funds statement

8/8/2019 Funds Statement

1/19

The funds statement was also known as a

statement of funds flow or a statement ofsources and applications of funds


2/19

MEANINGy The term Flow means changes incoming and

outgoing. When this term is used with funds, it means

the changes taking place in funds during a certainperiod. Whenever there is change in the funds, it ispresume that flow in funds has taken place.Transactions that bring working capital into the firmare sources of funds and on the contrary if the workingcapital decreases, it is an application of funds


3/19

Working Capital

y In popular sense, the term Fund is used to meanworking capital i.e. the excess of current assets

over current liabilities. Therefore, in this sense,fund flow statement includes all the transactionsaffecting current assets and current liabilities


4/19

TRANSACTIONS THAT WILLAFFECT THE

FLOW OFFUNDS

y The following transactions will bring the change in

y the working capital

y Current Assets and Non-Current AssetsCurrent Assets and Non-Current LiabilitiesCurrent Liabilities and Non-Current LiabilitiesCurrent Liabilities and Non-Current Assets

y In brief, it can be said that when one aspect is of non-current category, and the other current category, there

will be flow in funds


5/19

TRANSACTIONS THAT WILLNOT

AFFECT THEFLOW OFFUNDS

1.CurrentAssets and Current Liabilities

2. Non-Current Assets and Non-Current Liabilities

3.Non-Current Liabilities or Non-CurrentAssets


6/19

Meaning of funds flow statementThe Funds flows statement (FFS) is a financial

statement which reveals the methods by which

the business has been financed and how it hasused its funds between the opening and closing

Balance-Sheet dates . it studies from where the

Funds have been received and where the funds

have been used.


7/19

OBJECTIVESy Following questions are answered by Funds Flow

Statement -Where the profit is put up?

y Why net current assets are low even thoughthere is anincrease in net profit? In other words,why cash balance hasnot increased.

y Why excess dividend was distributed when there

y were low profits?

y How is the amount realized from the sale of

y assets used


8/19

y How were the changes in Working Capital

y How were the plant and machinery

y expanded?y How was the amount received from the issue

y of shares of debentures used?

y Why the funds were not available for the

y purchase of machinery and plant


9/19

IMPORTANCEOFFUNDSFLOW

STATEMENT1.Financial Analysis and Control2.Financial Planning and Budget preparation

3.Useful to Bankers and Money Lenders4.Helpful in Comparative Study5.Knowledge of Managerial Policies6.Knowledge of Business Problems7. Dividend Policy


10/19

LIMITATIONSOFFUNDSFLOW

STATEMENTy Non-fund transactions and this is why it is less popular

than Balance-sheet and Profit & Loss Account;

yIt fails in the disclosure of all changes that have takenplace during the ordinary course of business;

y It is not a substitute ofIncome Statement or Balance-sheet. It merely provides some additional information

relating to the financial position of a firm;


11/19

PREPARATIONOFFUNDSFLOW

STATEMENTy Preparation of funds flow statement is divided

y into two parts.

1.Schedule of Changes in Working Capital;2.Funds from Operation;3.Funds Flow Statement


12/19

WORKING CAPITAL

y This statement is prepared from current assets andcurrent liabilities in order to calculate the increase or

decrease in working capital and is prepared in thePerforma.


13/19

FOLLOWING RULESAREAPPLIEDyAn increase in current assets, increases working

y capital

yA decrease in current assets, decreases workingy capital

yAn increase in current liabilities, decreases working

y capital

yA decrease in current liabilities, increases working

y capital


14/19

Sourc s ofFu s:

y The following are the sources from which funds come:1.Funds from operations

2.Income from investments3.Issue of shares and debentures

4.Raising a loan5.Sale of fixed assets and long-term investments6.Receipt of interest on non-trade investment,dividend, refund of tax etc.

7.Decrease in working capital etc


15/19

Uses orapplications of funds

1.Funds lost in operations

2.Repayment of long-term loans3.Redemption of preference shares and debentures4.Purchase of fixed assets5.Purchase of long-term investments


16/19

6. Payment of cash dividends

7. Payment of taxes

8. Drawing in case of proprietary or partnershipbusiness

9.Loss of cash by embezzlement

10. Increase in working capital etc


17/19

The followingrulesshould be followed

whilepreparing funds flow statement

1.An increase in a fixed assets indicates an

application of funds

2.A decrease in a fixed assets indicates a source

of funds

3.An increase in a fixed liability indicates a source

of funds

4.A decrease in fixed liability indicates an

application of funds

5.An increase in share capital indicates a source

of funds


18/19

Precautionsto betakenare-y Changes in fixed Accounts

2. Internal Reserves3. Provision against current Assets

y 4.Changes in current Assetsy 5. Interim Dividend

6. Investments7. Provision for taxation8. Proposed dividend

y 9.Profit or Loss on the Sales of Fixed Assetsy 10. Dividend receivedy 11.Goodwill and Preliminary Expenses written of


19/19

THANK YOUSahastranshu

Suyash

YugankShaurya

siddhant

funds statement

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