STATEMENT OF CHANGE IN FINANCIAL POSITION

STATEMENT OF CHANGE IN FINANCIAL POSITIONShows the change in financial position of a firm occasioned by activities undertaken by the firm in between two successive Balance sheets. Statement of Change in Financial Position is basically of two types:Statement of Change in Financial Position (Working Capital Basis) known as a Funds Flow StatementStatement of Change in Financial Position (Cash basis) known as a Cash Flow Statement

Funds Flow Statement

Funds Flow StatementStudies the change in financial position from one Balance sheet to the subsequent Balance sheet in terms of the change in the funds or the working capital position of the firm. Indicates various means by which the funds have been obtained during a certain period and the ways to which these funds have been used during that period.

The term Fund here means Working Capital i.e. excess of current asset over current liabilities.

Procedure of preparationThe preparation of Funds Flow Statement consist of two parts:Statement or Schedule of Change in Working CapitalStatement of Sources and Applications of Funds

Statement or Schedule of Change in Working CapitalThe statement is prepared with the help of current assets and current liabilities derived from the two Balance sheets.Working Capital = Current Assets - Current LiabilitiesAn increase in Current Assets, increases Working CapitalAn decrease in Current Assets , decrease Working CapitalAn increase in Current Liabilities, decrease Working CapitalAn decrease in Current Liabilities, increases Working Capital

* may or may not be a current liability.

Statement or Schedule of Change in Working CapitalParticularsPrevious YearCurrent YearEffect on Working CapitalIncreaseDecreaseCurrent Assets:Cash in handCash at bankBills receivablesSundry debtorsMarketable securitiesStock/InventoriesPrepaid ExpensesAccrued Incomes(A) Total Current AssetsCurrent Liabilities:Bills PayableSundry CreditorsOutstanding ExpensesBank OverdraftShort term loans and advancesDividend payableProposed Dividends*Provision for taxation*(B) Total Current LiabilitiesWorking Capital (A)- (B)Net Increase or Decrease in Working Capital

From the following balance sheet prepare the schedule of change in working capital

Balance SheetLiabilities and Capital31.12.200831.12.2009Assets31.12.200831.12.2009Equity share capital100000120000Land4400068000Preference Share capital12000075000Machinery180000180000P&L A/c2500055000Long term Investments100006250Mortgaged Loan5000040000Goodwill1300013000Debentures2000025000Stock3000028000Bills Payable1500900Trade debtors1900020000Liabilities for tax32205170Cash290009000Accrued Expenses350160Prepaid Expenses70300Trade creditors80005320Bilss receivable30002000328070326550328070326550

Statement of Sources and Applications of FundsIndicates various means by which the funds have been obtained during a certain period and the ways to which these funds have been used during that period. This statement can be prepared in two formats:T form or Account or Self Balancing TypeReport Form

T form or Account or Self Balancing Type

Funds Flow Statement(For the year ended..)SourcesAmount(Rs.)ApplicationsAmount(Rs.)Funds from OperationsIssue of Share capitalIssues of DebenturesRaising of long-term loansReceipts from partly paid up shares, called upSale of fixed assetsNon-trading receipts such as dividendsSale of long-term InvestmentsNet decrease in Working CapitalFunds lost in OperationsRedemption of Preference share capital redemption of DebenturesRepayment of long term loansPurchase of fixed assetsPurchase of long-term InvestmentsNon-trading paymentsPayment of Dividends*Payment of tax*Net decrease in Working Capital

Funds from OperationsRefers to the funds provided by the regular activities of the firm. It is equal to the profit/loss made by the firm from fund and operating activities i.e. it excludes the non-operating and non fund expenses and revenues.

Calculation of Funds from OperationsThe first method is to prepare the Income statement afresh by taking into consideration only fund and operational items which involve funds and are related to normal operations of business.The second method is to proceed from the figure of net profit or net loss as arrived at from the profit and loss account already prepared.

Second method: Calculation of Funds from Operations

Calculation of Funds from OperationsClosing Balance of P & L A/c or Retained Earnings (as given in the Balance Sheet)Add: Non-fund operating items which have been already debited to P & L A/c:Depreciation and DepletionAmortization of fictitious and Intangible assets such as:GoodwillPatentsTrade MarksPreliminary ExpensesDiscount on Issue of shares, etc.Appropriation of Retained Earnings such as:Transfer to General ReserveDividend Equalization FundTransfer to sinking FundContingency Reserves, etc.Loss on sale of fixed assets such as:Loss on sale of land and buildingLoss on sale of machineryLoss on sale of furnitureLoss on sale of long-term investments, etc.Dividends including:Interim DividendProposed Dividends (if it is not taken as current liability)Provision for taxation (if it is not taken as current liability)Any other non-fund/non-operating items which have been debited to P & L A/c.Amount (Rs.)Total (A)

Less: Non-fund operating items which have been already credited to P & L A/c:Profit or gain from sale of fixed assets such as:Profit on sale of land and buildingProfit on sale of machineryProfit on sale of furnitureProfit on sale of long-term investments, etc.Appreciation in the value of fixed assets, such as increase in the value of land if it has been credited to P & L A/cDividends receivedExcess provision retransferred to P & L A/c or written offAny other non-fund/non-operating items which have been credited to P & L A/c. Opening Balance of P & L A/c or Retained Earnings (as given in the Balance Sheet)Total (B)Total (A) - Total (B) = Funds generated by Operations

Following are the extracts from the balance sheet of the company as on 31st Dec 2009 and 2010. you are required to calculate Funds from Operations.

20092010Profit and Loss account3000040000General Reserve2000025000Goodwill100005000Preliminary Expenses60004000Provision for Depreciation1000012000

T form or Account or Self Balancing Type

Funds Flow Statement(For the year ended..)SourcesAmount(Rs.)ApplicationsAmount(Rs.)Funds from OperationsIssue of Share capitalIssues of DebenturesRaising of long-term loansReceipts from partly paid up shares, called upSale of fixed assetsNon-trading receipts such as dividendsSale of long-term InvestmentsNet decrease in Working CapitalFunds lost in OperationsRedemption of Preference share capital redemption of DebenturesRepayment of long term loansPurchase of fixed assetsPurchase of long-term InvestmentsNon-trading paymentsPayment of Dividends*Payment of tax*Net decrease in Working Capital

The following are the balance sheets of PQR Ltd. For the year 2009 and 2010. Prepare the Funds flow statement for the year 2010.Balance Sheets (Rs. In Lacs)

Additional capital of 160 lacs was brought during the year and is eligible for dividend for full year. For 2010, the proposed dividend is Rs. 85 lacs is included in other liabilities. Depreciation on fixed assets has been provided to the extent of Rs. 90 lacs.

Liabilities and Capital31.12.200931.12.2010Assets31.12.200931.12.2010Share capital300460Fixed assets630690General reserve150180Long term investments130180P &L a/c3065Debtors135220Term loan210150Stock180220Creditors80100Bank515Bank overdraft250300Short term investments2530Other liabilities851001105135511051355

Signification of Funds Flow StatementHelps in analysis of financial operationsHelps in formation of a realistic dividend policyHelps in proper allocation of recoursesActs as a future guideHelps in appraising the use of working capitalHelps in knowing the overall credit worthiness of a firm

Cash Flow Statement

CASH FLOW STATEMENTShows the historical changes in Cash & CEDuring a particular periodOperating, Investing & Financing activities

C.F.S. BenefitsAbility to generate Cash & CENeeds to utilise cash flowsAssess Liquidity & SolvencyIndicator of future cash flowRelationship: Profitability & Net Cash Flow

Cash Flow from Operating Activities-DirectCash receipts from CustomersCash paid to Suppliers & EmployeesCash generated from Operation- Income taxes paidCash flow before Extra-ordinary items- Extra-ordinary itemsNet cash from Operating Activities

Cash Flow from Operating Activities-IndirectN.P. before Tax & Extra-ordinary itemAdjustments for:DepreciationForeign Exchange LossInterest & Dividend IncomeInterest ExpenseOp. Profit before W.C. changesChanges in S. Drs. & InventoryChanges in S. Crs.Cash generated from OperationIncome Taxes paidCash flow before Extra-ordinary itemExtra-ordinary ItemsNet Cash from Operating Activities

Cash Flow from Operating Activities

Net Profit/Loss before tax and extraordinary items (+)Depreciation (+)Provision for contingences-debt/tax/depreciation (+)Provision for retirement benefits (+)Loss/(Gain) on sale of fixed assets (+) Discount on issue of shares/Debentures (+)Interest paid (-)Dividend received (-)Interest receivedOperating profit before working capital changesAdjustments for: (+) Decrease/(increase) in Current assets (+)Increase /( decrease) in Current LiabilitiesCash generated from Operations (-)Direct taxes paidCash flow before extraordinary items (+/-) Extraordinary itemsAmount (Rs.)Net cash inflow / (outflow) from Operating Activities

From the following income statement, calculate the cash flow from operations

ParticularsDr. (Rs.)ParticularsCr. (Rs.)SalariesRentCommissionsProvision for Doubtful debtsInterestProvision for depreciationProvision for taxLoss on sales of vehicleDiscount on issue of sharesNet Profit500003000050002000020000300004000010000500040000Gross profitProfit on sale of machineryDividend received225000

500020000

250000250000

Cash Flow from Investing ActivitiesPurchase of Fixed AssetsSale of F.A.Purchase of other InvestmentsSale of other InvestmentsInterest Received Dividend ReceivedNet cash from (used in) Investing Activities

Cash Flow from Financing ActivitiesProceeds from issue of Share CapitalProceeds from Long-term BorrowingsRepayments of Long-term BorrowingInterest PaidDividend PaidNet Cash from (used in) Financing Activities

Dividend PaidOpening balance of P &L a/cAdd: Net profitLess: Closing balance of P &L a/cDividend paid

CASH FLOW STATEMENTCash flow from operating activitiesCash flow from investing activitiesCash flow from financing activitiesNet cash increase (decrease) in cash & CECash & CE at beginning of the periodCash & CE at the end of the period.

From the following summarized Balance Sheets of ABC Ltd. For 2009 and 2010 and the Income statement of 2010. you are required to prepare the Cash Flow statement.Income Statement-2010Revenue:Rs.84000Less: Cost of goods sold Rs. 48000Depreciation 4000Interest 6000Other Expenses 22000 80000Net Profit 4000

LiabilitiesAmount (Rs. )Amount (Rs. )AssetsAmount (Rs. )Amount (Rs. )Equity Share Capital1400024000Fixed assetsLess: Dep200004000240008000P &L a/c700096001600016000Debenture 2000020000Cash1600020000Trade creditors1400012000Stock1400016000Trade debtors700012000Discount on debentures2000160055000656005500065600

From the following Balance Sheet of Samrat Construction Ltd. as on March 31, 2009 and March 31, 2010, Prepare a cash flow statementDividend paid during the year is Rs.60000

LiabilitiesAmount (Rs. )Amount (Rs. )AssetsAmount (Rs. )Amount (Rs. )Equity Share Capital200000200000Land and Building Machinery

Less: Dep140000

21400035400054000170000

24400041400072000Reserves9600098000300000342000Debenture 6000090000Trade creditors7200082000Stock5000044000Trade debtors7000076800Cash80007200428000470000428000470000

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