FUND FLOW By Dr.

Aleem Ansari
STATEMENT
MEANING
•This statement reveals resources from which funds were obtain by the firm and on the other
hand the specific uses to which such funds were applied.
•Definition-
“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”.
-Foulke
•Flow of fund means the inward and outward movement of a fund of an enterprise.
•For the purpose, Fund refers to Working Capital and flow means movement or changes.
•Therefore, Flow of Fund means movement of or changes in the Working Capital (i.e.,
current) items.
•Flow of Fund is identified by the means of inward or outward movement of Current Assets
and Current Liabilities.
•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.
OBJECTIVES OF FUND FLOW
STATEMENT

•To find out the position of working capital on two dates of balance sheet.
•To know the changes in working capital during this period.
•To know the causes of changes in working capital.
•To know the inflow/outflow of funds according to their sources.
STATEMENTS UNDER FUND
FLOW STATEMENT

•Statement of change in working capital

•Statement for Fund from Operations
•Fund Flow Statement
PREPARATION OF FUND FLOW
STATEMENT
•For preparing the fund flow statement the first step is to prepare the statement of change in
working capital position of a company which has been discuss below:
•Working Capital= Current Assets- Current Liabilities
Particulars Last Year Current Increase in Decrease in Working
Year Working Capital Capital

1) Current Assets
Cash in Hand
Bank Balance
Marketable Securities
Inventory/ Stock
Debtors
Bills Receivables
Accrued Incomes
Prepaid Expenses
Other Current Assets
Total Current Assets (A)
Particulars Last Year Current Increase in Decrease in Working
Year Working Capital Capital

2) Current Liabilities
Trade Creditors
Bills Payables
Bank Overdraft
Other Current Liabilities
Total Current Liabilities
(B)
A+B
Change in working capital

• Current Assets ↑ = Working Capital ↑; Current Assets ↓ = Working Capital ↓.

• Therefore, if there is an increase in current assets then the increased amount need to be posted in Increase in
Working Capital and Vice-Versa.
• Similarly, Current Liabilities ↑ = Working Capital ↓; Current Liabilities ↓ = Working Capital ↑.
• Therefore, if there is an increase in current liabilities then the increased amount need to be posted in
Decrease in Working Capital and Vice-Versa.
Second statement to be prepared is Statement for Fund from Operations of a company which
has been discuss below:
Particulars Rs. Rs.

*Net profit for the year XXX

Add: Depreciation XXX
Goodwill written off XXX
Preliminary Expenses written off XXX
Underwriting Commission written off XXX
Discount on issue of Debentures XXX
Expenses on Issue of Shares/Debentures XXX
Loss on Sale of Fixed Assets XXX
Interest Paid XXX
*Dividend Paid XXX
*Transfer to General Reserve XXX
*Provision for Taxation (CY) XXX
Other Non-current/ Non-Operating Expenses XXX
Particulars Rs. Rs.
Less:
Profit on Sale of Fixed Assets
Interest/ Rent/ Dividend Received XXX
Refund of Taxes XXX
Transfer from General Reserves XXX
Other Non-current/ Non-operating incomes XXX

Net Funds from/lost in operations XXX

Third and last Statement that is to be prepared is the Fund Flow Statement of a company
which has been discuss below:
Sources of Funds Rs. Applications of Funds Rs.
Issue of Shares Redemption of Preference Shares
Issue of Debentures Buy Back of Equity Shares
Loan Taken Redemption of Debentures
Sale of Fixed Assets Repayment of Loan
Sale of Investments Purchase of Fixed Assets (L&B)
Refund of Tax* Purchase of P&M
Interest/ Rent/ Dividend Received Income Tax Paid*
Funds from Operations (Amount from Interest/ Dividend Paid
statement)
Decrease in Working Capital (Amount Funds Lost in Operations (Amount
from statement) from statement)
Increase in Working Capital (Amount
from statement)

Note- This statement will always tally.

Question 1

Following is the balance sheet of ABC, prepare statement of change in working capital.
2008 2009
Share Capital 2,00,000 2,60,000
Profit & Loss A/c 39,690 41,220
Reserves 50,000 50,000
Sundry Creditors 39,500 41,135
Bills Payables 33,780 11,525
Bank Overdraft 59,510 …

Provision for taxation 40,000 50,000

4,62,480 4,53,880

Goodwill 1,000 20,000

Land 1,12,450 1,16,200
Plant 1,48,000 1,44,250
Stocks 1,11,040 97,370
S. Debtors 85,175 72,625
Bills Receivables 2,315 735
Cash 2,500 2,700
4,62,480 453880
Solution 1

Statement of
Change in Working
  Capital      
Current Assets 2008 2009 Increase Decrease
cash 2,500 2,700 200  
debtors 85,175 72,625   12,550
bills receivables 2,315 735   1580
stocks 1,11,040 97,370   13,670
Total A 2,01,030 1,73,430    
         
Current liabilities        
creditors 39,500 41,135   1,635
b/p 33,780 11,525 22,255  
bank overdraft 59,510 …. 59,510  
provision for taxation 40,000 50,000   10,000
Total B 1,72,790 1,02,660    
WC= A-B 28,240 70,770    
  42,530     42,530
  70,770 70,770 81,965 81,965
 Q3. FROM THE FOLLOWING BALANCE SHEETS OF X LTD. MAKE
OUT: STATEMENT OF CHANGES IN WORKING CAPITAL AND FUND
FLOW STATEMENT

Liabilities 2019 (Rs) 2020 (Rs.) Assets 2019 (Rs.) 2020 (Rs.)

Equity share capital 3,00,000 4,00,000 Goodwill 1,15,000 90,000

Redeemable Preference 1,50,000 1,00,000 Land & Building 2,00,000 1,70,000

Shares

General Reserve 40,000 70,000 Plant 80,000 2,00,000

Profit and Loss a/c 30,000 48,000 Debtors 1,60,000 2,00,000

Proposed Dividend 42,000 50,000 Stock 77,000 1,09,000

Creditors 55,000 83,000 Bills Receivables 20,000 30,000

Bills Payable 20,000 16,000 Cash in hand 15,000 10,000

Provision for Taxation 40,000 50,000 Cash at Bank 10,000 8,000

  6,77,000 8,17,000   6,77,000 8,17,000

Additional Information:
Depreciation of Rs. 10,000 and Rs. 20,000 have been charged on Plant and Land &
Building respectively in 2020.
A dividend of Rs. 20,000 has been paid in 2020.
Income tax of Rs. 35,000 has been paid in 2020.
 Statement of change in working capital
  2019 2020 Increase Decrease
Current Assets        
Debtors 1,60,000 2,00,000 40,000  
Stock 77,000 1,09,000 32,000  
Bills receivables 20,000 30,000 10,000  
Cash in hand 15,000 10,000   5,000
Cash at bank 10,000 8,000   2,000
Total (A) 2,82,000 3,57,000    
Current Liabilities        
Creditors 55,000 83,000   28,000
Bills Payable 20,000 16,000 4,000  
Total (B) 75,000 99,000    
WC (A-B) 2,07,000 2,58,000    
Increase in WC 51,000     51,000
  2,58,000 2,58,000 86,000 86,000
 Statement for Fund from Operation
Particulars Rs Rs
Net Profit (48,000 – 30,000)   18,000
Add: Depreciation (10,000+20,000) 30,000  
Goodwill write-off 25,000  
General reserve 30,000  
Interim Dividend Paid 20,000  
Provision for Tax 45,000  
Provision for dividend (current year) 50,000  
  2,00,000 2,18,000

Statement of Sources and Application of Fund

Sources of Fund Rs Application of fund Rs
Issue of share capital 1,00,000 Redemption of share 50,000
Sale of Building 10,000 Purchase of plant 1,30,000
Fund from operation 2,18,000 Dividend Paid (previous) 42,000
    Interim dividend 20,000
    Income tax 35,000
    Increase in working capital 51,000
  3,28,000   3,28,000
 Provision for Taxation A/c
Particulars Amount Particulars Amounts
To Bank A/c (Income Tax 35,000 By Balance b/d 40,000
Paid)
To Balance c/d 50,000 By P/L A/c (Provision for 45,000
Taxation)
  85,000   85,000

Land and Building A/c

Particular Amount (Rs.) Particular Amount (Rs.)
To Balance b/d 2,00,000 By Depreciation A/c 20,000
    By Bank A/c (Sale) 10,000
    By Balance c/d 1,70,000
  2,00,000   2,00,000

Plant and Machinery A/c

Particular Amount (Rs.) Particular Amount (Rs.)
To Balance b/d 80,000 By Depreciation A/c 10,000
       
To Bank A/c (Purchases) 1,30,000 By Balance c/d 2,00,000

  2,10,000   2,10,000