FUNDS FLOW STATEMENT

 

FUNDS FLOW STATEMENT

 

INTRODUCTION

             The funds flow statement is a statement which shows the movement of funds & is a report about the financial operations of a business. It indicates various means by which funds were obtained during a particular period and the ways in which these funds were employed. In other words, it is a statement of sources and applications of funds.

             The popular concept of funds means the working capital. There are two concepts of working capital. Gross working capital refers to the firm’s investment in its current assets while Net working capital means excess of current assets over current liabilities.

              Flow means “change”. Therefore “flow of funds” means change in funds. It takes place when any transaction results in increase or decrease in working capital. It is said to be a source or inflow of funds if it results in decrease of working capital and an application or outflow of funds if there is an increase in working capital.

               Funds move from non – current to current transactions and vice – versa. Funds move when a transaction effects

1)    a current asset and a fixed asset

2)    a current liability and a fixed liability

3)    a current asset and a fixed liability

4)    a current liability and a fixed asset

I. The following is the extract of the balance sheet of a company

Liabilities		Assets
Non-Current Liabilities		Non-Current Assets
Share Capital 13% Redeemable Preference shares of Rs 10 each Equity shares of Rs 10 each	1,00,000 1,00,000	Goodwill Buildings Plant Furniture Long term investment	50,000 1,00,000 1,00,000 50,000 50,000
Reserves & Surplus General Reserve Profit & Loss A/c	1,00,000 50,000	Current Assets Debtors Bills Receivable Inventory Prepaid expenses Cash	80,000 50,000 1,00,000 50,000 20,000
Long Term Loans 12% debentures Loans on mortgages	1,00,000 1,50,000
Current liabilities Creditors Bills Payable Bank Overdraft Outstanding Expenses	50,000 50,000 25,000 25,000
	6,50,000		6,50,000

  Show how the following transactions will affect the working capital

1. The company realizes Rs 20,000 from its debtors.
2. The company pays its creditors a sum of Rs 10,000
3. The company purchases furniture of Rs 10,000 by raising a long term loan.
4. The company redeems its preference shares of Rs 1,00,000 by issuing 13% debentures of Rs 1,00,000
5. The company raises Rs 50,000 in cash by the issue of new shares
6. The company sells its building having a book value of  Rs 60,000 for a sum of Rs 60,000

II. State with reasons whether the following transactions will result in an increase or decrease in working capital or does not affect the working capital:

1. A company issued 10,000 shares at Rs 10 each at par & fully paid up.
2. Debentures of Rs 1, 00,000 are converted into equity shares.
3. Investments were sold for Rs 50,000
4. Buildings was purchased for Rs 1,50,000
5. Bills Payable accepted & issued to creditors Rs 40,000
6. Bills Receivable discounted for Rs 9,500
7. Fixed Assets purchased by issue of shares Rs 1,00,000
8. Cash paid to creditors Rs 30,000
9. Preliminary Expenses written off Rs 5,000
10. Advance income tax paid Rs 50,000.

Preparation of schedule of changes in working capital

1. Prepare a schedule of changes in working capital from the Balance sheet of X Co Ltd.

Liabilities	2004	2005	Assets	2004	2005
Equity capital Debentures Tax payable Accounts payable Interest payable Dividend payable	5,00,000 3,70,000    77,000    96,000    37,000    50,000	5,00,000 4,50,000    43,000 1,92,000    45,000    35,000	Fixed assets Long Term Investments W.I.P Stock Accounts receivable Cash	6,00,000 2,00,000    80,000 1,50,000       70,000    30,000	7,00,000 1,00,000    90,000 2,25,000 1,40,000    10,000
	11,30,000	12,65,000		11,30,000	12,65,000

2. From the following Balance sheet of P Co. Ltd., prepare statement showing changes in W.C

Liabilities	2005	2004	Assets	2005	2004
Loans(payable during 2006) Bills Payable Trade Creditors Share capital Profit and Loss A/c	20,000    35,000    45,000 1,50,000    75,000	----    20,000    50,000 1,25,000    60,000	Good will Cash Debtors Closing Stock Long term investments Land Preliminary expenses	5,000    70,000    90,000 1,20,000   10,000    27,000      3,000	10,000 25,000 98,000 87,000 15,000 15,000   5,000
	3,25,000	2,55,000		3,25,000	2,55,000

3. Calculate funds from operation from the following income statement.

Profit & Loss A/c
To Rent To salaries To Provision for depreciation To commission paid To Provision For tax To General Reserve To loss on sale of investment To cost of issue of shares written off To provision for legal damages To net profit	25,000 1,00,000    50,000      5,000 1,50,000      3,000    10,000         2,000      5,000 1,65,000	By gross income By profit on sale of vehicles By Refund of tax By Dividend received	5,00,000      3,000      2,000    10,000
	5,15,000		5,15,000

4. Calculate funds from operation from the information given below on 31^st March 2007.
1. Net profit for the year 31^st March 2007 Rs 6,50,000
2. Gain on sale of building RS 35,500
3. Goodwill appears in the books at Rs.1,80,000 out of that 10% has been written off during the year.
4. Old machinery worth Rs.8,000 has been sold for Rs.6,500 during the year.
5. Rs.1,25,000 has been transferred to General Reserve fund.
6. Depreciation has been provided on machinery and furniture @ 20%. The total cost of which is Rs.6,50,000

5. From the following Balance sheet and additional information. Calculate funds from operation.

Liabilities	2005	2006	Assets	2005	2006
Share capital g. Reserve Profit and Loss A/c 6% debentures Creditors Provision for tax	1,00,000    30,000    20,000    80,000    65,000      5,000	1,50,000    30,000    22,000    80,000    58,000    10,000	Land & Building Plant & Machinery Stock Debtors Investments Cash Goodwill	1,00,000    80,000    70,000    20,000          -    10,000    20,000	95,000     90,000  1,10,000      25,000      10,000      10,000      10,000
	3,00,000	3,80,000		3,00,000	3,80,000

1. During the year 2006 dividends of Rs.15,000 were paid.
2. Depreciation written off : Plant & Machinery amounted to Rs.6,000 and no depreciation is charged on Land & Building.
3. Provision made for tax during the year Rs.5,000
4. Profit on sale of machinery Rs.2,000

6. From the following Balance sheet of Prem and Co for the year ended 31-12-2001 & 31-12-2002, Prepare a statement showing sources and applications of funds and schedule of changes in W.C.

Liabilities	2001	2002	Assets	2001	2002
Share capital Creditors Profit and Loss A/c	4,00,000 1,06,000    14,000	5,75,000    70,000    31,000	Plant Stocks Debtors Cash	75,000 1,21,000 1,81,000 1,43,000	1,00,000 1,36,000 1,70,000 2,70,000
	5,20,000	6,76,000		5,20,000	6,76,000

7. Following is the Balance sheet as on 31-12-2003  & 31-12-2004

Liabilities	31-12-03	31-12-04	Assets	31-12-03	31-12-04
Share capital 11% cumulative preference shares Equity shares General Reserve Profit and Loss A/c 9% debentures Provision for tax Proposed dividend Current Liabilities	- 1,10,000      4,000      2,000    12,000      6,000    10,000    49,000	30,000 1,20,000      4,000      2,400    14,000      8,400    11,600    35,600	Land & Building Plant & Machinery Sundry Debtors Stocks Bank Cash	60,000 30,000 40,000 60,000   2,400       600	50,000 50,000 48,000 70,000   7,000   1,000
	1,93,000	2,26,000		1,93,000	2,26,000

Prepare schedule of changes in working capital and funds flow statement

8. From the following Balance sheet prepare schedule of changes and funds flow statement.

Liabilities	2004	2005	Assets	2004	2005
Equity share capital Share Premium 8% debentures G. Reserve Profit and Loss A/c Provision for tax Creditors	2,40,000    24,000     ----    18,000    58,500    29,400 1,00,500	3,60,000    36,000    78,000    27,000    62,400    32,700 1,09,200	Land & Building Plant & Machinery Furniture Stocks Debtors Bank	1,66,200 1,06,800      7,200    66,300 1,09,500    14,400	3,39,600 1,53,900      4,500    78,000 1,17,300    12,000
	4,70,400	7,05,300		4,70,400	7,05,300

Additional Information

1. Depreciation written off during the year on machinery Rs.38, 400 & furniture Rs.1,200.

9. From the following Balance sheet prepare scheme of changes and fund flow statement.

Liabilities	2003	2004	Assets	2003	2004
Share capital Profit and Loss A/c Current Liabilities	60,000 34,000 12,000	65,000 26,000   3,000	Goodwill Plant & Machinery Current Assets	30,000 60,000 16,000	25,000 50,000 19,000
	1,06,000	94,000		1,06,000	94,000

(i)            Depreciation of Rs.20,000 on Plant & Machinery was charged to the Plant & Machinery A/c

(ii)          The dividend of Rs.12, 000 was paid during the year.

10. Prepare statement of working capital, funds flow from the:-

Liabilities	1993	1994	Assets	1993	1994
Equity Capital Debentures Profit and Loss A/c Creditors Reserve for B/D Prov. For dep L&B P&M	6,00,000 2,00,000 1,25,000 1,15,000      6,000    20,000    30,000	8,00,000 3,00,000 2,50,000    90,000      3,000    24,000    35,000	P&M L&B Stock Bank Preliminary expenses Debtors	4,00,000 3,00,000 3,00,000    20,000      7,000    69,000	6,45,000 4,00,000 3,50,000    40,000      6,000    61,000
	10,96,000	15,02,000		10,96,000	15,02,000

1. During the year a part of machinery costing Rs.70, 000 (accumulated depreciation on it Rs.2, 000) was sold for Rs.6, 000.
2. Dividend of Rs.50, 000 was paid during the year.

11. From the following prepare fund flow statement.

Liabilities	2002	2003	Assets	2002	2003
Share Capital General Reserve Profit and Loss A/c Bank Loan (long term) Trade Creditors Tax reserve Dividend Payable	4,00,000    80,000    60,000 3,00,000 3,00,000    80,000    40,000	5,00,000 1,40,000    75,000 1,00,000 1,40,000 1,20,000    50,000	Buildings Plant Stock Debtors Cash at Bank	4,00,000 3,50,000 4,00,000    50,000    60,000	5,00,000 3,00,000 2,50,000    40,000    35,000
	12,60,000	11,25,000		12,60,000	11,25,000

1. The Company acquired a building worth Rs.1,00,000 by issuing a equal number of shares of Rs.10 each to vendors.
2. Depreciation on plant provided by the company amounting to Rs.35,000 on the plant sold. Loss on sale of plant was debited to P&L A/c Rs.10, 000.
3. Company paid a tax of Rs.60, 000 during the year.
4. Cash dividend paid Rs.30, 000.

12. Prepare schedule of changes and fund flow statement.

Liabilities	2005	2006	Assets	2005	2006
Equity Share Capital 6% Preference share capital Capital Reserve General Reserve Profit and Loss A/c Sundry Creditors Bills Payable Outstanding expenses Proposed dividend Provision for tax	3,00,000     80,000         -    30,000    26,000    30,000    12,000      6,000    30,000    32,000	4,00,000      50,000    20,000    40,000    35,000    58,000     8,000     5,000   42,000   36,000	Plant & Machinery Goodwill Land & Building Furniture Debtors Investment Stock Bank Bills Receivable Preliminary expenses Cash	1,20,000    60,000 1,25,000    15,000    65,000    12,000    90,000    15,000    16,000    15,000    13,000	2,25,000    5,5000    85,000    12,000 1,05,000    48,000    84,000    20,000    30,000    10,000    20,000
	4,77,000	6,94,000		4,77,000	6,94,000

1. A piece of land is sold in 2006 and balance has been revalued. Profit on sale and revaluation being transferred to capital reserve A/c.
2. Depreciation on plant and machinery has been written off Rs.24, 000 in 2006 and no depreciation is charged on land and buildings.
3. A machinery was sold for Rs.16,000 (written down value Rs.20,000) and furniture has been sold during the year.
4. Rs.3,000 has been received on trade investment as dividend
5. An interim dividend for Rs.20, 000 has been paid in 2006.

13. From the following balance sheets of Alpha Ltd., make out:

(1)  Statement of changes in working capital.

(2)  Funds Flow statement.

Liabilities	1998	1999	Assets	1998	1999
Equity share capital 8% redeemable pref. shares capital Capital Reserve General Reserve P&L A/c Proposed Dividend Sundry  Creditors Bills Payable Liability for expenses Provision for Taxation	3,00,000 1,50,000 40,000 30,000 42,000 25,000 20,000 30,000 40,000	4,00,000 1,00,000 20,000 50,000 48,000 50,000 47,000 16,000 36,000 50,000	Goodwill Land &Building Plant Investments Sundry Debtors Stock Bills receivable Cash in hand Cash in bank Preliminary Expenses	1,00,000 2,00,000 80,000 20,000 1,40,000 77,000 20,000 15,000 10,000 15,000	80,000 1,70,000 2,00,000 30,000 1,70,000 1,09,000 30,000 10,000 8,000 10,000
	6,77,000	8,17,000		6,77,000	8,17,000

(1)  A piece of land had been sold out in 1999 and the profit on sale has been credited to capital reserve.

(2)  A machine has been sold out for Rs.10,000. The written down value of the machine was Rs.12,000. Depreciation of Rs10,000 is charged  on plant account in 1999.

(3)  The investments are trade investments. Rs.3,000 by way of dividend is received including Rs.1,000 from pre-acquisition profit which has been credited to investment account.

(4)  An interim dividend of Rs20,000 has been paid in 1999.

14. Prepare fund flow statement from the following particulars

Liabilities	2006	2007	Assets	2006	2007
Equity Share Capital General Reserve Profit and Loss A/c Bank Loan (long term) Creditors Provision for tax	2,00,000    40,000    32,000 1,60,000 1,50,000    30,000	2,50,000    70,000    39,000    40,000 1,30,000    40,000	Land & Building Machinery Stock Debtors Cash	2,00,000 1,80,000 1,00,000    80,000    52,000	2,40,000 1,30,000 1,26,000    64,000      9,000
	6,12,000	5,69,000		6,12,000	5,69,000

1. During the year ending 31-12-2007 dividend of Rs.42,000 was paid.
2. Assets of another Company was purchased of consideration for Rs.50,000 payable by the issue of shares. These assets were land and building Rs.25, 000 and stock Rs.

      25, 000.

3. Depreciation written off on machinery was Rs.12, 000 & land & building Rs 22,500.
4. Loss on sale of machinery amounted to Rs 12,000 was written off to General Reserve.
5. Income tax paid during the year was Rs.35,000
6. New addition to Land and Building was Rs.37, 500.

15. Prepare fund flow statement from the following information.

Liabilities	2005	2006	Assets	2005	2006
Sundry Creditors Bills Payable Bank Overdraft Provision For tax Reserves                     Profit and Loss A/c Share capital	39,500 33,780 59,510 40,000 50,000 39,690 2,00,000	41,135 11,525 -- 50,000 50,000 41,220 2,60,000	Cash at Bank Sundry Debtors Sundry advance Stock Land & Building Plant & Machinery Goodwill	2,500 85,175 2,315 1,11,040 1,48,500 1,12,950 --	2,700 72,625 735 97,370 1,44,250 1,16,200 20,000
	4,62,480	4,53,880		4,62,480	4,53,880

1. During the year ended 31-12-2006 an interim dividend of Rs.26, 000 was paid.
2. The assets of another company were purchased for Rs.60, 000 payable in fully paid shares the Company. These assets consisted of stock Rs.22, 000, Machinery Rs.18, 000 and goodwill Rs.20, 000. In addition sundry purchase of plant was made totaling Rs 5, 600.
3. Income tax paid during the year Rs.25, 000.
4. The net profit for the year before tax was Rs.62, 530.

16.Following is the Balance sheet of manufacturing Co., at the end of the year 2004

Liabilities	1/1/2004	31/12/2005	Assets	1/1/2004	31/12/2005
Creditors O/s expenses 8% debentures Depreciation Fund Reserve for contingency Profit and Loss A/c Capital A/c	1,03,000    13,000    90,000    40,000       60,000    16,000 2,30,000	96,000     12,000     70,000     44,000         60,000     23,000  2,30,000	Cash Sundry Debtors Temporary Investment P/p expenses Stocks Plant Machinery	90,000    67,000 1,10,000      1,000    82,000 1,50,000    52,000	90,000    43,000       74,000      2,000 1,06,000 1,50,000    70,000
	5,52,000	5,35,000		5,52,000	5,35,000

Adjustments:

1. 10% dividend was paid in cash.
2. New machinery for Rs 30,000 was purchased but old machinery of Rs 12,000 was sold for Rs 4,000. The depreciation on it was Rs 6,000.
3. Rs 20,000 8% debentures were redeemed by purchase from the open market at the rate of Rs 96 for a debenture Rs 100.
4. Rs 36,000 investment was sold at book value.

17.Given to you is the Balance sheet of X Co. Ltd. Prepare fund flow statement.

Liabilities	2004	2005	Assets	2004	2005
Equity share capital 9% preference share capital Debentures Profit and Loss A/c Reserve for Bad Debt Current Liabilities	3,00,000 2,00,000 1,00,000 1,10,000   10,000   70,000	3,50,000 1,00,000 2,00,000 2,70,000   15,000 1,45,000	Fixed assets (nets) Investment Current Assets Discount on issue of debentures	5,10,000    30,000 2,40,000    10,000	6,20,000    80,000 3,75,000      5,000
	7,90,000	10,80,000		7,90,000	10,80,000

1. Preference shares were redeemed at a premium of 5% during the year 2005.
2. Dividend at 15% on equity shares for the year 2004 and preference dividend for 2005 were paid during 2005.
3. The Provision for depreciation stood at Rs. 1, 50,000 and Rs.1, 90,000 for the year 2004 and 2005 respectively.
4. A machine costing Rs.70, 000 (depreciation Rs.30, 000) was disposed off for Rs.

      25, 000.

18. Given to you is the Balance sheet of X Co. Ltd.

Liabilities	2002	2003	Assets	2002	2003
Equity share capital 10% redeemable pref. shares Capital redemption reserve. Reserve fund Share Premium A/c P&L A/c 12% debentures creditors	3,00,000 2,00,000 -- 2,00,000   30,000 1,20,000 2,00,000   80,000	4,00,000 --- 1,00,000 1,20,000   10,000 1,80,000 3,00,000 1,40,000	Building Machinery Furniture Investment Stock Debtors Cash at Bank	2,50,000 3,00,000   20,000 1,00,000 3,00,000 1,40,000   20,000	3,00,000 3,20,000   18,000 1,50,000 2,50,000 2,00,000   12,000
	11,30,000	12,50,000		11,30,000	12,50,000

Additional Information

2. Preference shares were redeemed @ 10% premium.
3. Rs.20,000 was transferred to the reserve fund from P&L A/c
4. Investments of the book value of Rs.40,000 was sold for Rs.70,000
5. Depreciation provided on buildings, machinery and furniture Rs20, 000, Rs.30, 000 and Rs.2, 000 respectively.
6. Dividends paid Rs.50, 000 and income tax paid Rs.45, 000.

19.From the following Balance sheet of Mr.A prepare funds flow statement.

Liabilities	1993	1994	Assets	1993	1994
Capital Long term borrow Trade Creditors Bank O/d O/s expenses	63,000 50,000 42,000 35,000   5,000	1,00,000    60,000    39,000    25,000      6,000	Cash Debtors Stock L&B Furniture	15,000 30,000 55,000 80,000 15,000	20,000    28,000    72,000 1,00,000    10,000
	1,95,000	2,30,000		1,95,000	2,30,000

20.From the following prepare funds flow statement

Liabilities	1st Jan	31st Dec	Assets	1st Jan	31st Dec
Creditors Long term loan Capital	18,000 15,000 74,000	20,500 22,500 74,500	Cash Debtors Stock Land Building Machinery	2,000 17,500 12,500 10,000 25,000 40,000	1,800 19,200 11,000 15,000 27,500 43,000
	1,07,000	1,17,500		1,07,000	1,17,500

During the year drawing of proprietor amounted to Rs.13, 000. Provision for depreciation on machinery stood at 13500 on 1^st January at Rs.18, 000 on 31^st December