fund flow ppt
TRANSCRIPT
Why we prepare fund flow statement
The balance sheet and income statement are the traditional basic financial statement of business enterprises. The serious limitation of these statement is that they don't provide information regarding the changes in the firm’s financial position during a particular period of time. They fail to answer the following questions:
Contd..
What funds are available during accounting year and for what purpose these funds were utilized.
How long term sources been adequate to finance fixed assets purchase.
Does the firm posses adequate working capital How much funds are been generated from
operations. Why did firm not pay dividend inspite of adequate
profit?
FUNDS : WORKING CAPITAL
FLOW OF FUNDS: THE TERM FLOW MEANS
CHANGE AND THEREFORE THE TERM FLOW OF
FUNDS MEANS “CHANGES IN FUNDS” OR
“CHANGES IN WORKING CAPITAL”. IN OTHER
WORDS, ANY INCREASE OR DECREASE IN
WORKING CAPITAL MEANS “FLOW OF FUNDS”.
FUNDS FLOW STATEMENT
Funds flow statements is dealt by Accounting Standard 7 ..Meaning :- It explains changes in funds or changes in working capital. It explains the working capital position of the company which givesan idea to the top management about the liquidity position of thecompany.
Working capital:- It is the difference between current assets andcurrent liabilities.
Steps in preparation of funds flow statement:-
1. Preparation of working capital statement that explains increase ordecrease in working capital.
2. preparation of funds from operation statement in which we findout operating profit.
3. Preparation of funds flow statement that shows various sourcesand application of fund .
Current assetsCash in hand and bankMarketable investmentsAccounts receivables
StockPrepaid exp.
Fixed assetsGoodwill
Land and buildingPlant and machineryLong term investment
Current liabilitiesBank overdraft
Outstanding expensesAccounts payable
Fixed liabilitiesShare capital
Reserve and surplusDebentures
Long term loans
Flow in fund Not flow in funds
USES OF FUNDS FLOW
WHY THE LIQUID POSITION OF THE BUSINESS BECOMING MORE AND MORE UNBALANCED IN SPITE OF COMPANY IS MAKING MORE AND MORE PROFITS.
WHERE HAVE THE PROFIT GONE WHAT WILL BE THE SOURCES FOR DIVIDEND IF
COMPANY IS NOT EARNING SUFFICIENT PROFIT WHAT ARE THE SOURCES OF REPAYMENT OF THE
LOAN TAKEN HOW MUCH FUNDS GENERATION THROUGH
NORMAL BUSINESS OPERATION.
IN WHAT WAY THE MANAGEMENT HAS UTILIZED THE FUNDS IN THE PAST AND WHAT ARE GOING TO BE LIKELY USES OF FUNDS ?
Funds flow Analysis
This statement is based on the ‘working Capital’ concept of funds.
It measures the inflows and outflows of working capital resulting from different transactions.
Funds flow statement measures and presents in an analytical manner the summarized version of the numerous flows of funds
for a specific period.
‘Funds Flow’ is the change in ‘Working Capital’
Format of Schedule of changes in Net Working Capital
Beginning year End Year Increase in C.A. &Decrease in C.L.
Decrease in C.A. &Increase in C.L.
A. Current Assets
Cash
Debtors
Bills Receivable
Stock
Prepaid Expenses
Total Current Assets
B Current Liabilities
Short term loans
Creditors
Bank overdraft
Bills payable
Outstanding expenses
Total C.L.
WORKING CAPITAL
(A-B)
Increase/Decrease in W.C.
FUND FLOW STATEMENT
SOURCES OF FUND AMOUNT USES OF FUND AMOUNT
Fund from operation
Issue of shares
Issue of debentures
Sale of fixed assets/ investment
Non trading receipts
Long term loans
Decrease in working capital
Loss from operation
Redemption of shares
Redemption of debentures
Repayment of long term loans
Purchase of Fixed Assets/ Investment
Payment of dividend and taxes
Increase in working capital
FUND FROM OPERATION
The profit made by the firm through normal operation is a major source of funds. The amount of sales as shown in P&L A/c is a source of fund by way of increase in cash, debtors, and B/R.
Profit & Loss Adjustment A/c
Particulars Amount Particulars Amount
To Depreciation
To Loss on sale of fixed assets
To Under writing commission
To Discount on issue of shares and debentures
To Preliminary Expenses written off
To Goodwill written off
To Patent or trademark
To Deferred revenue expenses
To Balance c/d
By Balance b/d
By Profit or gain on fixed assets
By Dividend received
By Interest received on investment
By Profit on revaluation of assets
FUND FROM OPERATION
NUMERICAL
From the following information prepare schedule of changes in net working capital for the year ended on 31st dec,2008
Particulars 1-1-2008 31-12-2008
Cash
Bank
Debtors
Bills Receivable
Stock
Creditors
Outstanding Expenses
10,000
40,000
25,000
5,000
22,000
10,000
2,000
12,000
30,000
45,000
2,000
22,000
8,000
2,500
NUMERICAL
From the following information prepare schedule of changes in net working capital for the year ended on 31st March, 2009
Particulars 31-03-2008 31-03-2009
Bank overdraft
Creditors
Bank Loan
Cash
Debtors
Stock
Proposed Dividend
____
3,10,000
1,00,000
30,000
2,10,000
2,00,000
45,000
5,000
2,90,000
75,000
10,000
1,80,000
2,25,000
60,000
NUMERICAL
From the following information of M/s XYZ Ltd. Prepare a Schedule of Changes in Net Working Capital and Fund Flow Statement
LIABILITIES 2008 2009 ASSETS 2008 2009
Share Capital
Reserves & Surplus
Debentures
Creditors
Unclaimed Dividends
30,000
14,000
5,000
11,000
---
______60,000
36,000
19,000
--
9,000
1,000
______65,000
Plant
Machinery
Stock
Debtors
Cash
6,000
25,000
12,000
15,000
2,000
______
60,000
5,000
20,000
18,000
19,000
3,000
______
65,000
Cash Flow Statement
MEANING:- It is the statement depicting change in cashpossession from one period to another. It explains the reasons forinflows or out flows of cash.
Steps in prepration Statement of cash from operation in this we will find out the
cash profit of the company Preparation of cash flow statement in which we will explain
various in flows and out flows of cash. Here we will take theopening cash balance of the company and add variousinflows to it and deduct various outflows. Finally we will getthe closing cash balance of the company.
Uses of Cash Flow Statement:
Helps in efficient cash management Helps in Internal Financial Management Discloses the movement of cash Discloses success or failure of cash planning.
Cash Flow AnalysisCash flow includes cash inflows and outflows – cash receipts and cash payments during a period.
A cash flow statement is a statement which portrays the changes in cash position between two
accounting periods.
It helps in taking short term financial decisions and also in the preparation of cash budget for the next
year.
How Cash Flow Differ From funds Flow ?
Unlike funds flow Cash Flow does not has non-cash items.
It comprises only those entries in which cash has come in or gone out.
449.36Cash From Operations
43.19Profit on sold Assets
(Less) Non-cash Incomes
80.80Provisions
33.86Amortizations
12.52Interest Payable
35.15Depreciation
(Add) Non-cash Expenses
330.22Net Profit Before Tax
Statement Of Cash From Operations
5684.13 5684.13
1194.80Trade And Other Receivables
593.61Closing Cash Balance449.36Cash From Operations
12.52Interest Paid2253.02Long Term Borrowings
529.80Purchase Of Investments42.85Sale Of Investments
32.91Purchase Of Fixed Assets43.50Sale Of Fixed Assets
2.80Payments For Extraordinary Items1220.34Deposits
137.00Direct Taxes Paid1119.70Trade Payables
3180.69Advances555.36Opening Cash Balance
Outflow Of Cash Inflow Of Cash
Cash Flow Statement