2. This statement reveals resources from which funds were
obtain by the firm hand the specific uses to which such
funds were applied. The effectiveness of financial
management in procuring funds from various sources &
using them effectively for generating income without
sacrificing the financial position of the firm is reflected
in fund flow statement .
Definitions of fund flow statement :
In the words of Foulke, “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”.
According to : Almond Coleman, “ The fund flow
statement summarizing the significant financial changes
which were occurred between the beginning & the end
of a company’s accounting periods”.
3. 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.
4. MEANING OF FUND: the term ‘fund’ is used to
convey a variety of meanings in financial management. It
includes only cash or cash equivalents of the business,
while in the broader sense it covers all financial resources
of enterprise.
fund = Net working capital = total current assets – total
current liabilities
• MEANING OF FLOW
The term ‘FLOW’ means movement and in this sense it
includes both ‘inflow’ and ‘outflow’.
5. The changes which occurred in the current accounts as a
result flow of fund are reflected in a statement known
as ‘schedule of changes in working capital’ .
The similar changes in non current accounts are shown
in ‘Fund Flow Statement’.
Therefore, following two statements under this
techniques .
1. Statement or Schedule of Changes in Working
Capital.
2. Statement of Sources and Uses of Funds or Funds
Flow Statement.
6. It discloses the changes in individual item of
current asset & current liabilities between two
period & there effect on working capital. Working
capital will increase when there is an increase in
current asset and decrease in current liabilities,
whereas, working capital will decrease when there
is a decrease in current asset & increase in current
liabilities.
Net increase in working capital is treated as use of
funds & the net decrease in working capital is
treated as source of funds.
7. Item Previous Year Current Year Effect on
Increase Rs.
Working
capital
Decrease Rs.
(A) Current
Assets
Cash at bank
Cash in hand
Stock in trade
Debtors
Bills receivable
Advance
payment
Short term
investment
Prepaid expense
Accrued income
Total (A)
8. (B) Current Liabilities
(1) Short term
loans
(2) Bank overdraft
(3) Creditors
(4) Bills payable
(5) Outstanding
expenses
(6) Unclaimed
dividend
Total (B)
Net Working Capital
(A-B)
Increase / Decrease in
Working Capital
Total
9. Sources of Fund Amount Uses Of Funds Amount
Fund from operation
Issue of share
Issue of debenture
long term loans
Sale of fixed assets /
Investment
Non trading receipts
Decrease in working
capital
(if any)
Loss from operation
Redemption of
preference shares
Redemption of
debentures
Repayment of
long term loans
Purchase of fixed
assets
/ Investments
Payment of dividend
& taxes
Increase in working
capital
(if any)
10. Fund from operations :
The profit made by a firm through normal operations is
a major source of funds. The amount of sales as shown
in the P&L A/c is a source of funds by way of increase
in cash , debtor and B/R.
11. Particular Amount Particular Amount
Depreciation
Loss on sale of fixed
assets
Under writing
commissions
Discount on issue of
shares &
debentures
Preliminary expense
written off
Deferred revenue
expenses
Goodwill written off
Patent or trademark
Provision for taxes
(If treated non current
Profit or gain on sale
of
fixed asset
Dividend received
Interest received of
investment
Profit on revaluation
of asset
Fund from
operation
12. EquityLiabilities 2011 2012 Assets 2011 2012
Shareholder' Fund:
Share capital
Security premium
General reserve
P & L A/C
Non-current Liabilities :
Debentures
Current Liabilities
Provision for taxation
Creditors
24000
2400
1800
5850
---------
2940
10050
47040
36000
3600
2700
6240
7800
3270
10920
70530
Non- Current assets
Land & building
Machinery
Furniture
Current assets:
Stock
Debtors
Cash at Bank
16620
10680
720
6630
10950
1440
47040
33960
15390
450
7800
11730
1200
70530
14. Particular 2011
Amount
2012
Amount
Change in
Increase
Working capital
Decrease
CURRENR
ASSETS:-
Stock
Debtors
Cash at bank
Total
Current liabilities
creditors
Total
Net working capi.
Increase in w.c
6630
10950
1440
19020
10050
10050
8970
840
7800
11730
12oo
20730
10920
10920
9810
----
1170
780
----
------
----
-----
240
870
840
15. Sources of fund Amount Application of fund Amount
Fund from
operations
Issue of share
capital including
security premium
(36000-
24000)+(3600-
2400)
Issue of debenture
Sale of furniture
8520
13200
7800
150
Purchase of land
and building
(33960-166920)
Purchase of
machinery
Payment of tax
Increase in working
capital
17340
8550
2940
840
29670 29670
16. Particular Amount Particular Amount
To provision for
taxation
To dep. On
machinery
To dep. On
furniture
To transfer to
general reserve
(2700-1800)
To balances c/d
3270
3840
120
900
6240
By balance b/d
By Fund from
operation
(bal. Figure)
5850
8520
14370 14370
