FUND FLOW:

A fund flow statement is a statement prepared to analyse the reasons for

changes in the financial position of a company between two balance
sheets. It portrays the inflow and outflow of funds i.e. sources of funds and
applications of funds for a particular period.
Fund flow statement is prepared to explain the changes in the 
working capital (Net Working capital) position of a company.
the profit and loss and balance sheet will not explain the reasons for a
change in the financial position.
There are 2 types of Inflows of Funds:-
• Long Term Funds raised by Issue of Shares, Debentures or Sale of Fixed
Assets
• Funds generated from Operations
BENEFITS OF FUND FLOW STATEMENT:

• Detailed analysis and understanding of changes in the distribution of financial

resources between two balance sheet dates.
• Shows how the funds were obtained and used during a period.
• Gives an indication of any weakness or strength in the general financial position of
a firm.
• Working capital and changes in working capital in highlighted.
• The Funds Flow Statement Analysis helps the investors to decide whether the
company has managed the funds properly.
• It helps the management to take policy decisions and to decide about the financing
policies and Capital Expenditure for the future.
 Fund Flow statement for the year ending
Particulars Rs Rs
Sources of funds:
Issue of shares xxx
Issue of debentures xxx
Sale of fixed assets xxx
Investments sold xxx
Funds from operations xxx
Total Sources (A) xxx
Applications of funds:
Repayment of long term loans xxx
Redemption of preference shares xxx
Redemption of debentures xxx
Purchase of fixed assets xxx
Tax Paid xxx
Dividend paid xxx
Investments purchased xxx
outflow of funds on account of operations xxx
Total Applications (B) xxx
Inc/Dec in working capital (A-B) xxx
 Fund Flow statement for the year ending
Sources of Funds Rs Applications of Funds Rs
Funds from operations xxx outflow of funds on account of operations xxx
Issue of shares xxx Repayment of long term loans xxx
Issue of debentures xxx Redemption of preference shares xxx
Sale of fixed assets xxx Redemption of debentures xxx
Investments sold xxx Purchase of fixed assets xxx
Decrease in WC (Bal.fig) xxx Tax Paid xxx
Dividend paid xxx
Investments purchased xxx
Increase in WC (Bal.fig) xxx
xxx xxx
Step I: Prepare Statement of Changes in Working Capital
Statement of changes in working capital
Changes in working capital
Particulars Year Year Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:
Cash xxx xxx xxx …..
Bank Balance xxx xxx xxx …..
Stock xxx xxx ….. xxx
Sundry debtors xxx xxx ….. xxx
Prepaid expenses xxx xxx xxx …..
Total (A) xxx xxx
Current Liabilities:
Creditors xxx xxxx ….. xxx
Bills payable xxx xxx xxx …..
Outstanding expenses xxx xxx xxx …..
Short term loans xxx xxx ….. xxx
Bank overdraft xxxx xxx xxx …..
Total (B) xxx xxx
Working Capital (A-B) xxx xxx
Net Increase/Decrease in Working capital xxx …..
xxx xxx xxx xxx
Step II: Prepare Funds from Operations
• The next Step is to prepare the Funds generated only from the 
Operating Activities of the Business and not from the Investing/Financing
Activities of the business.
Statement for funds from operations
Particulars Rs Rs
Net Profit for the year xxx
Add Depreciation xxx
Goodwill written off xxx
Preliminary exp. written off xxx
Underwritti ng commission written off xxx
Discount on issue of debentures xxx
Expense on issue of shares/debentures xxx
Loss on sale of fixed asset xxx
Interest paid xxx
Dividend paid xxx
Transfer to reserve/funt etc xxx
Provision for tax xxx
Other non-current/non-operating expensses xxx xxx
Less Profit on sale of fixed asset xxx
Int/rent/dividend received xxx
Refund of tax xxx
Transfer from reserves xxx
Other non-current/non-operating income xxx
Net funds from/lost in operations xxx
 Adjusted Profit and Loss A/C
Particulars Rs Particulars Rs
To Depreciation xxx By balance b/d xxx
To Goodwill written off xxx By Profit on sale of fixed asset xxx
To Preliminary exp. written off xxx By Int/rent/dividend received xxx
To Underwritting commission written off xxx By Refund of tax xxx
To Discount on issue of debentures xxx By Transfer from reserves xxx
To Expense on issue of shares/debentures xxx By Other non-operating income xxx
To Loss on sale of fixed asset xxx By funds from operations(bal.fig) xxx
To Interest paid xxx
To Dividend paid xxx
To Transfer to reserve/funt etc xxx
To Provision for tax xxx
To Other non-operating expensses xxx
To funds lost in operations (bal fig) xxx
To balance c/d xxx
xxx xxx
 Balance sheet of a company
Liabilities 31.3.20 31.3.21 Assets 31.3.20 31.3.21
10% preference share capital100000 110000 Machinery 200000 230000
Equity share capital 220000 250000 Buildings 150000 176000
Share premium 20000 26000 Land 18000 18000
P&L A/c 104000 134000 Cash 42000 32000
12% debentures 70000 64000 Debtors 38000 38000
Creditors 38000 46000 Bills receivable42000 62000
Bills payable 5000 4000 Stock 84000 98000
Provision for taxation 10000 12000
Dividend payable 7000 8000
574000 654000 574000 654000
 Statement of changes in working capital
Changes in working capital
Particulars 31.3.20 31.3.21 Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:
Cash 42000 32000 10000
Debtors 38000 38000
Bills receivable 42000 62000 20000
Stock 84000 98000 14000
Total (A) 206000 230000
Current Liabilities:
Creditors 38000 46000 ….. 8000
Bills payable 5000 4000 1000 …..
Provision for taxation 10000 12000 ….. …..
Dividend payable 7000 8000 1000
Total (B) 50000 58000
Working Capital (A-B) 156000 172000
Net Increase in Working capital
16000 16000
(bal fig)
35000 35000
 Statement for funds from operations
  Particulars Rs Rs
  Net Profit for the year   30000
Add Provision for tax 2000  
      32000
Less   0  
  Net funds from in operations   32000

Fund Flow statement for the year ending

Particulars Rs Rs
Sources of funds:    
Preference share capital 10000  
Equity share capital 30000  
Share premium 6000  
Funds from operations 32000  
Total Sources (A)   78000
Applications of funds:    
Redemption of debentures 6000  
Purchase of Machinery 30000  
Purchase of building 26000  
Total Applications (B)   62000
Inc (A-B)   16000
 Balance sheet of a company

Liabilities 31.3.20 31.3.21 Assets 31.3.20 31.3.21

share capital 300000 400000Machinery 50000 60000

Creditors 100000 70000Buildings 10000 15000

P&L A/c 15000 30000Stock 85000 105000

      Cash 110000 170000

      Debtors 160000 150000

  415000 500000  415000 500000

 Statement of changes in working capital
Changes in working capital
Particulars 31.3.20 31.3.21 Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:        
Cash 110000 170000 60000  
Debtors 160000 150000   10000
Stock 85000 105000 20000  
Total (A) 355000 425000   
Current Liabilities:        
Creditors 100000 70000 30000  
Total (B) 100000 70000   
Working Capital (A-B) 255000 355000   
Net Increase in Working capital 100000    100000
        (bal fig)
      110000 110000
 Statement for funds from operations
  Particulars Rs Rs
  Net Profit for the year   15000
  Net funds from in operations   15000

Fund Flow statement for the year ending

Particulars Rs Rs
Sources of funds:    
share capital 100000  
Funds from operations 15000  
Total Sources (A)   115000
Applications of funds:    
Purchase of Machinery 10000  
Purchase of building 5000  
Total Applications (B)   15000
Inc (A-B)   100000
 Balance sheet of a company
Liabilities 31.3.20 31.3.21 Assets 31.3.20 31.3.21
share capital 200000 200000Goodwill 24000 24000
General Reserve 28000 36000Buildings 80000 72000
P&L A/c 32000 26000Plant 74000 72000
Creditors 16000 10800Investment 20000 22000
Bills payable 3200 2800Stock 60000 46800
Provision for taxation 32000 36000Bills receivable 4000 6400
      Debtors 36000 38000
      Bank 13200 30400
  311200 311600  311200 311600

Additional information:
Depreciation on plant Rs.8,000
Interim dividend of Rs.16,000 was paid
• Interim dividend is the dividend which is paid during the middle of

the year or in between two annual general meeting of a company.

It is a non-operating item. Thus the amount of interim dividend

proposed during the year will be debited to Adjusted Profit and

Loss Account and actual payment of such dividend will be shown as

an application of fund.
 Statement of changes in working capital
Changes in working capital
Particulars 31.3.20 31.3.21 Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:        
Stock 60000 46800   13200
Bills receivable 4000 6400 2400  
Debtors 36000 38000 2000  
Bank 13200 30400 17200  
Total (A) 113200 121600   
Current Liabilities:        
Creditors 16000 10800 5200  
Bills payable 3200 2800 400  
        0
Total (B) 19200 13600   
Working Capital (A-B) 94000 108000  14000
Net Increase in Working capital 14000     
        (bal fig)
      27200 27200
 Statement for funds from operations
  Particulars Rs Rs
  Net loss for the year   -6000
Add Depreciation plant 8000
  Depreciation building 8000
  Transfer to reserve 8000
  Provision for tax 4000
  Interim dividend paid 16000 44000
less      
  Net funds from in operations   38000
 Fund Flow statement for the year ending
Particulars Rs Rs
Sources of funds:    
share capital ………..  
   
Funds from operations 38000  
Total Sources (A)   38000
Applications of funds:    
Purchase of Plant 6000  
Investments purchased 2000  
Interim dividend paid 16000  
Total Applications (B)   24000
Inc (A-B)   14000