Amity Business School

Amity Business School

MBA Class of 2010, Semester I
Accounting For Managers
Fund Flow Statement
By Santosh Kumar

1
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Fund Flow Concept

• Fund ----Broader----Working Capital----
Fund Flow Statement
• Fund----Narrower----Cash Balance----
Cash Flow Statement
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Flow
Inflow---Increase-----Sources of Fund----If
a transaction increases the WC---credit

Outflow---Uses/Application---------------If
a transaction decreases the working
capital----debit
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Accounts

• Current account and change ( schedule of changes in

working capital)
• Non current account and change (fund flow statement)
• Transactions and relevance of wc
• Thumb rule of fund flow (change in current account and
same change in non current account is necessary)
• What all limitations (historical information)
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Sources of Information
• BS---------------------2
• Income Statement
• Statement of Retained Earnings
• Supplementary information
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Procedural Framework
• Schedule of Changes in wc
• Funds from operations
• Preparation of ledger account
• Statement of sources and application (fund flow
statement)
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cont.
• Non fund items
• Non operating items
• Fund from operations= net profit + Items which don’t
result in outflow-Items which don’t result in inflow
• Adjustments….Depreciation, Provision of tax
/dividend, capital expenditure written off
• Numerical
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• Fund Flow Statement

Sources Applications
Long term loans Payment of loans
Sale of assets/investment Purchase of
asset/investment
Funds from operation Operational loss
Issue of share capital and Redemption of share
debenture capital/debenture
Income from dividends Payment of tax/dividend
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• Funds from operation =

Net profit
+ Depreciation/capital expenditure written off
+ provision of tax/dividend
+ loss on sale of fixed asset/investment
-gain on sale of asset/investment
-dividend received on investment
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Adjustments
1. Provision for taxation (if current account)
• As a current account item……..it is
considered as current liability and
adjusted in Schedule of changes of
Working Capital
• Item of tax given outside the trial balance
should be omitted because actual
payment of tax will affect two current
accounts eg cash and provision for tax
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cont
2. Provision of taxation ( as non current
item)
• Considered as appropriation of profits and
thus a non current liability
• Ist adjustment in funds from operation by
adding the amount paid this year
• 2nd adjustment is the actual application of
tax in the fund flow statement as an
application
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cont
3.Proposed dividend

Same treatment as provision for tax

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cont
4. Interim dividend ….paid between two
balance sheet dates
• It is non operating item
• Adjusted in the calculation of funds from
operation
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cont
5.Depreciation
• Non fund item
• Simply a book entry without cash flow
• Adjusted in the funds from operation by
adding in the net profit because it is a
charge against profits
• Same treatment for goodwill written off
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cont
6. Creation of reserve
• Appropriation of profits 9created out of
profits)
• No flow of fund
• Adjustment in funds from operation
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cont.
7. Gain or loss from the sale of fixed asset
• Non fund item
• Gain or loss often transferred to P&L
account
• Adjusted in the funds from operation
(addition in case of loss and subtraction in
case of profit)