A PRESENTATION BY : Ralf Sandeep W Sandeep K Rupali Dipika

The funds-flow-statement is a report on financial operations changes, flow or movements during the period.

It is a statement, which shows the sources and application of funds or it shows how the activities of a business is financed in a particulate period. In other words, such a statement shows how the financial resources have been used during a particular period of time.
It is, thus, a historical statement showing sources and application of funds between the two dates designed especially to analyze the changes in the financial conditions of an enterprise. Cont

 In the words of Foulke, it isA statement of Sources and Application of Funds is a technical device designed to analyze the changes in the financial condition of a business enterprises between two dates. Funds Flow Statement is not an income statement. Income statement shows the items of income and expenditure of a particular period, but the Funds flow statement is an operating statement as it summaries the financial activities for a period of time. It covers all movements that involve an actual exchange of assets.

Various titles are used for this statement such as'Statement of sources and Application of Funds, Summary of Financial operations. Changes in Financial Position, Fund received and Disbursed, Funds Generated and Expended, Changes in Working Capital, Statement of Fund etc.

 Title of Funds Flow Statement has been modified from time to time. A new interpretation of the term Funds, has now been adopted as to include assets or financial resourceful which do not flow through the working capital accounts. It seems to be the most suitable meaning for the term 'funds' but the most commonly used interpretation of the term 'funds' is Working Capital'.

 Funds Flow Statement is an analytical tool in the hands of financial manager.

The basic purpose of this statement is to indicate on historical basis the changes in the working capital i.e., where funds came from and were there is used during a given period.
The utility of this statement can be measured on the basis of its contributions to the financial management. It serves the following major purposes :

Analysis of Financial Position Evaluation of the Firm's Financing An Instrument for Allocation of Resources A Tool of Communication to Outside World Future Guide

 The basic purpose of preparing the statement is to have a rich into the financial operations of the concern. It analyses how the funds were obtained and used in the past.

In this sense, it is a valuable tool for the finance manager for analyzing the past and future plans of the firm and their impact on the liquidity.

 One important use of the statement is that it evaluates the firms financing capacity.

The analysis of sources of funds reveals how the firm's financed its development projects in the past i.e.,from internal sources or from external sources.
It also reveals the rate of growth of the firm.

 Funds Flow Statement helps in gathering the financial states of Business.

It gives an insight into the evolution of the present financial position and gives answer to the problem 'where have our resources been moving'?
In the present world of credit financing, it provides a useful information to bankers,creditors,financial institutions, Government etc. It provides information regarding amount of loan required, its proposes, the terms of repayment an sources for repayment of loan etc. The financial manager gains a confidence born out of a study of Funds Flow Statement. In fact, it carries information regarding firm's financial policies to the outside world.

 An analysis of Funds Flow Statements of several years reveals certain valuable information for the financial manager for planning the future financial requirements of the firm and their nature too i.e. Short term, long-term or mid term. The management can formulate its financial policies based on information gathered from the analysis of such statements. The above were the purposes the Fund Flow Statement Serves.

CURRENT ASSETS: These are those assets, which are expected to be realized or sold or consumed within the normal operating cycle. These assets change and fluctuate within a shorter period of time. It includes Cash and Bank Balances Temporary investments Bills Receivable Trade Debtors Stock Prepaid Expenses Advances for Suppliers Short Term Loan and Advances Accrued Incomes etc.

Cont

CURRENT LIABILITIES: These are those liabilities that are short-term obligations, which are either to be paid out of current assets or by creating current liabilities.

Provisions against current assets are to be considered as current liabilities, as these provisions reduce the amount realizable from the respective current assets. It includes Trade Creditors Bills Payable Bank Overdraft Outstanding expenses Provision for Doubtful Debts Provision for Discount on Debtors etc

 Transactions that increase working capital are sources of funds. Some of them are Funds from Operations. Funds from issue of Share Capital. Funds from Issue of Debentures, Acceptance of Public Deposits and other Long-term Loans Sale of Fixed Assets. Net Decrease in Working Capital. etc

 Loss from operations -Loss from operations either decreases the current assets or increases the current liabilities or in other words reduces the funds.

Purchase of Fixed Assets -If any fixed asset like building,machinery,furniture or investments is purchased, it will reduce the current asset (cash) without any corresponding decrease in current liability.
Repayment of loans, Redemption of Debentures or preference share capital -Any such repayment including the payment of premium on redemption of debentures or preference shares is an application of funds because it reduces the current assets. Cont

Particulars

Schedule of changes in working capital

Increase Rs.

Previous Year Rs.

Current Year Rs.

Changes in Working Capital Decrease Rs.

A.CURRENT ASSETS Stock Debtors Bills Receivable Cash/Bank Prepaid Expenses Accrued Incomes Marketable Investments (A) B. CURRENT LIABILITIES Creditors Bills payable Outstanding expenses Bank overdraft Provision for Doubtful Doubts Provision for Discount on Debtors Unclaimed/Unpaid Dividend (B)

Working Capital (A-B) Increase/Decrease in Working Capital

Liabilities Equity Share Capital

31.12.2005 Rs. 5,00,000

31.12.2004 Rs. 3,00,000

Assets Fixed Assets Less : Accumulated Depreciation Investments Stocks of Materials

31.12.2005 Rs. 7,95,000

31.12.2004 Rs. 8,22,000

(-)1,86,000 6,09,000
2,65,000 85,0000

1,49,000 6,73,000
2,00,000 1,10,000

Preference Share Capital Securities Premium

2,00,000 80,000

3,00,000 50,000

Capital Reserve
Profit and Loss a/c 10% Debentures 15% Debentures

50,000
1,20,000 2,20,000

20,000
1,66,000 3,00,000 1,20,000

Stock of Finished Goods

Sundry Debtors Bills Receivable Cash on Hand

1,65,000
1,92,000 1,42,000 22,000

1,25,000
1,60,000 1,20,000 10,000

Sundry Creditors
Bills Payable Outstanding Expenses Bank Overdraft

1,10,000
45,000 10,000 40,000

90,000
50,000 15,000 -

Cash at Bank
Prepaid Expenses Preliminary Expenses

15,000 10,000

40,000
25,000 30,000

Proposed Dividend
Provision for Taxation

70,000
60,000 15,05,000

30,000
52,000 14,93,000 15,05,5000 14,93,000

1. 2. 3.

4.

5.

6.

During the year 2005, an Interim Dividend of Rs.25,000/- was paid. Income- tax paid of Rs.48,000/During the year 2005,Fixed Assets Rs.1,29,000/- were purchased and Depreciation provided on Fixed Assets amounted to Rs. 77,500/Old Machinery was sold at profit, which was credited to Capital Reserve . Preference Shares were Redeemed at 10%Premium on 1st January,2005.Premium paid on redemption was debited to Securities Premium Account Investments costing Rs.42,000/- were sold for Rs.51,000/-

Particulars
A.CURRENT ASSETS Stock of Materials Stock of Finished Goods Sundry Debtors Bills Receivable Cash on Hand Cash at Bank Prepaid Expenses

Previous Year Current Year (2004) Rs. (2005) Rs.

1,10,000 1,25,000 1,60,000 1,20,000 10,000 40,000 25,000 5,90,000 (A) 85,000 1,65,000 1,92,000 1,42,000 22,000 15,000 6,06,000

Changes in working capital

Increase Rs.
40,000 32,000 22,000 12,000 -

Decrease Rs.
25,000

40,000 10,000

B. CURRENT LIABILITIES Sundry Creditors Bills payable Outstanding expenses Bank overdraft (B)

90,000 50,000 15,000 1,55,000

1,10,000 45,000 10,000 40,000 2,05,000

5,000 5,000 -

20,000 40,000

Working Capital (A-B) Net Decrease in Working Capital 4,35,000

34,000

19,000 4,35,000 1,35,000 1,35,000

Sources
Sale proceeds of fixed assets(Machinery) Sale of investments Proceeds of equity share (2,00,000+40,000) Issue of 15% debentures

Rs.
1,45,000

Application
Purchase of fixed assets Purchase of investments 10% debentures repaid Redemption of preference shares (1,00,000 +10,000) Proposed dividend of last year

Rs.
1,29,000

51,000 2,40,000

1,07,000 3,00,000

1,00,000

1,10,000

Net decrease in working capital

19,000

30,000

Funds from operation

1,93,500

Income tax paid

Interim dividend paid

48,000
25,000 7,49,000

7,49,000

PARTICULARS

RS.

PARTICULARS

RS.

To Proposed Dividend
To provision for tax

70,000

By Balance c/d

1,66,000

56,000

By profit on sale of investment

9000

To preliminary expenses To depreciation on fixed assets To interim dividend To Balance c/d

20,000

77,500

25,000 1,20,000 By funds form 1,93,500 operation (balancing figure)

3,68,500

3,68,500

Particulars To Balance b/d To P&L Adjustment To Cash/Bank(Balancing Figure)

Rs. 2,00,000 9,000 1,07,000 3,16,000

Particulars By cash/bank(sold) By Balance c/d

Rs. 51,000 2,65,000 3,16,000

Particulars To Balance b/d To cash/bank

Rs 8,22,000 1,29,000 9,51,000

Particulars By transfer to fixed assets-sold (Balancing Figure) By Balance b/d

Rs. 1,56,000 7,95,000 9,51,000

Particulars To transfer to fixed assets(balance figure) To Balance b/d

Rs 40,500 1,86,000 2,26,500

Particulars By Balance b/d By Profit and Loss Adjustment Account

Rs. 1,49,000 77,500 2,26,500

Particulars

Rs

Particulars By Balance b/d

Rs 20,000 30,000

To Balance c/d

50,000

By transfer from fixed asset s sold a/c

50,000

50,000

Particulars To transfer from fixed assets To transfer to capital reserve(profit on sale transfer to capital reserve)

Rs 1,56,000

Particulars By provision for depreciation By cash/bank (balancing figure)

Rs 40,500

30,000

1,45,000

1,86,000

1,86,000

Particulars To cash/bank a/c To Balance c/d

Rs 48,000 60,000 1,08,000

Particulars By Balance c/d By P&L Adjustment (balancing figure)

Rs 52,000 56,000 1,08,000

Particulars To cash/bank(Last Year) To Balance c/d

Rs 30,000 70,000 1,00,000

Particulars By Balance c/d By P&L Adjustment (balancing figure)

Rs 30,000 70,000 1,00,000

Particulars
To premium on redemption To balance c/d

Rs
10,000 80,000

Particulars
By balance c/d By cash/bank (balancing figure)

Rs
50,000 40,000

90,000

90,000