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Fund Flow Statement

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Published in: Cost Accounting and Financial Management | Financial Management
16,296 Views

Meaning of Fund Flow And How To Prepare The Fund Flow Statement.

Dr.Amit G / Delhi

22 years of teaching experience

Qualification: Ph.D ( - 2012), M.Com ( - 2002), MBA/PGDM ( - 2010), B.Com ( - 2000)

Teaches: Accountancy, Economics, Costing, Financial Management, Statistics, BBA Subjects, Management Subjects

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  1. FUND FLOW STATEMENT 1/10/2018 Dr. Amit Gupta 1
  2. FUND FLOW STATEMENT FUND FLOW STATEMENT • As the words indicates fund flow refers to the changes in fund (i.e. Working capital) by a business transaction . • There is always a flow of fund (change in working capital) by these business transaction whiff): (a) Increase the current asset's but do not bring any increase in current liabilities and vice-versa. (b) Decrease in current asset's but do not bring any decrease in current liabilities and vice-versa Hence, the differenæ between the Wo (current asset &current liabilities) is called working capital 1/10/2018 Dr. Amit Gupta 2
  3. Scientific methods of preparation of Fund Flow Statement Scientific methods of preparation of fund flow statement FUND FLOW STATÉMÉNT •eeee CHANGE IN WORKING CAPITAL 1/10/2018 STATEMENT OF SOURCES AND USES OF FUND Dr. Amit Gupta FUND FROM OPÉRATION 3
  4. SCHEDULES IN THV CHANGES OF WORKING CAPITAL Particulars A.CURRENT ASSETS Stock Debtors Bills Receivable Cash/Bank Prepaid Expenses Accrued Incomes Marketable Investments (A) B. CURRENT LIABILITIES Creditors Bills payable Outstanding expenses Bank overdraft Provision for Doubtful Doubts Provision for Discount on Debtors Unclaimed/Unpaid Dividend Working Capital Increase/Decrease in Working Capital 1/10/2018 Previous Year Current Year Changes in Working Capital Increase (B) Dr. AmitG pta Decrease Rs. 4
  5. Funds from operations Direct method ' Indirect method Direct method Funds from operations = Funds from operating revenue less funds for operating expenses 1/10/2018 Dr. Amit Gupta 5
  6. Indirect Method To Net Profit ( given ) To Non - Cash Expenses Depreciation Written off entries To Loss on sale of assets To Bad debts To Tax To Dividends To Transfer to reserves 1/10/2018 Profit & Loss Adjustment Account By Non- Cash income Revaluation of assets Revaluation of investments By Profits on sale of assets By Dividend received By Funds from Operations Dr. Amit Gupta 6
  7. Statement of Adjustment Net Profit as per Profit & Loss Account Add: Non- Cash and non — operating expenses Less : Non-cash and non- operating income Funds from operations 1/10/2018 Dr. Amit Gupta 7
  8. Format of Fund Flow Statement Sources / Inflow Funds from Operations Sale of fixed assets Sale of Investments Issue of shares Issue of debenture Loan taken Dividend Received Non-Operating income Decrease in working capital 1/10/2018 Applications/OutfIow Funds lost in operations Purchase of fixed assets Purchase of investments Redemption of preference shares Redemption of debenture Loan repaid Dividend paid Non — operating expenses Increase in working capital Dr. Amit Gupta 8
  9. Q. BALANCE SHEET OF PACIFIC LTD. ON 31ST DECEMBER,2005 AND 2004 Liabilities Equity Share Capital Preference Share Capital Securities Premium Capital Reserve Profit and Loss a/c 10% Debentures 15% Debentures Sundry Creditors Bills Payable Outstanding Expenses Bank Overdraft Proposed Dividend Provision for Taxation 1/10/2018 31.12.2005 80,000 50,000 45,000 10,000 40,000 70,000 60,000 31.12.2004 50,000 20,000 90,000 50,000 15,000 30,000 52,000 . Amit Assets Fixed Assets Less : Accumulated Depreciation Investments Stocks of Materials Stock of Finished Goods Sundry Debtors Bills Receivable Cash on Hand Cash at Bank Prepaid Expenses Preliminary Expenses ] pta 31.12.2005 85,0000 22,000 15,000 10,000 31.12.2004 6, 73,000 1, 10,000 10,000 40,000 25,000 30,000 14,93jpoo
  10. 1. 2. 3. 4. 5. 6. 1/10/2018 ADJUSTMENTS During the year 2005, an Interim Dividend of Rs.25,000/- was paid. Income- tax paid of Rs.48,000/- During the year 2005,Fixed Assets Rs.1,29,000/- were purchased and Depreciation provided on Fixed Assets amounted to IQs. 77,500/- Old Machinery was sold at profit, which was credited to Capital Reserve . Preference Shares were Redeemed at 10%Premium on 1st January,2005.Premium paid on redemption was debited to Securities Premium Account Investments costing Rs.42,000/- were sold for Rs.51,OOO/- Dr. Amit Gupta 10
  11. SCHEDULV OF CHANGES IN WORKING CAPITAL Particulars A.CURRENT ASSETS Stock of Materials Stock of Finished Goods Sundry Debtors Bills Receivable Cash on Hand Cash at Bank Prepaid Expenses B. CURRENT LIABILITIES Sundry Creditors Bills payable Outstanding expenses Bank overdraft Working Capital Net Decrease in Working Capital 1/10/2018 Previous Year (2004) Rs. 1, 10,000 10,000 40,000 25,000 (A) 90,000 50,000 15,000 (B) Dr. A Current Year (2005) Rs. 85,000 22,000 15,000 45,000 10,000 40,000 34,000 it Gupta Changes in working capital Increase Rs. 40,000 32,000 22,000 12,000 5,000 5,000 19,000 Decrease Rs. 25,000 40,000 10,000 20,000 40,000 11
  12. FUND FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER,B005 Sources Sale proceeds of fixed assets(Machinery) Sale of investments Proceeds of equity share Issue of 15% debentures Net decrease in working capital Funds from operation 51,000 19,000 Application Purchase of fixed assets Purchase of investments 10% debentures repaid Redemption of preference shares +10,000) Proposed dividend of last year Income tax paid Interim dividend paid 1, 10,000 30,000 48,000 25,000
  13. ADJUSTED PROFIT AND LOSS ACCOUNT PARTICULARS RS. To Proposed Dividend 70,000 Dr. Ami PARTICULARS By Balance c/d By profit on sale of investment By funds form operation (balancing figure) Gupta RS. 9000 To provision for tax To preliminary expenses To depreciation on fixed assets To interim dividend To Balance c/d 1/10/2018 56,000 20,000 77,500 25,000 13
  14. INVESTMENT ACCOUNT Particulars To Balance b/d To P&L Adjustment To Cash/Bank(BaIancing Figure) 2,001000 9,000 Particulars By cash/bank(sold) By Balance c/d F/IXE(D ASSE(TS ACCOUNT Particulars To Balance b/d To cash/bank 822,000 1,291000 Particulars By transfer to fixed assets-sold (Balancing Figure) By Balance b/d 51,000 2165,000 1,561000 7,951000 PROVISION FOR DVPRVCIATION ACCOUNT Particulars To transfer to fixed assets(balance figure) To Balance b/d 40,500 Particulars By Balance b/d By Profit and Lo?s Adjustment Account 77,500
  15. CAPITAL RESERVES ACCOUNT Particulars To Balance c/d Particulars By Balance b/d By transfer from fixed asset s sold a/c 50,000 50,000 20,000 30,000 50,000 FIXED ASSETS SOLD ACCOUNT Particulars To transfer from fixed assets To transfer to capital reserve(profit on sale transfer to capital reserve) 1/10/2018 30,000 Dr. A Particulars By provision for depreciation By cash/bank (balancing figure) it Gupta 40,500 15
  16. PROVISION FOR TAX ACCOUNT Particulars To cash/bank a/c To Balance c/d 48,000 60,000 Particulars By Balance c/d By P&L Adjustment (balancing figure) 52,000 56,000 PROPOSED DIVIDEND ACCOUNT Particulars To cash/bank(Last Year) To Balance c/d 30,000 70,000 Particulars By Balance c/d By P&L Adjustment (balancing figure) 30,000 70,000 SECURITIES PREMIUM ACCOUNT Particulars To premium on redemption To balance c/d 1/10/2018 10,000 80,000 90,000 Dr. Amit Particulars By balance c/d By cash/bank (balancing figure) upta 50,000 40,000 90,000 16
  17. 1. 2. 1/10/2018 Need for fund flow statement Shortcomings in Balance Sheet Shortcomings in Profit & Loss Account Dr. Amit Gupta 17
  18. 1. 2. 3. 4. Importance of Fund Flow Statement Gives information about amount of working capital and changes in the amount of working capital. It analyses Balance sheet to reveal the financing & investing activities. It analyses the Profit & Loss Account to reveal the effect of business activities of the concern on the flow of funds. It is a tool for planning future activities of business. 1/10/2018 Dr. Amit Gupta 18

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