How to prepare Fund Flow Statement?

Example: From the given information in balance sheet on 31 December 2016 prepare fund flow statement of company XYZ.

Liabilities	2015 Amount	2016 Amount	Assets	2015 Amount	2016 Amount
Equity capital	----	3,00,000	Goodwill	3,50,000	2,60,000
8% Debenture	4,00,000	3,00,000	Land & Building	2,00,000	3,26,000
Reserve	50,000	60,000	Machinery	68,000	52,000
Profit & Loss A/c	25,000	30,000	Long term investment	1,20,000	1,80,000
Long term loan	2,00,000	1,50,000	Debtors	10,000	7,000
Outstanding expenses	20,000	-----	Prepaid expense	14,000	22,000
Bills payable	55,000	62,000	Preliminary expense	13,000	10,000
Creditors	30,000	15,000	Stock	30,000	50,000
Bank overdraft	10,000	5,000	Short term investment	10,000	20,000
Provision for tax	12,000	25,000	Accrued income	----	32,000
Proposed dividend	38,000	40,000	Cash in hand	10,000	8,000
			Cash at bank	15,000	20,000
	8,40,000	9,87,000		8,40,000	9,87,000

Additional information:

·         Dividend received in 2016 is Rs.8, 000.

·         Depreciation charged on machinery and land is Rs.30, 000 and Rs.42, 000.

·         Dividend has been paid on 2016 is Rs. 12,000.

·         Machinery cost at Rs.20, 000 sold at Rs. 18,000.

·         Prepare schedule of change in working capital and fund from operation.

Solution:

Schedule of change in working capital:

Particulars	Current year	Previous year	Increase in working capital	Decrease in working capital
Current Assets:
Debtors	7,000	10,000	-----	3,000
Stock	50,000	30,000	20,000	------
Prepaid expense	22,000	14,000	8,000	----
Accrued income	32,000	-----	32,000	-----
Short term securities	20,000	10,000	10,000	-----
Cash in hand	8,000	10,000	-----	2,000
Cash at bank	20,000	15,000	5,000	-----
Total ( A)	1,59,000	89,000
Current liabilities:
Outstanding expense	------	20,000	20,000	-----
Bills payable	62,000	55,000	------	7,000
Creditors	15,000	30,000	15,000	-----
Overdraft	5,000	10,000	5,000	-----
Provision for tax	25,000	12,000	-------	13,000
Total (B)	1,07,000	1,27,000
Working capital	52,000	-38,000
Net increase in working capital (A-B)				90,000
			1,15,000	1,15,000

Fund from operation:

Particulars	Amount	Amount
Net profit in balance sheet (closing balance)		30,000
Add: Non-operating expense
Depreciation on machinery	30,000
Depreciation on land &building	42,000
Proposed dividend	14,000 1
Goodwill write off	90,000
Preliminary expense write off	3,000
Loss on sale of asset	2,000 4
Transfer to reserve	10,000	1,91,000
Less: Non-operating income
Dividend received	8,000
Opening balance of net profit	25,000	(33,000)
Fund from operation		1,88,000

                                       

                                     Proposed Dividend A/c

Particulars	Amount	Particulars	Amount
To Cash a/c	12,000	By balance b/d	38,000
To balance c/d	40,000	By Profit & loss A/c (balancing figure)	14,000 1
	52,000		52,000

                                                        Machinery A/c

Particulars	Amount	Particulars	Amount
To balance b/d	68,000	By depreciation a/c	30,000
To bank a/c (b/f)	34,000 2	By Cash a/c	18,000 3
		By  loss on sale (profit & loss a/c)	2,000 4
		By balance c/d	52,000
	1,02,000		1,02,000

                              

                                                     Investment A/c

Particulars	Amount	Particulars	Amount
To balance b/d	1,20,000	By balance c/d	1,80,000
To bank a/c (b/f)	60,000 5
	1,80,000		1,80,000

                                               

                                                    Land & Building A/c

Particulars	Amount	Particulars	Amount
To balance b/d	2,00,000	By depreciation a/c	42,000
To bank a/c (b/f)	1,68,000 6	By balance c/d	3,26,000
	3,68,000		3,68,000

                           Fund Flow Statement as on 31 December 2016

Source of funds	Amount	Application of funds	Amount
Issue of share capital	3,00,000	Redemption of 8% debenture	1,00,000
Fund from operation	1,88,000	Purchase of land & building	1,68,000 6
Sale of asset	18,000 3	Purchase of Machinery	34,000 2
Dividend received	8,000	Purchase of Investment	60,000 5
		Payment of loan	50,000
		Payment of dividend	12,000
		Increase in Working Capital	90,000
	5,14,000		5,14,000

Note:

·         Increase in current assets = Increase in working capital

·         Decrease in current assets = Decrease in working capital

·         Increase in current liabilities = Decrease in working capital

·         Decrease in current liabilities = Increase in working capital

·         Provision of tax is considered as current liability and proposed dividend is considered as non - current liability.

·         Additional information always recorded in two places in financial statement and balance sheet, income statement data is recorded only in one place.