fund flow
statement is prepared, which will show the net increase or decrease in the working capital.

Basically, any change in the assets and liabilities may result in the inflows and outflows of funds, but not
always, as in case of depreciation or revaluation of assets, there is no inflow or outflow of funds. Hence, only
those assets or liabilities will become a part of the statement, which actually leads to the flows of the fund
to/from the business.

FORMAT OF FUND FLOW STATEMENT

While preparing the Funds Flow Statement, the Sources and Uses of Funds are to be disclosed clearly so as
to highlight the Sources from where the Funds have been generated the Uses to which these Funds have
been applied. This Statement is also sometimes referred to as the Sources and Applications of Funds
Statement or Statement of Changes in Financial Position.

Sources of Funds
Items to be shown under the head Sources of Funds are as follows:-

1. Issue of Shares and Debentures for Cash: – The total amount received from the Issue of Shares or
Debentures is to shown under this head. But, the Issue of Bonus Shares or Conversion of Debentures into
Equity Shares or Shares issued to vendors shall not be shown here as there is no inflow of Cash
2. Sale of Investments and other Fixed Assets: The Total Amount received on the sale of Investments and
other Fixed Assets is to be shown under this head.
3. Funds from Operations: The Funds generated from Operations as computed in Step II are also required
to be shown here.
4. Decrease in Working Capital: This would be the Balancing Figure of the Statement and will come from a
change in Working Capital Statement

Application of Funds
Items to be shown under Application of Funds are as follows:-

1. Purchase of Fixed Assets and Investments: The Cash Payment made for the purchase of Fixed Assets and
Investments is an application of Funds. But if the purchase is made by issue of shares or debentures, such
a transaction will not constitute application of funds. Similarly, if the purchases are on credit, these will
not constitute fund applications.
2. Redemption of Debentures, Preference Shares, and Repayment of Loan:-  Payment made including
Premium (less: Discount) is to be taken as fund application
3. Payment of Dividend & Tax: Payment of Dividend and Tax is to be taken as applications of the fund if the
provisions are excluded from Current Liabilities and Current Provisions are added back to profit to
determine the “Funds from Operations”