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Fund flow statement
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fund flow statement

  1. 1. by: Vishal sharma,
  2. 2.  This statement reveals resources from which funds were obtain by the firm hand the specific uses to which such funds were applied. 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 . Definitions of fund flow statement :  In the words of Foulke, “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”.  According to : Almond Coleman, “ The fund flow statement summarizing the significant financial changes which were occurred between the beginning & the end of a company’s accounting periods”.
  3. 3.  This fund flow statement has two parts : 1. Sources of fund 2. Application of fund  The difference between these two parts that is sources & uses of funds represents net changes in working capital.  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.  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.
  4. 4.  MEANING OF FUND: the term ‘fund’ is used to convey a variety of meanings in financial management. It includes only cash or cash equivalents of the business, while in the broader sense it covers all financial resources of enterprise. fund = Net working capital = total current assets – total current liabilities • MEANING OF FLOW The term ‘FLOW’ means movement and in this sense it includes both ‘inflow’ and ‘outflow’.
  5. 5. 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’ . The similar changes in non current accounts are shown in ‘Fund Flow Statement’. Therefore, following two statements under this techniques . 1. Statement or Schedule of Changes in Working Capital. 2. Statement of Sources and Uses of Funds or Funds Flow Statement.
  6. 6. It discloses the changes in individual item of current asset & current liabilities between two period & there effect on working capital. Working capital will increase when there is an increase in current asset and decrease in current liabilities, whereas, working capital will decrease when there is a decrease in current asset & increase in current liabilities. Net increase in working capital is treated as use of funds & the net decrease in working capital is treated as source of funds.
  7. 7. Item Previous Year Current Year Effect on Increase Rs. Working capital Decrease Rs. (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)
  8. 8. (B) Current Liabilities (1) Short term loans (2) Bank overdraft (3) Creditors (4) Bills payable (5) Outstanding expenses (6) Unclaimed dividend Total (B) Net Working Capital (A-B) Increase / Decrease in Working Capital Total
  9. 9. Sources of Fund Amount Uses Of Funds Amount 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) 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)
  10. 10. Fund from operations : The profit made by a firm through normal operations is a major source of funds. 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.
  11. 11. Particular Amount Particular 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 Profit or gain on sale of fixed asset Dividend received Interest received of investment Profit on revaluation of asset Fund from operation
  12. 12. EquityLiabilities 2011 2012 Assets 2011 2012 Shareholder' Fund: Share capital Security premium General reserve P & L A/C Non-current Liabilities : Debentures Current Liabilities Provision for taxation Creditors 24000 2400 1800 5850 --------- 2940 10050 47040 36000 3600 2700 6240 7800 3270 10920 70530 Non- Current assets Land & building Machinery Furniture Current assets: Stock Debtors Cash at Bank 16620 10680 720 6630 10950 1440 47040 33960 15390 450 7800 11730 1200 70530
  13. 13. Depreciation written off on machinery Rs3840 and on furniture Rs120during year 2012.
  14. 14. Particular 2011 Amount 2012 Amount Change in Increase Working capital Decrease CURRENR ASSETS:- Stock Debtors Cash at bank Total Current liabilities creditors Total Net working capi. Increase in w.c 6630 10950 1440 19020 10050 10050 8970 840 7800 11730 12oo 20730 10920 10920 9810 ---- 1170 780 ---- ------ ---- ----- 240 870 840
  15. 15. Sources of fund Amount Application of fund Amount Fund from operations Issue of share capital including security premium (36000- 24000)+(3600- 2400) Issue of debenture Sale of furniture 8520 13200 7800 150 Purchase of land and building (33960-166920) Purchase of machinery Payment of tax Increase in working capital 17340 8550 2940 840 29670 29670
  16. 16. Particular Amount Particular Amount To provision for taxation To dep. On machinery To dep. On furniture To transfer to general reserve (2700-1800) To balances c/d 3270 3840 120 900 6240 By balance b/d By Fund from operation (bal. Figure) 5850 8520 14370 14370
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