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 gives an idea to the top management about the liquidity position of the company.

Working capital:- It is the difference between current assets and current liabilities.

Steps in preparation of funds flow statement:-

1. Preparation of working capital statement that explains increase or decrease in working capital.

2. preparation of funds from operation statement in which we find out operating profit.

3. Preparation of funds flow statement that shows various sources and application of fund .

OBJECTIVES

Analysis of financial operation.

Evaluation of firms financing.

A tool for communication.

Future Guidance.

Comparative study.

Current assets

Cash in hand and bank

Marketable investments

Accounts receivables

Stock

Prepaid exp.

Fixed assets

Goodwill

Land and building

Plant and machinery

Long term investment

Current liabilities

Bank overdraft

Outstanding expenses

Accounts payable

Fixed liabilities

Share capital

Reserve and surplus

Debentures

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

SOURCES OF FUNDS

1. Fund from operations.

2. Issue of shares.

3. Issues of debentures.

4. Raising of long term loans.

5. Sale of Fixed Assets.

6. Non trading Receipts.

Application of funds

Loss from operations.

Redemptions of preference shares.

Redemptions of debentures.

Repayment of Long-Terms Loans.

Purchase of fixed assets.

Non-Trading Payments.

Non operating expenses.

Depreciation .

Loss on sales of fixed Assets.

Goodwill written off.

Preliminary expenses written off.

Discount on issue of shares.

Dividend paid.

Discount on issue of debentures.

Non- operating Income

Profit on sales of fixed assets.

Dividend received.

Interest received .

Compensation received.

Refund of taxes.

Schedule of working capital

If current assets Increase working capital increase.

If current assets decrease working capital decreases.

If current liablities increase, working capital decrease.

If current liablities decrease, working capital increases.

LIMITATIONS

Historic in Nature.

Not a substitute of Income statement and Balance sheet.

Ignores Non fund transactions.

No reflection of change in cash position.

Schedule Of Changes In Working Capital

4885.64

4885.6

7186.7

7186.7

TOTAL

3005

Increase In Working Capital

3005

7186.7

4181.9

CA - CL

8170.7

6290.1

Total

44.85

4522.2

4477.4

Bills for collections

645.02

1881

1236

Short term borrowings

1190.75

1767.5

576.72

Other liabilities

Current liabilities

15357

10472

Total

1220.6

1522.9

302.3

Bills receivables

3139.9

9836.5

6696.6

Loans & adv.

486.95

3404.4

2917.5

Investments

38.25

593.61

555.36

Cash & bank bal.

Decrease

Increase

2005

2004

Current assets

CALCULATION OF FUNDS FROM OPERATION

220.07

FUNDS FROM OPERATION

321.03

OPENING BAL. OF P&L A/C

NIL

(-) NON FUND CR.

541.1

197.79

195.23

Transfer Of R/S

2.56

Depreciation On Fixed Assets

(+) Non Fund Items

343.31

Closing Balance Of P&L A/c

Funds Flow Statement

3491.02

3491.02

TOTAL

966.37

BORROWINGS

2253.02

LONG TERM LOANS

2.56

SALE OF FIXED ASSET

486

Investments

220.07

FUNDS FROM OPERATION

3005.02

Increase In WC

49

ISSUE OF CAPITAL

AMT.

APPLICATION

AMT.

SOURCES

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.

PROBLEM -1

From the following Balance Sheets of Roshan Corporation Ltd. for the year ended on March 31, 2002 and 2003 as also the additional information, you are required to prepare

(a) A schedule of changes in working capital.

(b) A funds from operation.

(c) A funds flow statement:

BALANCE SHEET
as on 31st March

LIABILITIES2002Rs.2003Rs.ASSETS2002Rs.2003Rs.Share Capital10% DebentureReserves and surplusAccount PayableProvision for Depreciation500000300000150000250000200000600000200000200000150000250000BankAccount ReceivableStockPlant and machinery1500005000002000005500001000004000003000006000001400000140000014000001400000

Additional information:

(a). A machine of original cost of Rs.200000

with accumulated depreciation of 150000 was sold for Rs 100000.

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 gives

an idea to the top management about the liquidity position of the

company.

Working capital

:- It is the difference between current assets and

current liabilities.

Steps in preparation of funds flow statement:-

1.

Preparation of working capital statement that explains increase or

decrease in working capital.

2.

preparation of funds from operation statement in which we find

out operating profit.

3. Preparation of funds flow statement that shows various sources

and application of fund .