Format of Fund flow Statement: Steps, Numericals

TOPIC CONTENT
1. Meaning Of Fund Flow Statement
2. Steps to prepare Fund Flow Statement
3. Format of fund flow statement
4. Download PPT
5. Numericals

PPT IS AVAILABLE AT THE END OF THIS TOPIC

1. Meaning of fund flow statement

A fund flow statement shows the current position of funds of the company over a period and enables analysis of sources and uses of funds for a particular period of time.

It shows where the funds have been received from and where the company spends them.

Fund flow statement is not mandatory to make by any company as it is prepared due to analysis of funds. But the cash flow statement is mandatory.

2. Steps To Prepare Fund Flow Statement

The steps involved in preparing the statement are as follows:

1. Prepare a statement of change in working capital
2. Prepare funds from the operation
3. then Preparation of fund flow statement

To learn the steps in brief click here (how to do numerical)

A. Changes in Working Capital

Step 1: Preparation of Statement of Changes in Working Capital:

The statement of Changes in working capital shows the net increase or decrease in the working capital of the business.

The working capital of the firm increases if there is an increase in the current assets or a decrease in the current liabilities.

However, the working capital of the firm decreases if there is a decrease in the current assets and an increase in the current liabilities. Watch the video on youtube for learning.

Format of Changes in Working Capital

B. Funds from Operation

Step 2: Determination of Funds from Operations

MEANING OF FUND FROM OPERATION: Funds from operations refer to the profit earned or loss incurred from the regular business operation.

Funds from the operation are necessary for the preparation of the fund flow statement. Fund from the operation can be solved by direct or indirect method. The Indirect Method is more applicable.

DIRECT METHOD

INDIRECT METHOD

Read More- Importance of Corporate Governance

C. Fund Flow Statement

Preparation of Fund Flow Statement:

After recognizing the funds/loss from operations, a fund flow statement is prepared, which will show the net increase or decrease in the working capital.

Basically, any change in the assets and liabilities may result in the inflows and outflows of funds, but not always, as in the case of depreciation or revaluation of assets, there is no inflow or outflow of funds.

Hence, only those assets or liabilities will become a part of the statement, which actually leads to the flow of the fund to/from the business.

FORMAT OF FUND FLOW STATEMENT

While preparing the Funds Flow Statement, the Sources and Uses of Funds are to be disclosed clearly so as to highlight the Sources from which the Funds have been generated and the Uses to which these Funds have been applied.

This Statement is also sometimes referred to as the Sources and Applications of Funds Statement or Statement of Changes in Financial Position.

Sources of Funds

Items to be shown under the head Sources of Funds are as follows:-

1. Issue of Shares and Debentures for Cash: The total amount received from the Issue of Shares or Debentures is to be shown under this head.
   
   But, the Issue of Bonus Shares or Conversion of Debentures into Equity Shares or Shares issued to vendors shall not be shown here as there is no inflow of Cash
2. Sale of Investments and other Fixed Assets: The Total Amount received on the sale of Investments and other Fixed Assets is to be shown under this head.
3. Funds from Operations: The Funds generated from Operations as computed in Step II are also required to be shown here.
4. Decrease in Working Capital: This would be the Balancing Figure of the Statement and will come from a change in the Working Capital Statement

Application of Funds

Items to be shown under Application of Funds are as follows:-

1. Purchase of Fixed Assets and Investments: The Cash Payment made for the purchase of Fixed Assets and Investments is an application of Funds.
   
   But if the purchase is made by issue of shares or debentures, such a transaction will not constitute the application of funds. Similarly, if the purchases are on credit, these will not constitute fund applications.
2. Redemption of Debentures, Preference Shares, and Repayment of Loan: Payment made including Premium (less Discount) is to be taken as fund application
3. Payment of Dividend & Tax: Payment of Dividend and Tax is to be taken as applications of the fund if the provisions are excluded from Current Liabilities and Current Provisions are added back to profit to determine the “Funds from Operations”

Read more- International Trade Theories

4. Download PPT of the Fund Flow Statement

Steps to Download
1. Double Click On Download
2. Close ad, if any opens
3. Then fill in the Email address to start downloading
4. If not start, then check your mail inbox. We have sent you.

__________________________________________________________________

For Numericals- Click here to visit

________________________________________________________