Fund Flow Statement

A balance sheet states the position of the company as on a particular date whereas a fund flow
statement is a statement reflects the inflow and outflow of funds over two balance sheet dates i.e.,
during the year. Since fund flow is a statement which shows the flow of funds over two periods, it is also
called a statement of changes in financial position. It shows the sources and application of funds of a
particular company.

The steps involved in preparing the statement are as follows:

1. Determine the change (increase or decrease) in working capital.
2. Determine the adjustments account to be made to net income.
3. For each non-current account on the balance sheet, establish the increase or decrease in that
account. Analyze the change to decide whether it is a source (increase) or use (decrease) of
working capital.
4. Be sure the total of all sources including those from operations minus the total of all uses equals
the change found in working capital in Step 1.

The following general rules should be observed while preparing funds flow statement:
1. Increase in a current asset means increase (plus) in working capital.
2. Decrease in a current asset means decrease (minus) in working capital.
3. Increase in a current liability means decrease (minus) in working capital.
4. Decrease in a current liability means increase (plus) in working capital.
5. Increase in current asset and increase in current liability does not affect working capital.
6. Decrease in current asset and decrease in current liability does not affect working capital.
7. Changes in fixed (non-current) assets and fixed (non-current) liabilities affects working capital.

Q.1. Prepare Fund flow statement for the year ended 31st December 2001
LIABILITIES 2000 2001 ASSETS 2000 2001
Equity Share Capital 30,000 40,000 Goodwill 10,000 8,000
7% Redeemable Pref. Shares 15,000 10,000 Land 20,000 17,000
Capital Reserve — 2,000 Plant 8,000 20,000
General Reserve 4,000 5,000 Investments 2,000 3,000
P& L A/c 3,000 4,800 Debtors 14,000 17,000
Sundry Creditors 2,500 4,700 Stock 7,700 10,900
Bills Payable 6,200 6,600 Bills Receivable 2,000 3,000
Liability for Expenses 3,000 3,600 Cash in hand 1,500 1,000
Provision for taxation 4,000 5,000 Cash at bank 1,000 800
Misc. Expenses 1,500 1,000
Total (Rs) 67,700 81,700 Total (Rs) 67,700 81,700

i) A plot of land was sold in 2001 and profit on its sale was transferred to capital reserve.
ii) A machine has been sold for Rs. 3,600 on 1-1-2001. It was originally purchased for Rs.10000/- on 1-
1-1998 and its WDV as on the date of sale was Rs. 5,120.
iii) Depreciation of Rs. 4,000 is charged on plant account in 2001.
iv) Income tax Rs. 3,500 was paid during the year and charged against provision for taxation.
v) An interim dividend of Rs. 2,000 has been paid in 2001.
vi) Investments costing Rs.500 were sold on 10-5-2001 for Rs.800 and on 10-7-200l further investments
costing Rs. 1,500 were purchased.

Q.2. The following are the summarized Balance Sheet of X ltd. as on 31st March, 2019 & 2020
Liabilities 31-3-19 31-3-20 Assets 31-3-19 31-3-20
Share Capital 460000 460000 Land & Building 300000 300000
Profit & Loss A/c. 32000 46000 Machinery 104000 140000
General Reserve 120000 120000 Investment 220000 148000
8% Debentures 180000 140000 Stock 164000 212000
Depreciation Fund 80000 88000 Debtors 134000 86000
Creditors 206000 192000 Cash 180000 180000
Outstanding Expenses 26000 24000 Prepaid Expenses 2000 4000
1104000 1070000 1104000 1070000
Additional Information:
a) 10% Dividend was paid during the year
b) Machinery for Rs. 60000 was purchased and old machinery costing Rs. 24000 (accumulated
depreciation Rs. 12000) was sold for Rs. 8000
c) Rs. 40000, 8% debentures were redeemed by purchase from open market at Rs. 96 for a debenture of
Rs. 100.
d) Investments worth Rs. 72000 were sold at Book value.
You are required to prepare a Fund Flow Statement for the year ended on 31st March 2020
Q.3. From the information as contained in the statement of Income and the Balance Sheet of G.C. Ltd.,
you are required to prepare a Funds Flow Statement and to describe the significant developments
revealed by the statement. You are also required to prepare a Statement of Working Capital showing
increase and decrease in each component thereof:
Statement of Income and Reconciliation of Earnings for 2013
Net Sales 25,20,000
Less: Cost of sales 19,80,000
Depreciation 60,000
Salaries and wages 2,40,000
Operating expenses 80,000
Provision for taxation 88,000 24,48,000
Net Operating Profit 72,000
Non-recurring Income:
Profit on sale of an item of equipment (Cost was Rs 72,000) 12,000
84,000
Retained earnings 1,51,800
(balance in Profit and Loss A/c brought forward)
2,35,800
Dividend declared and paid during the year 72,000
Profit and Loss A/c balance as on 31 December, 2013 1,63,800

Liabilities 2012 2013 Assets 2012 2013

Capital 360,000 444,000 Fixed Assets:
Surplus in P & L A/c 151,800 163,800 Land 48,000 96,000
Sundry Creditors 240,000 234,000 Building & Equipment 360,000 576,000
Outstanding Expenses 24,000 48,000 Current Assets:
Income Tax payable 12,000 13,200 Stocks 264,000 96,000
Accumulated Dep. 120,000 132,000 Cash 60,000 72,000
Equipment Debtors 168,000 186,000
Advances 7,800 9,000
907,800 10,35,000 907,800 10,35,000
Q.4. The following are the summarized balance sheet of Z ltd:
LIABILITIES 31-3-2005 31-3-2006 ASSETS 31-3-2005 31-3-2006
Share Capital 2,00,000 2,50,000 Land & Building 2,00,000 1,90,000
General Reserve 50,000 60,000 Plant & Machinery 1,50,000 1,69,000
P & L A/c. 30,500 30,600 Stock 1,00,000 74,000
Secured loans 70,000 - Debtors 80,000 64,200
Creditors 1,50,000 1,35,200 Cash in Hand 500 600
Provision for tax 30,000 35,000 Bank Balance --- 8,000
Goodwill --- 5,000
Total Rs. 5,30,500 5,10,800 Total Rs. 5,30,500 5,10,800
Additional Information:
1. Dividend of Rs. 23,000 was paid during the year.
2. Assets of ‘K’ Ltd were purchased for a consideration of Rs. 50,000 payable in shares. The assets
purchased were stock Rs. 20,000 and Machinery Rs. 25,000
3. Further Machinery was purchased for Rs. 8,000
4. Depreciation written off on Machinery Rs 12,000
5. Income Tax paid during the year was Rs. 33,000
6. Loss on sale of machinery Rs. 200
You are required to prepare the Fund Flow Statement

Q.5. Prepare a fund flow statement of Mr. Kumar for the year 2016
LIABILITIES 1.1.2016 31.12.2016 ASSETS 1.1.2016 31.12.2016
Current liabilities   35,000   40,000 Cash  5,000  4,000
Loan from Mrs. X   --------   25,000 Debtors 40,000 45,000
Bank Loan 40,000 30,000 Stock 30,000 25,000
Capital 1,50,000 1,54,000 Land 30,000 40,000
  Buildings 50,000 55,000
Machinery 70,000 80,000
  2,25,000 2,49,000   2,25,000 2,49,000
a) During the year Kumar brought in additional capital of Rs. 10,000 and his drawings during the
year was Rs. 31,000.
b) Provision for depreciation on machinery opening balance Rs. 30, 000 and closing balance Rs.
40,000.
c) No depreciation needs to be provided for other assets.

Q.6. The following are the Balance Sheets of Gama Limited for the year ending March 31, 2004 and
March 31, 2005:
Balance Sheet as on March, 31
2004 2005
Capital and Liabilities
Share Capital 6,75,000 7,87,500
General Reserves 2,25,000 2,81,250
Capital Reserve (Profit on Sale of investment) - 11,250
Profit & Loss Account 1,12,500 2,25,000
Debentures 3,37,500 2,25,000
Accrued Expenses 11,250 13,500
Creditors 1,80,000 2,81,250
Bills Payable 33,750 38,250
Provision for Taxation 78,750 85,500
16,53,750 19,48,500
Assets
 Fixed Assets 11,25,000 13,50,000
Less: Accumulated depreciation 2,25,000 2,81,250
Net Fixed Assets 9,00,000 10,68,750
Long-term Investments (at cost) 2,02,500 2,02,500
Stock (at cost) 2,25,000 3,03,750
Debtors 2,53,125 2,75,625
Bills receivables 45,000 73,125
Prepaid Expenses 11,250 13,500
Miscellaneous Expenditure 16,875 11,250
16,53,750 19,48,500
Additional Information:
(i) During the year 2004-05, fixed assets with a net book value of Rs. 11,250 (accumulated depreciation,
Rs. 33,750) was sold for Rs. 9,000.
(ii) During the year 2004-05, Investments costing Rs. 90,000 were sold, and also Investments costing Rs.
90,000 were purchased.
(iii) Debentures were retired at a Premium of 10%.
(iv) Tax of Rs. 61,875 was paid for 2003-04.

Required: Prepare a Funds Flow Statement (Statement of changes in Financial Position on working
capital basis) for the year ended March 31, 2005.
Q.7. ABC Ltd. gives you the following information.
Balance Sheet as on
Liabilities 2003 2004 Assets 2003 2004
Capital 5000 5000 Plant & Machinery 2730 4070
Retained Earnings 2650 3690 Less: Depreciation 610 790
Debentures ― 900 2120 3280
Current Liabilities Current Assets
Creditors 880 820 Debtors 2240 2640
Bank Loan 150 300 Cash 1520 1820
Liability for Exp. 330 270 Marketable securities 1180 1500
Interim Dividend declared 150 300 Inventories 2010 1920
Prepaid Expenses 90 120

9160 11280 9160 11280

Additional Information:
Net profit for the year ended 31st March, 2004, after charging depreciation Rs. 180 is Rs. 2240.
ABC Ltd. declared dividend of Rs. 1200 for the year 2003-2004.
Prepare Fund flow statement also prepare statement of changes in working capital

Q 8. The financial position of the Alpha Company Ltd as on 31st December, 2014 and 31st December,
2015 and the

Particulars 2015 2014

Assets
Land & Buildings 1,50,000 1,00,000
Plant & Machinery 2,20,000 2,00,000
Less: Accumulated depreciation (82,000) (80,000)
Inventory 1,25,000 90,000
Debtors 40,000 45,000
Cash 70,000 50,000
5,23,000 4,05,000
Liabilities
 Share Capital 1,75,000 75,000
Share Premium 12,500 7,500
Reserves and Surplus 62,500 17,500
Institutional Loan 23,000 15,000
Debentures 1,20,000 1,50,000
Creditors 25,000 30,000
Salaries Payable 15,000 10,000
Provision for Tax 50,000 60,000
Interim Dividend declared 40,000 40,000
5,23,000 4,05,000

Profit and Loss Account for the year ended 31st December, 2015
Sales 5,00,000
Less: Cost of Goods Sold 2,10,000
Gross Profit 2,90,000
Less: Operating Expenses
Office and Administration 45,000
Selling and Distribution 37,000
Depreciation 22,000 1,04,000
Operating Profit 1,86,000
Add: Gain on Sale of plant 6,000
Total Profit 1,92,000
Less: Income Tax 87,000
Net Profit 1,05,000

The additional information is given below:

(i) During the year, plant costing Rs 50,000 (accumulated depreciation of Rs 20,000) was sold.
(ii) The Debentures of the face value of Rs 30,000 were converted into share capital at par.
(iii) The company paid interim dividend of Rs. 40,000 and issued bonus shares of Rs. 20,000 during the
year.
(iv)The company further issued 5,000 shares of Rs 10 each at a premium of Re 1 per share during the
year.
You are required to prepare a Statement of Sources and Application of Funds. Also, Statement of changes
in working capital for the year 2015.