Fund flow statement

Fund flow statement aka sources and

application of funds statement.
All those transactions which affect either the
current assets or current liabilities will find
the place in the Fund flow statement.
Funds flow statement measures and presents
in an analytical manner the summarized
version of the numerous flows of funds for a
specific period.
It does not consider non-fund transactions.
Uses
Keeps track of sources and applications of
funds.
It determines the financial consequences of
the business operations.
It discloses the repayment capacity of the
company
Helps in planning of resources
It tells the financial policies followed by
company in the past.
Fund flow Vs cash flow
The main differences are as follows:
A cash flow statement is concerned only with the change in
cash position while a fund flow analysis/statement is
concerned the change in working capital position
Cash is part of working capital and an improvement in
cash position results in improvement in funds position but
the reverse is not true.
A cash flow statement is merely a record of cash receipts
and disbursements. It does not reveal any important
changes involving the utilization/disposition of resources.
 Basis of Difference Funds Flow Statement
Funds flow statement is based on
1 Basis of Analysis broader concept i.e. working capital.
Funds flow statement tells about the
various sources from where the funds
2 Source generated with various uses to which they are put.
Funds flow statement is more useful
3 Usefulness in assessing the long-range financial strategy.
In funds flow statement changes in
current assets and current liabilities are
Schedule of Changes shown through the schedule of changes
4 in Working Capital in working capital.
Funds flow statement shows the causes
5 Causes of changes in net working capital.
Funds flow statement is consonant with
6 Principal of Accounting the accrual basis of accounting.
Cash Flow Statement
Cash flow statement is based on narrow
concept i.e. cash, which is only one of
the elements of working capital.
Cash flow statement stars with the
opening balance of cash and reaches
to the closing balance of cash by
proceeding through sources and uses.
Cash flow statement is useful in
understanding the short-term
phenomena affecting the liquidity of the
business.
In cash flow statement changes in
current assets and current liabilities are
shown in the cash flow statement itself.
Cash flow statement shows the causes
the changes in cash.
In cash flow statement data obtained on
accrual basis are converted into cash
basis.
 Current assets
Cash in hand and bank Fixed assets
Marketable investments Goodwill
Accounts receivables Land and building
Stock Plant and machinery
Prepaid exp. Long term investment

Fixed liabilities
Current liabilities Share capital
Bank overdraft Reserve and surplus
Outstanding expenses Debentures
Accounts payable Long term loans

Flow in fund Not flow in funds

 Construction of fund flow
statement
Basic Principles
Any increase in assets involves outflow of funds
Any decrease in assets involves inflow of funds
Any increase in Liabilities involves inflow of
funds
Any decrease in liabilities involves outflow of
funds
Process of construction
Fund low statement for the year ended 31 March 2009

SOURCES Amt APPLICATIONS Amt

Issue of shares
Issue of debentures
Receipt of term loan
Receipt of fixed deposits/ loans
sale of fixed assets
sale of investments
Non operating income
operating profit
Decrease in working capital
OR
Decrease in current assets
OR
Increase in current liabilities
TOTAL XXXX
redemption of shares
redemption of debentures
Term loan Repayment
Purchase of fixed assets
Purchase of Investments
Repayment of Deposits/ loans
non operating expenses
operating loss
Increase in working capital
OR
Increase in current assets
OR
Decrease in current liabilities
TOTAL XXXX
 OPERATING PROFIT/LOSS
Particulars Amt
Net profit as per P& L acc. XXXX
Add: depreciation on fixed assets
Preliminary expenses written off
Goodwill written off
Loss on sale of fixed assets
loss on sale on investments
Non-cash expenses or write offs
non-recurring or abnormal expenses
non-operating expenses
Less: profit on sale of fixed assets
Profit on sale of investment
Non recurring or abnormal income
Non operating income
TOTAL XXXX
Construction of fund flow
statement
Following principles should be remembered
An increase in current assets increases working
capital
An increase in current liabilities decreases working
capital
A decrease in current assets decreases working
capital
A decrease in current liabilities increases working
capital
 Statement showing changes in working capital

Particulars Balance at beginning Balance at end Increase Decrease

A) Current Assets
Stock
Bills receivables
Cash balances
bank balances
Prepaid Expenses
Advances
Marketable securitoes
B) Current liabilities
Creditors
Bills payabale
Outstanding Expenses
Provisions
C) Net working Capital
( A-B)

Net increase /decrease

during a year
 Balance sheet of XYZ ltd.

LIABILITIES 2008 2009 ASSETS 2008 2009

Equity capital 30000 35000 Fixed assets 51000 62000
9% preferecial capital 20000 10000 Investments 3000 8000
Debenture 10000 20000 Current assets 24000 37500
Reserves 11000 27000 Preliminary expenses 1000 500
RDD 1000 1500
Current liability 7000 14500
79000 108000 79000 108000

It is informed that,
1) A machine costing Rs 7000 ( book value Rs 4000) was sold
for Rs. 2500
2) 15% dividend was paid on equity capital in addition to
preference dividend in opening balance of capital
3) The preference shares were redeemed at the end of the year at
5% premium.
4) Depreciation written off Rs. 7000 on fixed assets.
Prepare fund flow statement.