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Meaning :Cash flow statement is a statement which describes the inflows (sources) and outflows (uses ) of cash and cash equivalents in an enterprise during a specified period of time. Such a statement enumerates net effects of various business transactions on cash and it equivalents and takes into account receipts and disbursements of cash.

Objectives: 1. To show the causes of changes in cash balance between two

balance sheets dates. 2. To indicate the factors contributing to the reduction of cash balance in spite of increase in profits and vice versa. 2

DIFFERENCE BETWEEN FUNDS FLOW STATEMENT AND CASH FLOW

STATEMENTS no Funds flow statement Cash flow statement1

2

3

4

It helps to measure the causes of working capital.

It is prepared on the basis of fund and financial resources.

It helps to the management for immediate and long term financial planning.

Statement of changes in working capital is required for preparation of fund flow statement.

It focuses on the causes for the movement of cash during a particular period.It is based on cash basis of accounting.

It guides the management for short term financial planning.

In this there is no such statement is required.

LIMITATIONS CASH FLOW STATEMENT

Cash flow statement has limited scope as it compares with fund flow statement. Because it discloses inflows and outflows of cash alone.

Cash flow statement cannot provide a comprehensive picture of a financial position because non cash items of expenses and incomes are excluded.

The balances as disclosed by Cash flow statement may not be treated as actual liquid position of a concern since it cannot be easily influenced by postponing purchases and other payments.

OBJECTIVES OF FUND FLOW STATEMENT

To find the position of working capital.To know the changes in working

capital.Knowledge of fund from operation.Knowledge of sources of funds.Knowledge of application of funds..

MEANING OF FUND FUND:- It refers to all financial

resources of the enterprise. According to concept all assets – both fixed and current would constitute fund. In popular sense it is used to refer to working capital . In narrow sense it is used to refer to cash and bank.

MEANING OF FLOW OF FUNDFLOW OF FUND:- It refers

to the change in the financial position of a business caused by inflow and outflow of resources owing to receipts and payment. If transaction result in increase in fund it is known as source of fund and it result in decrease in fund it is known as application of fund.

CONCEPT OF FUND FLOW STATEMENT. A fund flow statement is a technical device design to analyze, the changes in the financial condition of business between two dates. It shows SOURCES AND APPLICATION OF FUND.

FUND FLOW STATEMENT SOURCES OF FUND APPLICATION OF FUNDFund from operation loss from operationSale of assets purchase of assetsIssue of share and capital redemption of share

and redemption Non- trading receipts non- trading payment Decrease in working increase in working capital capital

FUND FLOW STATEMENT

It is a statement of sources and application of fund designed to analyze the change in the financial condition of a business enterprise between two dates.

ROY A. FOULKE

IMPORTANCE OF FUND FLOW STATEMENTIt helps in analyze the financial

condition.It suggests to improve working

capital.It helps in planning for future.It helps to compare between two

dates.It helps to know the changes in

working capital.

LIMITATION OF FUND FLOW STATEMENTIt is prepared based on historical information.

It does not consider all information.

Fund flow statement is not more reliable.

It is prepared on occasionally.

MEANING OF FUND FROM OPERATION Funds from operations are internal sources of

funds .It refers to those funds which are generated in the business as a result of carrying out the operations during the year. Funds from operations are computed by adjusting the Net profit figure from non-fund expenses.

CALCULATION OF FUND FROM OPERATIONFunds from operation of the business are the most important major source of funds . But it must be remembered that funds from operation do not necessarily mean the profits as shown by the profit and loss account of a firm because there are many non-fund or non-operating items which may have been either debited or credited to profit and loss account .The examples of such items on the debit side of profit and loss account are; such as goodwill Preliminary Expenses and discount of issue of shares or Debentures written of f.

THERE ARE TWO METHODS OF CALCULATING THE FUNDS FROM OPERATIONS

1. By preparing again profit and loss account showing income only relating to the business and expenses which are paid and relating to the business. The residual figure will be funds from operation . Non cash items like depreciation and non-operating expenses like trade marks , preliminary expenses patents, goodwill, etc.

2. By starting with the net profit already calculated , add non –operating expenses (i.e. not relating to the business ), such as trade marks ,preliminary expenses, patents , goodwill loss on sale of assets ,provision or reserve for any asset or expenses , proposed dividends non-cash item as depreciation and deduct those income which are not relating to business (i.e., non-operating incomes) such as profit on the sale of any fixed asset, dividend received ,refund of tax etc.

ADJUSTED PROFIT AND LOSS ACCOUNT

Rs

RS

To Depreciation and Depletion _ ---

To Amortization of Fictitious and

Intangible assets: _ Goodwill

_ patent rights

Trade marks

Preliminary Exp.

Discount on issue of shares

To Non operating Exp. Loss on sale of fixed assets Dividends (including interim dividend) Proposed Dividend(if not taken as current liability) Provision for taxation (if not taken as current liability)To Closing balance of Profit and loss accountTo Funds lost in operation (Bal. figure)

Rs. -

Rs

By opening balance of profit and loss a/c

---By Dividend Received By Refund of income taxBy Profit on sale of any fixed assetBy Funds from operations( balancing figure ,if any)

Rs. - -

CALCULATION OF FUND FROM OPERATIONS Closing balance of profit and loss a/c or Retained earnings (as given in the

balance sheet ) Add: Non-fund and non operating items which have been already debited to profit and loss A/c: 1. Depreciation and depletion 2. Amortization of fictitious asset and fictitious asset such as:- (1) Goodwill (2) patent Rights (3) Trade Marks (4) Preliminary Expenses (5) Discount on Issue of shares and Debentures

3.Loss on sale of fixed Asset(non-current Asset) such as: (1) Loss on sale of Land and Building (2) Loss on sale of Machinery (3) Loss on sale of Furniture (4) Loss on sale of Long term Investments etc. 4.Dividend including Interim Dividend 5. proposed dividend (if not taken as current liability) 6. provision for Taxation(if not taken as current liability) 7. Any other non-fund/non operating items which have been debited to profit

and Loss A/C Total(A)

Less :Non-fund or non-operating items which have already been credited to profit and loss a/c:

1. Profit or gain from the sale of fixed assets such as: (1)profit on sale of land and building (2)profit on sale of plant and machinery (3)profit on sale of Furniture (4)profit on sale of long term investments2. Dividend received 3. Refund of income tax4. Excess Provision transfer to P/L A/C 5. Any other non-operating item which has been credited to Profit

and loss A/C 6. Opening balance of profit and loss A/C or retained Earning

(as given in balance sheet)

Total(B)

CALCULATION OF FUND FROM OPERATIONS

Liabilities 2008 2009 Assets 2008 2009Capital 40000 50000 Buildings 25000 40000P/L A/c 8000 12000 Machinery 15000 25000Reserve Fund

5000 8000 Goodwill 10000 5000

Bank loan 5000 4000 Cash in Hand

2000 6000

Creditors 2000 1000 Debtors 4000 3000B/P 4000 6000 B/R 4000 1000

Stock 4000 1000

64000 81000 64000 81000

EXAMPLE:- BALANCE SHEET AS ON

Additional Information:1-Dividend Paid: 200002-Depreciation on Machinery: 250003-Depreciation on Buildings: 4000