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how a company see the funds of near term and long term...this entire process hinges on the same....son very important factor...worth reading once at least...
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FUND FLOW STATEMENT
Scientific methods of preparation of Fund Flow Statement
FORMAT OF SCHEDULE OF CHANGES IN WORKING CAPITAL
Funds from operations
• Direct method• Indirect method
Direct method
Funds from operations = Funds from operating revenue less funds for operating expenses
Indirect Method
Profit & Loss Adjustment Account
Profit & Loss Adjustment Account
To Net Profit ( given ) **By Non- Cash income
To Non - Cash Expenses Revaluation of assets **
Depreciation ** Revaluation of investments **
Written off entries **
To Loss on sale of assets **By Profits on sale of assets **
To Bad debts **By Dividend received
To Tax **
To Dividends **
To Transfer to reserves **By Funds from Operations **
** **
Statement of Adjustment
• Net Profit as per Profit & Loss Account **
Add: Non- Cash and non – operating expenses **
Less :Non-cash and non- operating income **
Funds from operations **
Format of Fund Flow Statement
Sources / Inflow Rs
Applications/Outflow Rs
Funds from Operations ** Funds lost in operations **
Sale of fixed assets ** Purchase of fixed assets **
Sale of Investments ** Purchase of investments **
Issue of shares ** Redemption of preference shares
**
Issue of debenture ** Redemption of debenture **
Loan taken ** Loan repaid **
Dividend Received ** Dividend paid **
Non-Operating income ** Non – operating expenses **
Decrease in working capital ** Increase in working capital **
** **
Need for fund flow statement
1. Shortcomings in Balance Sheet
2. Shortcomings in Profit & Loss Account
Importance of Fund Flow Statement
1. Gives information about amount of working capital and changes in the amount of working capital.
2. It analyses Balance sheet to reveal the financing & investing activities.
3. It analyses the Profit & Loss Account to reveal the effect of business activities of the concern on the flow of funds.
4. It is a tool for planning future activities of business.