The document explains the concept and preparation of a fund flow statement, highlighting its importance in analyzing a company's financial position over two periods. It details definitions of funds, working capital, and distinguishes between current and non-current assets and liabilities, along with the process of creating the statement which includes understanding changes in working capital and recording various transactions. Additionally, it provides examples, including a practical case of preparing a fund flow statement based on balance sheets and other financial information for a company, ABC Ltd.

1. Fund Flow Statement
PRESENTED BY :-
Dr.LUMINA JULIE.R

2. What Is Fund Flow Statement?
FUND FLOW STATEMENT is a statement that
reflects the relative position of funds of the
company over a two-period horizon and enables
analysis of sources and uses of funds for a
particular period of time.

3. What Is Fund?
The term “fund” generally refers to cash and cash equivalents, or to
working capital.
 Working Capital = Current Assets – Current Liabilities
Current Assets ( Liquid Asset) refers to a short term asset that a
company expects to use up, convert into cash, or sell within one fiscal
year or operating cycle.
For example Cash including fixed deposit with bank, accounts receivable
(trade debtors and bill receivables), inventory (stock of raw-material,
work-in-progress, finished goods), advance receivable, prepaid expanses
… etc.

4. Current liability refers to an obligation that is payable
within one fiscal year or operating cycle.
For example accounts payable (bill payable and trade
creditors), outstanding expenses, bank overdraft, short
term loan(payable within one year), advance payments
received, current maturates of long term loans …. etc.
 Provisions against current assets, such as provision for
doubtful debts, provisions for loss of stock and
provision for discount on debtors, are treated as current
liabilities, since they reduce the amount of current
assets.

5.  Non-current assets :- All assets other than current
assets come within the category of non-current assets.
For example, goodwill, land, building, machinery,
furniture, long term investments, patent rights…etc.
 Non-current liabilities :- All liabilities other than
current liabilities come within the category of non-
current liabilities.
For example, share capital, long term loans,
debentures, share premium, credit balance in the P/L
account….. etc.

6. Flow Of Fund
The term ‘flow of funds’ means ‘change in funds’ or ‘change in working
capital’.
In other words, any increase or decrease in working capital means ‘flow
of funds’.
In case a transaction results in increase of funds, it will be termed as a
‘source of fund’.
In case a transaction results in decrease of funds it will be taken as an
application or use of funds.
 In case a transaction does not make any change in the funds position,
it is said that it is a non-fund transaction.

7. Transaction includes,
For example :- Issue of shares for cash.
Cash A/c Dr
To Share Capital A/c
Transaction includes,
For example :- Payment to creditors.
Creditors A/c Dr
To Cash A/c
Transactions which results
flow of fund
Transaction which doesn't
results flow of fund
Current Asset Current Liability
Non-Current
Asset
Non-Current
Liability
Current Asset Current Liability
Non-Current
Liability
Non-Current
Asset

8. Preparation Of Fund Flow Statement
1. Schedule of changes in working capital.
2. Calculate Fund from Operation.
3. Preparation of fund flow statement.

9. 1. Schedule of changes in working capital
 The schedule of changes in working capital can be prepared by
comparing the current assets and the current liabilities of two
periods.
Rules of preparing the schedule:
I. Increase in current asset, results in [+]increase in ‘working
capital’.
II. Decrease in a current asset, , results in [-]decrease in ‘working
capital’.
III. Increase in a current liability, results [-] decrease in ‘working
capital’.
IV. Decrease in current liability, results in [+]increase in ‘working
capital’.

10. Particulars Previous Year (Rs.) Current Year (Rs.)
Changes in working capital
Increase
(Rs.)
Decrease
(Rs.)
Current Assets:
Cash 5000 10000 5000
Bank 5000 2000 3000
Bill Receivable
Debtors
Stock
Marketable Securities
Prepaid Expenses
Total (a)
Current liabilities:
Creditors 15000 20000 5000
Bills Payable 3000 1000 2000
Outstanding Expenses
Bank Overdraft
Total (b)
Working Capital (a+b)
Net Increase/Decrease in
Working capital
Statement of changes in working capital

11. 2. Adjusted Profit & Loss Account
Adjusted P/L A/c
Particulars Amount Particulars Amount
Depreciation Opening Balance
Provision for Taxation Dividend Received
Proposed Dividend Income from Subsidiary
Goodwill, Patents etc.. Written off Profit on Sale of fixed Asset
Preliminary Expenses written off Income Tax Written Back
Discount on issue of shares and
debentures
Rent Received
Loss on Sale of Fixed Assets Funds from Operation (Balancing
Figure)
Transfer to Reserves
Closing Balance
XXXX XXXX

12. 3. Preparation of fund flow statement
While preparing a fund flow statement, current assets and
current liabilities are to be ignored.
Attention is to be given to changes in fixed assets and fixed
liabilities.

13. Fund Flow Statement
Sources Amount Uses or Applications Amount
Issue of shares Redemption of shares
Issue of debentures Redemption of debentures
Medium and long term
borrowings
Repayment of loans
Sale of fixed assets Purchase of fixed asset
Sale of investment Purchase of investment
Fund from
operation(profit)*
Fund from
operation(loss)*
Non-trading income
(Eg:- dividend received)
Non-trading expenses
(Eg:- dividend paid)
Decrease in working
capital*
Increase in working
capital*
xxxxx xxxxx

14. ? The following are the Balance sheet of ABC Ltd as at 31st
December, 2010 and 2011.
Additional Information:-
a) Depreciation was written off against plant Rs. 14,000 in 2011.
b) Dividend of Rs. 20,000 was paid during 2011.
c) Income Tax provision made during the year was Rs. 25,000
d) A piece of land has been sold during the year at cost.
Liabilities 2010 2011 Assets 2010 2011
Share Capital 2,00,000 2,50,000 Land & Building 2,00,000 1,90,000
General Reserve 50,000 60,000 Plant 1,50,000 1,74,000
Profit & Loss A/c 30,500 30,600 Stock 1,00,000 74,000
Bank Loan(Short-term) 70,000 - - - - - - - Debtors 80,000 64,200
Creditors 1,50,000 1,35,200 Cash 500 600
Prevision For Taxation 30,000 35,000 Bank - - - - - - - - 8,000
Prepare Fund Flow Statement for the year 2011.

15. Solution:-
* We can take it has a current lability or an non current liability. For now we treat Prevision For Taxation is a non-current liability.
Additional Information:-
a) Depreciation was written off against plant Rs. 14,000 in 2011.[prepare ledger for plant]
b) Dividend of Rs. 20,000 was paid during 2011.[Non-trading expenses. show in the Cr side of Fund flow
statement]
c) Income Tax provision made during the year was Rs. 25,000. [prepare ledger for Prevision For Taxation ]
d) A piece of land has been sold during the year at cost.[2,00,000-1,90,000=10,000]
Liabilities 2010 2011 Assets 2010 2011
Share Capital (Non CL) 2,00,000 2,50,000 Land & Building(Non CA) 2,00,000 1,90,000
General Reserve (Non CL) 50,000 60,000 Plant (Non CA) 1,50,000 1,74,000
Profit & Loss A/c (Non CL) 30,500 30,600 Stock(CA) 1,00,000 74,000
Bank Loan(Short-term) (CL) 70,000 - - - - - - - Debtors (CA) 80,000 64,200
Creditors (CL) 1,50,000 1,35,200 Cash (CA) 500 600
Prevision For Taxation (Non
CL)*
30,000 35,000 Bank (CA) - - - - - - - - 8,000

16. Particulars
Previous Year [2010]
(Rs.)
Current Year [2011]
(Rs.)
Changes in working capital
Increase
(Rs.)
Decrease
(Rs.)
Current Assets:
Stock 1,00,000 74,000 26,000
Debtors 80,000 64,200 15,800
Cash 500 600 100
Bank - - - - - - 8,000 8,000
Total (a) 1,80,500 1,46,800
Current liabilities:
Bank Loan 70,000 - - - - - - 70,000
Creditors 1,50,000 1,35,200 14,800
Total (b) 2,20,000 1,35,000
Working Capital (a-b) -39,500 11,600
Net Increase/Decrease in Working capital
51,100
51,100
11,600 11,600 92,900 92,900

17. Plant Account
Provision for Taxation Account
Particulars Amount Particulars Amount
To Balance b/d 1,50,000 By Depreciation A/c 14,000
To Cash A/c (Purchase) 38,000 By Balance c/d 1,74,000
1,88,000 1,88,000
Particulars Amount Particulars Amount
To cash A/c (Tax paid) 20,000 By Balance b/d 30,000
To Balance c/d 35,000 By Adjusted P/L A/c 25,000
55,000 55,000
Dr Cr
Dr Cr

18. Adjusted Profit & Loss A/c
Fund Flow Statement
Particulars Amount Particulars Amount
To Transfer to General Reserve 10,000 By Balance b/d 30,500
To Depreciation 14,000 By Fund from operations 69,100
To Provision for Taxation 25,000
To Dividend 20,000
To Balance c/d 30,600
99,600 99,600
Particulars Amount Particulars Amount
Issue of shares 50,000 Purchase of plant 38,000
Sale of Land & Building 10,000 Dividend paid 20,000
Funds from operation 69,100 Income Tax paid 20,000
Net increase in WC 51,100
1,29,100 1,29,100

19. Thank You