C.D.E. 17.

1 Acharya Nagarjuna University

Chapter – 17

Funds Flow Analysis

Objectives :

After reading this unit we should be able to :

 Understand the meaning of funds flow statement

 Know how to prepare the funds flow statement
 Prepare the statement of changes in working capital

Structure :

17.1 Introduction
17.2 Meaning of Funds Flow Statement
17.3 Preparation of Funds Flow Statement
17.4 Statement of Changes in Working capital
17.5 Questions
17.6 Exercises
17.7 Suggested Readings

17.1 INTRODUCTION :
A funds flow statement is a valuable aid to financial manager or a creditor in evaluating the
uses of funds by a firm and in determining how these funds are financed. Such a statement
provides an efficient method for the financial Manager to assess the growth f the firm and its
resulting financial needs and to determine the best way to finance those needs. In nut-shell, funds
statements are very useful in planning, intermediate and long-term financing. It is an important tool
of working capital analysis also.
 Accounting and Finance 17.2 Funds Flow Analysis

17.2 MEANING OF FUNDS FLOW STATEMENT :

The funds flow statement is an attempt to report the flow of funds between various assets
and liabilities and owner’s capital during an accounting period. In the words of Smith and Brown,
``Funds flow statement is prepared to indicate in summary form, changes (and trends if prepared
regularly) occurring in items of financial position between two different balance sheet dates. `Such
a statement is prepared to indicate the increases and utilisation of resources of a business during
an accounting period. A funds flow statement is also known by various other names such as
`Statement of Sources and Application of Funds,; `Where Gone statement,’ Statement of Funds
Generated and Expended’ etc.
The funds statement is a method by which we study the net funds flow between two points
in time. These points conform to beginning and ending financial statements, dates for whatever
period of examination is relevant – quarter or a year. Here, the term funds denotes the `working
capital’. Working capital is often regarded as the differences of current assets and current
liabilities. Hence, the term `funds’ and working capital, both are synonymous.

17.2.1 Meaning of Funds :

The term funds has been defined in a number of ways. Some interpret funds as cash only
and fund flow statement prepared on this basis is called a cash flow statement. IN this type of
statement only inflow and outflow of cash is taken into account. For its preparation the net income
is adjusted for the amount of the increase or decrease in accounts receivable, accounts payable,
inventories, accrued revenue and expenses, etc., This type of statement is prepared specially for
the use of management in predicting future cash requirements.
On the other hand, in a funds flow statement, a broader approach is adopted interpreting
the term, `funds’. It is conceived as all financial resources and it extends the concept to include all
the current assets of financial resources. The narrower definition of fund, such as cash flow often
leads to the omission of such items which do not directly affect cash or working capital. But in a
broader sense, the assets of a firm represent the net uses of funds and its liabilities and net worth
represents net resources. Thus, the term funds flow refers to changes in working capital. Changes
in working capital position of a business units are significant considerations in the analysis of
operating results and financial condition. The sources of working capital, the disposition of working
 C.D.E. 17.3 Acharya Nagarjuna University

capital and the composition of the working capital at the end of the period, are all important factors
in evaluating past activities and in judging a company’s ability to prosper in the future. A funds flow
statement helps a lot in such appraisal.
In view of this definition of `funds’ it becomes necessary to understand the terms of `current
assets’ , `current liabilities,’ non current assets’ non current liabilities.

Current Assets : For accounting purposes, the term current assets means cash and such other
assets which are reasonably expected to be realised in cash or sold or consumed during the
normal operating cycle of the business. Thus, the term current assets includes the following.
1. Cash and bank balances
2. Accounts receivable i.e., debtors and bills receivable
3. Stocks of raw material, work in progress and finished goods
4. Temporary investments or short term investments
5. Prepayment, e.g., prepaid rent, unexpired insurance etc.
6. Accrued incomes

Current Liabilities : The term current liabilities includes all such obligations which are likely to
mature within one year in the normal course of business operations and which are paid out of
current assets or by creating current liabilities. The broad categories of current liabilities are :
1. Accounts payable, i.e., creditors and bills payables
2. Outstanding expenses, e.g., wages, rent, commission etc.
3. Bank overdrafts
4. Income received in advance
5. Dividend payable
6. Provision for doubtful debts
7. Provision for taxation – may be current or non current
8. Proposed dividends – may be current or non current

Provision against current against current assets, such as, provision for bad and doubtful debts,
etc., are also treated as current liabilities because such provisions reduce the amount of current
assets.
 Accounting and Finance 17.4 Funds Flow Analysis

Non Current assets : All those assets which are not current asset are termed as non current
assets. Examples are :
1. Goodwill
2. Land and buildings
3. Plant and machinery
4. Furniture
5. Long term investments
6. Profit and loss account (debit balance)
7. Preliminary expenses
8. Patent rights and trade marks
9. Discount on the issue of shares and debentures

Non-Current Liabilities : This category includes all those liabilities which are not current liabilities.
Examples are :
1. Share capital – equity and preference
2. Debentures and long term loans
3. Profit and loss account (credit balance)
4. Provision and reserves e.g., capital reserves, general reserves, sinking fund etc.
5. Proposed dividends
6. Share premium account
7. Share forfeiture accounts.

17.3. PREPARATION OF FUNDS FLOW STATEMENT

Broadly speaking the funds flow statement consists of two parts – (1) Schedule of changes
in working capital and (2) statement of sources and uses of funds.
17.3.1. Form of Funds Flow statement :
Generally, this statement is prepared in two formats – in Report Form or in an account
form.
 C.D.E. 17.5 Acharya Nagarjuna University

Report form Funds Flow Statement

Sources of Funds Rs.
1. From operation Xxx
2. Issue of Share capital Xxx
3. Issue of Debentures Xxx
4. Long term loans Xxx
5. Sales of fixed assets Xxx
6. Non Trading Receipts, e.g., dividends or donation received X xx
7. Decrease in working capital (as per schedule Xxx
Total Xxx
Application of Funds
1. Trading losses Xxx
2. Redemption of Pref. Share capital/Debentures Xxx
3. Repayment of long term debts Xxx
4. Purchase of any fixed assets Xxx
5. Non trading payments Xxx
6. Increase in working capital (as per schedule) Xxx
Total Xxx

Account Form of Funds Flow statement

Sources of Funds Rs. Applications of Funds Rs.
1. Funds from operations Xxx 1. Trading loss (if any) Xxx
2. Issue of share capital Xxx 2. Redemption of Pref. Xxx
Shares
3. Issue of Debentures Xxx 3. Repayment of Loans Xxx
4. Long term loans Xxx 4. Purchase of any fixed Xxx
asset
5. Sale of fixed assets Xxx 5. Non-trading payments Xxx
6. Non trading receipts Xxx 6. Increase in working capital Xxx
 Accounting and Finance 17.6 Funds Flow Analysis

7. Decrease in working capital Xxx

Xxx Xxx

17.3.2. Sources of Funds :

The transactions that increase working capital are sources of funds. Some of them are :
(1) Funds from Operations : Sales are the main source of funds inflow and at the same time fund
flow out for expenses and costs of goods sold. Thus, funds are increased if inflow from sales
exceeds the outflow for expenses and goods sold. It can be calculated as under :
Calculations of Funds from Operations :
Rs. Rs.
Net profit shown as Profit & Loss a/c Xxx
Add : 1. Depreciation and Depletion Xxx
2. Amortization of Fictitious and Intangible assets Xxx
3. Provision for taxation Xxx
4. Appropriation of Retained Earnings Xxx
5. Dividend (if any paid out of current year’s profit) Xxx
6. Loss on sale of any asset (if debited) to Profit & Xxx
Loss a/c
7. Any other non cash expenditure Xxx Xxx
Xxx
Less : 1. Dividend received from outside Xxx
2. Retransfer of excess provisions` Xxx
3. Profit on sale of fixed assets (if already credited to Xxx
P & L a/c)
4. Appreciation in the value of fixed assets (if Xxx Xxx
credited in P & L a/c)
Funds From Operations Xxx

a) Depreciation and Depletion : The treatment of depreciation and depletion of non current
assets like building and machinery is a difficult problem. These items are non fund items
because they are nothing to do with current assets and current liabilities. So to delete their
 C.D.E. 17.7 Acharya Nagarjuna University

effect, their amount should be credited to current year’s profit in order to find out the amount of
funds.
b) Amortization of non fund items : This also does not affect the flow of funds. The
amortization of some items belonging to the category of deferred revenue expenditure or
intangible assets is simply a write off entry. This affects the profits as per financial accounts
but does not affect the funds from profit. Profit, therefore should be corrected by adding all
such writing-off in order to calculate correct amount of funds from profit.
c) Provision for taxation : Provision for taxes made from current year’s profit also does not
affect the flow of funds. So it must be added back to the profits.
d) Appropriation of Retained Earnings It is simply a transfer entry. It must also be added back
to the profit in order to compute funds from incomes.
The following items are deducted from profits –
(i) Dividends Received from outside : Generally, it is credited in P & L a/c. As it is a non-
business income, it is shown separately as a source of funds so, here, it must be deducted
from profits.
(ii) Retransfer of Excess Provisions : It does not create any inflow of funds, while profits are
increased. Hence, it must be deducted.
(iii) Profit or Gain on Sale of Assets : Any profit or gain on the sale of non current assets
(which has been credited to P & L a/c) must be eliminated from the amount of profit.
(iv) Appreciation in the Value of Fixed Assets : If any fixed asset has been appreciated
during the year and credited to Profit and Loss a/c, it must also be deducted from the profit.
(2) Issue of Share capital : Increase in Share capital increases funds but shares issued and
allotted for other than cash consideration do not generate fund.
(3) Issue of Debentures or Long term loans : Issue of debentures accepted public deposits
and long term loans, all results in the increase of funds. If debentures like shares have been
allotted to somebody for other than cash consideration, they will not be taken into account.
(4) Sale of Fixed Assets : When any fixed assets (like land, building, machinery, furniture or long
term investments) is sold cash or account receivable is increased without increasing current
liability, it results in the generation of funds.
(5) Non Trading Receipts : Any non trading receipt like dividends, rent, interest etc., received in
cash also increased funds.
 Accounting and Finance 17.8 Funds Flow Analysis

17.3.3 Application of Funds :

The following are the examples for the application of fund
1. Purchase of Any fixed Asset : If any fixed asset is purchased for cash, it is an application of
funds.
2. Payment of Loans etc. : Any repayment of loan or redemption of preference shares is also an
application of funds.
3. Payment of Dividend : Payment of dividend reduces the working capital and is an application
of funds. But mere declaration of dividend (proposed dividends) is not an application of fund.
4. Increase in working capital : Increase in working capital is also an application of funds
because it increase the investment in current sales.
17.4 STATEMENT OF CHANGES IN WORKING CAPITAL
The Statement of changes in working capital denotes the movement of working capital.
The variation or change in working capital is shown by a schedule of working capital. As working
capital represents the excess of current assets over current liabilities, the schedule of working
capital shows the aggregate of current assets, current liabilities at the end of two years and then
the increase or decrease in working capital is measured by comparing the net working capital. Its
performance is as follows :

Schedule of Changes in Working Capital

Particulars Previous Current Year On Working capital

Year
Rs. Rs. Increase Decrease
Current assets :
1.
2.
3.
4.
 C.D.E. 17.9 Acharya Nagarjuna University

Total current Assets

Current Liabilities
1.
2.
3.
4.
Total Current Liabilities
Net Working capital
Increase/Decrease in
working capital

Illu.1 : Prepare a statement of changes in working capital from the following Balance
Sheets of Manjit and Company Limited.

Liabilities 2002 2003 Assets 2002 2003

Rs. Rs. Rs. Rs.
Equity capital 2,50,000 2,50,000 Fixed assets 3,00,000 3,50,000
Debentures 1,85,000 2,25,000 Long – term
Investments 1,00,000 50,000
Tax payable 38,500 21,500 Work in progress 40,000 45,000
Accounts payable 48,000 96,000 Stock – in – trade 75,000 1,12,500
Interest payable 18,500 22,500 Accounts 35,000 70,000
receivable
Dividend payable 25,000 17,500 Cash 15,000 5,000
5,65,000 6,32,500 5,65,000 6,32,500
 Accounting and Finance 17.10 Funds Flow Analysis

Solution :
Schedule showing changes is working capital

Particulars 2002 2003 Increase/ Increase/

Rs. Rs. Decrease Decrease
Rs. Rs.
Current assets:
Work – in – progress 40,000 45,000 5,000 -
Stock in trade 75,000 1,12,500 37,500 -
Accounts receivable 35,000 70,000 35,000 -
Cash 15,000 5,000 - 10,000
Total current Assets (A) 1,65,000 2,32,500
Current Liabilities:
Tax payable 38,500 21,500 17,000 -
Accounts payable 48,000 96,000 - 48,000
Interest payable 18,500 22,500 - 4,000
Dividend payable 25,000 17,500 7,500 -
Total Current liabilities (B) 1,30,000 1,57,500
Working capital (A) – (B) 35,000 75,000

Net increase is working capital = Rs.75,000 – 35,000 = Rs.40,000

Illu.2 : Prepare a statement of changes in working capital:

Assets 2000 2001 Liabilities 2000 2001

Rs. Rs. Rs. Rs.
Cash 60,000 94,000 Capital 4,00,000 5,00,000
Debtors 2,40,000 2,30,000 Creditors 1,40,000 90,000
Stock 1,60,000 1,80,000 P & L a/c 20,000 46,000
Land 1,00,000 1,32,000
5,60,000 6,36,000 5,60,000 6,36,000
 C.D.E. 17.11 Acharya Nagarjuna University

Solution :

Statement of changes in working capital

Changes in Working
2000 2001 Capital
Particulars
(Rs.) (Rs.) Increase Decrease
Rs. Rs.
Current Assets:
Cash 60,000 94,000 34,000 -
Debtors 2,40,000 2,30,000 - 10,000
Stock 1,60,000 1,80,000 20,000 -
Total Current Assets (A) 4,60,000 5,04,000
Current Liabilities:
Creditors 1,40,000 90,000 50,000 -
Total Current Liabilities (B) 1,40,000 90,000
Working Capital (A) - (B) 3,20,000 4,14,000 - -
Net increase in working capital
94,000 - - 94,000
Total 4,14,000 4,14,000 1,04,000 1,04,000

Illu.3 : The following were comparative balance sheets of XYZ co. as on 31st March
2002 and 2003:
31-3-2002 31-3-2003 31-3-2002 31-3-2003
Liabilities Assets
Rs. Rs. Rs. Rs.
Share capital 50,000 53,000 Fixed Assets 50,000 60,000
Profit & Loss a/c 28,000 37,000 Investments 6,000 9,000
General Reserve 10,000 12,000 Stock 31,000 36,000
12% Debentures 16,000 23,000 Accounts
Receivable 24,000 27,000
Creditors 20,000 21,000 Cash 20,000 25,000
 Accounting and Finance 17.12 Funds Flow Analysis

Provision for tax 12,000 15,000 Preliminary 5,000 4,000

expenses
1,36,000 1,61,000 1,36,000 1,61,000

Additional Information:
(a) Depreciation provided on fixed assets Rs.15,000
(b) Tax paid during the year Rs.13,000
(c) Interim dividend paid Rs.5,000
Prepare Funds Flow Statement.
Solution :
Schedule of changes in working capital

31-3-2002 31-3-2003 Increase (+) Decrease (-)

Rs. Rs. Rs. Rs.
Current Assets:
Cash 20,000 25,000 5,000
Accounts Receivable 24,000 27,000 3,000
Stock 31,000 36,000 5,000
75,000 88,000
Current Liabilities:
Creditors 20,000 21,000 1,000
Working capital 55,000 67,000
Net increase in working capital
12,000 12,000
67,000 67,000 13,000 13,000

Dr. Share Capital Account Cr.

Rs. Rs.
To Balance c/d 53,000 By Balance b/d 50,000
By Bank 3,000
53,000 53,000
C.D.E. 17.13 Acharya Nagarjuna University

Dr. General Reserve Account Cr.

Rs. Rs.
To Balance c/d 12,000 By Balance b/d 10,000
By Profit & Loss a/c 2,000
12,000 12,000

Dr. 12% Debentures Account Cr.

Rs. Rs.
To Balance c/d 23,000 By Balance b/d 16,000
By Bank 7,000
23,000 23,000

Dr. Provision for taxation Account Cr.

Rs. Rs.
To Bank (Tax) 13,000 By Balance b/d 12,000
To Balance c/d 15,000 By Profit & Loss a/c 16,000
28,000 28,000

Dr. Fixed Assets Account Cr.

Rs. Rs.
To Balance b/d 50,000 By Depreciation ( P& L 15,000
a/c)
To Bank a/c 25,000 By Balance c/d 60,000
75,000 75,000

Dr. Investment Account Cr.

Rs. Rs.
To Balance b/d 6,000 By Balance c/d 9,000
To Bank a/c 3,000
9,000 9,000
Accounting and Finance 17.14 Funds Flow Analysis

Dr. Preliminary Expenses Account Cr.

Rs. Rs.
To Balance b/d 5,000 By P & L a/c 1,000
By Balance c/d 4,000
5,000 5,000

Calculation of funds from operations:

Rs. Rs.
Balance of P & L a/c (31-3-2003) 37,000
Add: Non – cash and non – operating items:
i. Transfer to general reserve 2,000
ii. Provision for tax 16,000
iii. Depreciation fixed assets 15,000
iv. Interim dividend paid 5,000
v. Preliminary expenses written off 1,000 39,000
76,000
Less: P & L a/c balance on 31-3-2002 28,000
Funds from operations 48,000

Funds Flow Statement for the year ending 31-3-2003

Sources Rs. Application Rs.
Issue of shares 3,000 Purchase of Fixed Assets 25,000
Issue of Debentures 7,000 Purchase of Investments 3,000
Funds from operations 48,000 Tax paid 13,000
Interim Dividend paid 5,000
Net increase in working
capital 12,000
58,000 58,000
 C.D.E. 17.15 Acharya Nagarjuna University

Illu.4 : Extracts from Balance Sheets:

Particulars As on As on
31-3-1999 Rs. 31-3-2000Rs.
Equity shares capital 4,00,000 5,00,000
8% preference share capital 2,00,000 1,50,000

Additional information:
(i) Equity shares were issued during the year against the purchase of machinery
Rs.50,000
(ii) 8% preference shares worth Rs.1,00,000 were redeemed during the year.
Prepare necessary accounts to find out sources / applications of funds.
Solution :
Dr. Equity Share Capital Account Cr.
Particulars Rs. Particulars Rs.
To Balance c/d 5,00,000 By Balance b/d 4,00,000
By Machinery a/c 50,000
By Cash 50,000
5,00,000 5,00,000

Dr. 8% Preference Share Capital Account Cr.

Particulars Rs. Particulars Rs.
To Cash 1,00,000 By Balance b/d 2,00,000
To Balance c/d 1,50,000 By Cash 50,000
2,50,000 2,50,000

Working Notes:
1. Issue of shares against the purchase of Machinery is neither a source nor application of
funds.
2. Issue of shares worth Rs.50,000 for cash a source of funds.
3. Redemption of preference shares of Rs.50,000 is a source of funds.
 Accounting and Finance 17.16 Funds Flow Analysis

Illu.5 : The following is the Balance Sheet of X Ltd. on 31st December 1992 and 1991: -

Liabilities 1991 1992 Assets 1991 1992

Equity share capital 3,00,000 4,00,000 Goodwill 1,15,000 90,000
Preference shares 1,50,000 1,00,000 Land and Buildings 2,00,000 1,70,000
General Reserve 40,000 70,000 Machinery 80,000 2,00,000
Profit & Loss a/c 30,000 48,000 Sundry debtors 1,60,000 2,00,000
Proposed Dividend 42,000 50,000 Stock 77,000 1,09,000
Sundry Creditors 55,000 83,000 Bills receivable 20,000 30,000
Bills payable 20,000 16,000 Cash in hand and at 18,000
Bank 25,000
Provision for 40,000 50,000
taxation
6,77,000 8,17,000 6,77,000 8,17,000

Additional Information:
(a) Depreciation written off on Machinery and Buildings in 1992 were Rs.10,000 and
Rs.20,000 respectively.
(b) During the year 1992 Dividends Rs.20,000 were paid
(c) The income tax paid during the year was Rs.35,000.
Prepare Funds Flow Statement.
Solution :
Working Notes:
Dr. Equity Share Capital Account Cr.
Particulars Rs. Particulars Rs.
31-12-1992 1-1-1992
To Balance b/d 4,00,000 By Balance b/d 3,00,000
31-12-1992
By Cash (Bal. Fig) 1,00,000
C.D.E. 17.17 Acharya Nagarjuna University

4,00,000 4,00,000

Dr. 8% Redeemable Preference share Capital Cr.

Particulars Rs. Particulars Rs.
31-12-1992 1-1-1992
To Cash ( Bal. Fig) 50,000 By Balance b/d 1,50,000
To Balance c/d 1,00,000
1,50,000 1,50,000

Dr. General Reserve Account Cr.

Particulars Rs. Particulars Rs.
31-12-1992 1-1-1992
To Balance c/d 70,000 By Balance b/d 40,000
31-12-1992
By P & L a/c (Bal. Fig) 30,000
70,000 70,000

Dr. Provision for taxation Account Cr.

Particulars Rs. Particulars Rs.
31-12-1992 1-1-1992
To Cash Balance c/d 35,000 By Balance b/d 40,000
To Balance c/d 50,000 31-12-1992
By P & L a/c (Bal. Fig) 45,000
85,000 85,000

Dr. Goodwill Account Cr.

Particulars Rs. Particulars Rs.
1-1-1992 31-12-1992
To Balance b/d 1,15,000 By P & L a/c (Bal. Fig) 25,000
Accounting and Finance 17.18 Funds Flow Analysis

By Balance c/d 90,000

1,15,000 1,15,000

Dr. L & B Account Cr.

Particulars Rs. Particulars Rs.
1-1-1992 31-12-1992
To Balance b/d 2,00,000 By P & L a/c (Dep.) 20,000
By Cash (sale) (bal. Fig) 10,000
By Balance c/d 1,70,000
2,00,000 2,00,000

Dr. Machinery Account Cr.

Particulars Rs. Particulars Rs.
1-1-1992 31-12-1992
To Balance b/d 80,000 By P & L a/c (Dep.) 10,000
31-12-1992 By Balance c/d 2,00,000
To Cash (Bal. Fig) 1,30,000
2,10,000 2,10,000

Funds from Operations:

Particulars Rs. Rs.
Balance of profit as per P & L a/c for the year
ended 31-12-1992 48,000
Add: Non- Cash and Non – operating expenses:
General Reserve 30,000
Proposed dividend 50,000
Interim dividend 20,000
Provision for taxation 45,000
Depreciation on Machinery & Buildings 30,000
Goodwill written off 25,000 2,00,000
C.D.E. 17.19 Acharya Nagarjuna University

2,48,000
Less: Non – Cash and Non – operating incomes
NIL - -
2,48,000
Less: Balance of Profit as per P & L a/c for the
year ended 31-12-1991 30,000
Cash from operations 2,18,000

Statement of Sources and Uses for the year ended 31st December 1992
Particulars Rs. Rs.
Cash & Bank Balance as on 31-12-1991 25,000
Sources:
Issue of equity shares 1,00,000
Sale of building 10,000
Increase in Creditors 28,000
Cash from operations 2,18,000 3,56,000
3,81,000
Uses:
Redemption of 8% Preference shares 50,000
Proposed dividend of 1991 paid (assumed) 42,000
Income – Tax paid 35,000
Plant purchased 1,30,000
Increase in Debtors 40,000
Increase in Stock 32,000
Increase in Bills receivable 10,000
Decrease in Bills payable 4,000
Interim dividend paid 20,000 3,63,000
Cash and Bank balance on 31-12-2000 18,000

Illu.6 : Prepare a funds statement from the following particulars:

 Accounting and Finance 17.20 Funds Flow Analysis

Assets 2000 Rs. 1999 Rs. Liabilities 2000 Rs. 1999 Rs.
Cash 36,000 60,000 Trade creditors 1,70,000 1,94,000
Debtors 1,08,000 1,00,000 Accrued 38,000 26,000
Expenses
Stock 1,60,000 1,40,000 Mortgages 60,000 40,000
Investment Capital 2,60,000 2,00,000
(Marketable) - 20,000
Fixed assets 3,40,000 2,80,000 Retained earnings 68,000 59,000
Accumulated
depreciation (48,000) (1,01,000)
Fixed assets 2,92,000 1,79,000
(Net)
Goodwill - 20,000
5,96,000 5,19,000 5,96,000 5,19,000

Additional information:
(a) Depreciation provided during 2000 amounted to Rs.27,000
(b) Dividends paid in 2000 amounted to Rs.14,000.
Solution :
Schedule of Changes in working capital
1999 2000 Increase in Decrease in
Rs. Rs. W. C. W. C.
Current Assets:
Cash 60,000 36,000 - 24,000
Debtors 1,00,000 1,08,000 8,000 -
Stock 1,40,000 1,60,000 20,000 -
Investments 20,000 - - 20,000
3,20,000 3,04,000
Current Liabilities:
Trade Creditors 1,94,000 1,70,000 24,000 -
Accrued Expenses 26,000 38,000 - 12,000
 C.D.E. 17.21 Acharya Nagarjuna University

2,20,000 2,08,000
Working capital (C. A. – C. L) 1,00,000 96,000
Net Decrease in W. C. - 4,000 4,000
1,00,000 1,00,000 56,000 56,000

Dr. Funds Flow Statement Cr.

Sources Rs. Applications Rs.
Issue of shares 2 60,000 Purchase of fixed Assets 1 1,40,000
Raising of Mortgages 3 20,000 Payment of Dividend 14,000
4
Funds from operations 70,000
Net Decrease in W. C. 4,000
1,54,000 1,54,000

Working Notes:
(1)
Dr. Net Fixed Assets Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 1,79,000 By Depreciation 27,000
To Cash – Purchases By Balance c/d 2,92,000
(Balancing figure) 1,40,000
3,19,000 3,19,000

(2)
Dr. Share Capital Account Cr.
Particulars Rs. Particulars Rs.
To Balance c/d 2,60,000 By Balance b/d 2,00,000
By Cash – Issue
(balancing figure) 60,000
2,60,000 2,60,000
 Accounting and Finance 17.22 Funds Flow Analysis

(3)
Dr. Mortgages Accounts Cr.
Particulars Rs. Particulars Rs.
To Balance c/d 60,000 By Balance b/d 40,000
By Cash – raised
(Balancing figure) 20,000
60,000 60,000

Dr. Adjusted Profit and loss Account Cr.

Particulars Rs. Particulars Rs.
To Depreciation 27,000 By Balance b/d 59,000
To Goodwill written off 20,000 BY Funds from operations
(balancing figure) 70,000
To Dividend paid 14,000
To Balance c/d 68,000
1,29,000 1,29,000

Illu.7 : From the following balances extracted from Messrs. Surya Tiles Ltd. as on 31st
March 2001 and 2002, you are required to prepare (a)Schedule of changes in working capital
and (b) Funds Flow Statement.

st st st st
31 March 31 March 31 March 31 March
Liabilities Assets
2001 Rs. 2002 Rs. 2001 Rs. 2002 Rs.
Share capital 1,00,000 1,10,000 Buildings 40,000 38,000
General Reserve 14,000 18,000 Plant & Machinery 37,000 36,000
P & L a/c 16,000 13,000 Investment 10,000 21,000
Creditors 8,000 5,400 Stock 30,000 23,400
Bills payable 1,200 800 Bills receivable 2,000 3,200
Provision for tax 16,000 18,000 Debtors 18,000 19,000
Provision for 400 600 Cash at Bank 6,600 15,200
doubtful debts
 C.D.E. 17.23 Acharya Nagarjuna University

Preliminary 12,000 10,000

expenses
1,55,600 1,65,800 1,55,600 1,65,800

Additional Information:
(i) Depreciation charged on Plant was Rs.4,000
(ii) Provisions for taxation Rs.19,000 was made during the year 2002.
(iii) Interim dividend of Rs.8,000 was paid during the year.
(iv) A piece of machinery was sold for Rs.8,000 during the year 2002. It has costed
Rs.12,000. Depreciation of Rs.7,000 has been provided for it.

Solution :
Schedule of changes in working capital
Particulars 2001 Rs. 2002 Rs. Increase Decrease
(+) Rs. (-) Rs.
Current assets:
Cash at Bank 6,600 15,200 8,600 -
Debtors 18,000 19,000 1,000
Bills receivable 2,000 3,200 1,200
Stock 30,000 23,400 6,600
Total Current Assets (A) 56,600 60,800
Current liabilities:
Provision for doubtful debts 400 600 200
Bills payable 1,200 800 400
Sundry creditors 8,000 5,400 2,600
Total Current Liabilities (B) 9,600 6,800
Working Capital 13,800 6,800

Net increase in working capital = Rs.13,800 – 6,800 = 7,000

Accounting and Finance 17.24 Funds Flow Analysis

Funds Flow Statement for the year ended

Sources:
Net in working capital 7,000
Funds from operations 29,000
Sales of machinery 8,000
44,000
Applications:
Purchase of plant 8,000
Taxes paid 17,000
Investments purchases 11,000
Interim dividend paid 8,000
44,000

Working Notes: Funds from operations – Rs.

Profit & Loss account balance on 31-12-02 13,000
Add: items which do not decrease funds from Operations:
Preliminary expenses written off 2,000
Provision for taxation 19,000
Depreciation: Plant 4,000
Buildings 2,000
Interim dividend 8,000
-----------
48,000
Less: Profit on sale of machinery 3,000
---------
45,000
Less: Profit & Loss a/c balance on
31-12-2001 16,000
----------
Funds from operations 29,000
----------
Purchase of Plant:
Balance as on 31-12-2001 37,000
 C.D.E. 17.25 Acharya Nagarjuna University

Less: Depreciation 4,000

----------
33,000
Less: Books value of machinery sold
(12,000 – 7,000) 5,000
-----------
28,000
Less: Balance as on 31-12-2002 36,000
----------
Purchase of Plant 8,000
---------

Taxes Paid:
Provision for tax as on 31-12-01 16,000
Add: Provision created for 2002 19,000
---------
35,000
Less: Provision for taxes on 31-12-2002 18,000
----------
Taxes Paid 17,000
---------
Note: investments have not been treated as current asset.

Illu.8 : Prepare funds flow statement from the following information:

Liabilities 2002 Rs. 2003 Rs. Assets 2002 Rs. 2003 Rs.
Capital 77,000 81,200 Buildings 52,000 60,100
Creditors 10,500 14,800 Machinery 25,000 20,000
Creditors for Motorcar 21,000 16,800
machinery 25,000 25,000
Bank Loan 5,000 26,000 Furniture 1,500 2,300
Bills payable 14,000 16,000 Stock 12,000 37,400
Provision for Debtors 4,000 12,600
bad debts 1,000 800
Bills receivable 14,800 11,020
 Accounting and Finance 17.26 Funds Flow Analysis

Cash in hand 2,100 3,500

Petty Cash 100 80
1,32,500 1,63,800 1,32,500 1,63,800

(i) Rs.5,000; on motorcar Rs.4,200 and on furniture Rs.300.

(ii) Drawings of Mr. X were Rs.15,000
(iii) Additional capital introduced during the year was Rs.10,000

Solution :
Schedule of changes in working capital of
Mr. X as on 31st December 2003

Changes in Working
2002 2003
Particulars Capital
(Rs.) (Rs.)
Increase Decrease
Current Assets:
Stock 12,000 37,400 25,400 -
Debtors 4,000 12,600 8,600 -
Bills receivable 14,800 11,020 - 3,780
Cash in Hand 2,100 3,500 1,400 -
Petty Cash 100 80 - 20
Total Current Assets (A) 33,000 64,600
Current Liabilities:
Creditors 10,500 14,800 - 4,300
Bills payable 14,000 16,000 - 2,000
Provision for bad debts 1,000 800 200 -
Total Current Liabilities (B) 25,500 31,600
Working Capital (A) – (B) 7,500 33,000
Increase in working capital 25,500 - - 25,500
Total 33,000 33,000 35,600 35,600
C.D.E. 17.27 Acharya Nagarjuna University

Calculation of Funds from operations:

Rs.
Profit during the year 2003 9,200
Add: Non –operating funds debited to P & L a/c:
Depreciation on Building 5,200
Depreciation on Machinery 5,000
Depreciation on Motorcar 4,200
Depreciation on Furniture 300 14,700
Funds from operations 23,900

Funds Flow Statement of ‘X’ as on 31-12-2003

Sources Amount Uses Amount
(Rs.) (Rs.)
Funds from operations 23,900 Drawings 15,000
Additional Capital Introduced 10,000 Purchase of Buildings 13,300
Additional Bank Loan raised 21,000 Purchase of Furniture 1,100
Increase in working capital 25,500
54,900 54,900

Working Notes:
Dr. Buildings a/c Cr.
Particulars Rs. Particulars Rs.
To Opening Balance 52,000 By Depreciation 5,200
To Cash (Buildings purchased) 13,300 By Closing balance 60,100
65,300 65,300

Dr. Furniture A/c Cr.

Particulars Rs. Particulars Rs.
To Opening Balance 1,500 By Depreciation 300
To Cash (Furniture purchased) 1,100 By Closing Balance 2,300
2,600 2,600
 Accounting and Finance 17.28 Funds Flow Analysis

Dr. Capital A/c Cr.

Particulars Rs. Particulars Rs.
To Drawings (Cash) 15,000 By Opening Balance 77,000
To Closing Balance 81,200 By Additional Capital
introduced (Cash) 10,000
By P & L a/c (2003 ear
profit) (B / F) 9,200
96,200 96,200

Illu.9 : From the following Balance – Sheet of Mr. Kumar you are requested to
prepare a schedule of changes in working capital and statement of Funds Flow.

Liabilities 1999 Rs. 2000 Rs. Assets 1999 Rs. 2000 Rs.
Capital 80,000 85,000 Land & Buildings 50,000 50,000
Profit & Loss a/c 14,500 24,500 Plant 24,000 34,000
Creditors 9,000 5,000 Stock 9,000 7,000
Mortgage - 5,000 Debtors 16,500 19,500
Cash 4,000 9,000
1,03,500 1,19,500 1,03,500 1,19,500

Solution :
Statement showing changes in Working Capital
1999 2000 Increase Decrease
Current Assets: 9,000 7,000 2,000
Debtors 16,500 19,500 3,000
Cash 4,000 9,000 5,000
Current Liabilities:
Creditors 9,000 5,000 4,000
12,000 2,000

Net increase in Working capital = Rs.12,000 – 2,000 = Rs.10,000.

 C.D.E. 17.29 Acharya Nagarjuna University

Funds from operations

Rs.
Balance of profit in 2000 24,500
Less: Balance of profit in 1999 14,500
Funds from operations 10,000

Funds Flow Statement

Rs.
Sources of funds
Funds from operations 10,000
Issue of Capital 5,000
New Mortgage 5,000 20,000
Application of Funds
Purchase of Plant 10,000
Net Increase in working Capital 10,000

Illu.10 : The Balance Sheet of Shri. Constructions Ltd. were as follows:

Liabilities 31-12-98 31-12-99 Assets 31-12-98 31-12-99

Share Capital 70,000 74,000 Cash 9,000 7,800
Debentures 12,000 6,000 Debtors 14,900 17,700
Provision for bad 700 800 Stock 49,200 42,700
debts
Creditors 10,360 11,840 Land 20,000 30,000
P & L a/c 10,040 10,560 Goodwill 10,000 5,000
1,03,100 1,03,200 1,03,100 1,03,200

Additional Information:
(a) Dividend paid Rs.3,500
(b) Land Purchased Rs.10,000
(c) Goodwill written off Rs.5,000
 Accounting and Finance 17.30 Funds Flow Analysis

(d) Debentures redeemed Rs.6,000

Prepare funds flow statement.

Solution :
Schedule of Changes in Working Capital
Increase in Decrease in
1998 1999
W. C. W. C.
Rs. Rs.
Rs. Rs.
Current Assets:
Cash 9,000 7,800 - 1,200
Debtors 14,900 17,700 2,800 -
Stock 49,200 42,700 - 6,500
73,100 68,200 - -
Current Liabilities:
Trade Creditors 10,360 11,840 - 1,480
Reserve for Doubtful debts 700 800 - 100
11,060 12,640
Working Capital (C. A. – C. L.) 62,040 55,560
Net Decrease in W. C. - 6,480 6,480
Working Capital 62,040 62,040 9,280 9,280

Fund Flow Statement (for the year ended 31-12-1999)

Sources Rs. Use of Funds Rs.
Issue of Share Capital Redemption of Debentures
(74,000 – 70,000) 4,000 Rs. (12,000 – 6,000) 6,000
Funds from operations 9,020 Purchase of land
Rs. (30,000 – 20,000) 10,000
Net Decrease in working 6,480 Payment of Dividend 3,500
capital
19,500 19,500
 C.D.E. 17.31 Acharya Nagarjuna University

Funds from operations

Rs.
Closing Balance of P/ L a/c (1999) 10,560
Add: Non – fund and non – operating items which have already been
debited to P/ L A/c:
Goodwill Written off 5,000
Dividend paid 3,500
19,060
Less: Opening balance of P & L a/c (1998) 10,040
Funds from operations 9,020

Illu.11 :The following is the summarised balance sheet of Mr. Ramesh & co.

Liabilities 1997 Rs. 1998 Rs. Assets 1997 Rs. 1998 Rs.
Equity share 3,00,000 3,50,000 Fixed Assets 5,10,000 6,20,000
capital (net)
Preference capital 2,00,000 1,00,000 Investments 30,000 80,000
Debentures 1,00,000 2,00,000 Current Assets 2,40,000 3,75,000
Reserve 1,00,000 2,70,000 Discount on
debentures 10,000 5,000
Provision for
doubtful debts 10,000 15,000
Current liabilities 80,000 1,45,000
7,90,000 10,80,000 7,90,000 10,80,000

Additional Information:
(a) A machine costing Rs.70,000 whose book value was Rs.30,000 was disposed off
Rs.25,000.
(b) Preference share redemption was carried out at a premium of 5%.
(c) The provision for depreciation stock at Rs.1,50,000 on 31-12-87 and at Rs.1,90,000
on 31-12-88.
 Accounting and Finance 17.32 Funds Flow Analysis

Prepare Funds Flow Statement.

Solution :
Schedule of Changes in Working Capital
1997 Rs. 1998 Rs. Increase Decrease
Current Assets 2,40,000 3,75,000 1,35,000 65,000
Less: Current liabilities 80,000 1,45,000 65,000
Working capital 1,60,000 2,30,000 1,35,000 65,000
Net Increase in Working capital 70,000 70,000
2,30,000 1,35,000

Calculation of Funds from operations.

Rs.
Depreciation provided on Fixed Assets 80,000
Loss on sale of machinery 5,000
Discount Issue of Debenture ‘s written off 5,000
Premium on redemption of preference share capital 5,000
Transfers to Reserves 1,70,000
Provision for doubtful debts provided 5,000
Funds from operations 2,70,000

Dr. Funds flow Statements Cr.

Sources Rs. Applications Rs.

Issue of equity share capital 50,000 Redemption of preference
capital 1,00,000
Issue of Debentures 1,00,000 Premium on Redemption 5,000
Sale of machinery 25,000 Purchase of machinery 2,20,000
Funds from operations 2,70,000 Investment purchase 50,000
Investments in working
capital 70,000
4,45,000 4,45,000
C.D.E. 17.33 Acharya Nagarjuna University

Working Notes:
(1)
Dr. Fixed Assets Account Cr.
To Balance b/d 5,10,000 By Bank 25,000
To Bank (Bal. Fig) Purchase 2,20,000 By Loss on sales 5,000 30,000
By Depreciation Provision
a/c 80,000
By Balance c/d 6,20,000
7,30,000 7,30,000

Dr. Provision for Depreciation Account Cr.

To Fixed Assets a/c (accumulated By Balance b/d 1,50,000
depreciation on machinery sold) 40,000
(70,000 – 30,000)
To Balance c/d 1,90,000 By Loss on sales
Depreciation (Bal. Fig) 80,000
2,30,000 2,30,000

(2) Investments purchased = Rs.80,000 – 30,000 = Rs.50,000

(3) Discount on Debentures written off = Rs.10,000 – 5,000 = Rs.5,000
(4) Issue of Equity share capital = Rs.3,50,000 – 3,00,000 = Rs.50,000.
(5) Redemption of Preference Share capital = Rs.2,00,000 – Rs.1,00,00 = 1,00,000
(6) Premium on redemption of preference share capital
= 5% on Rs.1,00,000 = Rs.5,000
(7) Issue of Debentures = Rs.2,00,000 – 1,00,000 = Rs.1,00,000
(8) Transfer to Reserve = Rs.2,70,000 – 1,00,000 = Rs.1,70,000
(9) Provision for doubtful debts provided = Rs.15,000 – 10,000 = Rs.5,000.

Illu.12 : From the following Balance Sheet and additional information prepare
(a) A schedule of changes in working capital
 Accounting and Finance 17.34 Funds Flow Analysis

(b) Funds Flow Statement

Liabilities 2004 Rs. 2005 Rs. Assets 2004 Rs. 2005 Rs
Share capital 2,00,000 2,50,000 Land and 2,00,000 1,90,000
Buildings
General 50,000 60,000 Plant 1,50,000 1,74,000
Reserve
Profit and Loss 30,500 30,600 Stock 1,00,000 74,000
a/c
Bank overdraft 70,000 - Debtors 80,000 64,200
Creditors 1,50,000 1,35,200 Cash 500 600
Provision for 30,000 35,000 Bank - 8,000
taxation
5,30,500 5,10,800 5,30,500 5,10,800

Additional Information:
(a) Depreciation was written off plant Rs.14, 000 in 2005
(b) Dividend of Rs.20, 000 was paid during 2005
(c) Income tax provision made during the year was Rs.25, 000
(d) A piece of land has been sold during the year at cost.
Solution :
(a) Schedule of changes in working capital
Particulars Working capital
2004 2005 Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets :
Stock 1,00,000 74,000 - 26,000
Debtors 80,000 64,200 - 15,800
Cash 500 600 100 -
Bank - 8,000 8,000 -
Total Current Assets (A) 1,80,500 1,46,800
Current Liabilities :
 C.D.E. 17.35 Acharya Nagarjuna University

Bank overdraft 70,000 - 70,000 -

Creditors 1,50,000 1,35,200 14,800 -
Total current liabilities (B) 2,20,000 1,35,200
Working capital (A – B) - 39,500 11,600
Net increase in Working 51,100 - - 51,100
capital
11,600 11,600 92,900 92,900

Plant a/c
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d 1,50,000 By Depreciation a/c 14,000
To Bank a/c (Purchases)(B/f) 38,000 By Balance c/d 1,74,000
1,88,000 1,88,000

Provision for tax a/c

Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Bank a/c (Tax paid) 20,000 By Balance b/d 30,000
To Balance c/d 35,000 By P & L a/c (non – fund) 25,000
(B/f)
55,000 55,000

Funds from operations

Particulars Amount Amount
Rs. Rs.
Profit & Loss account closing balance 30,600
 Accounting and Finance 17.36 Funds Flow Analysis

Add: Non-fund items :

Depreciation on plant 14,000
Income tax provision 25,000 39,000
69,600
Add: Appropriations :
Transfer to general reserve 10,000
Dividends paid 20,000 30,000
99,600
Less: Profit & Loss account opening balance 30,500
Funds from operations 69,100

Funds flow statement for the year ending 31-12-2005

Sources Amount Uses Amount
Rs. Rs.
Issue of capital 50,000 Purchase of plant 38,000
(Rs.2,50,000 – 2,00,000)
Sale of Land & Buildings 10,000 Dividend paid 20,000
(Rs.2,00,000 – 1,90,000)
Funds from operations 69,100 Income tax paid 20,000
Net increase in working
capital 51,100
1,29,100 1,29,100

Illu.13 : Calculate funds from operations from the information given below as on 31st
March 2006 :
(a) Net profit for the year ended 31st March 2006 Rs.6,50,000
(b) Gain on the sale of building Rs.35,500
(c) Goodwill appears in the books of Rs.1,80,000 out of that 10% has been written off
during the year.
(d) Old machinery worth Rs.8,000 has been sold for Rs.6,500 during the year.
(e) Rs.1,25,000 has been transferred to the general reserve fund.
 C.D.E. 17.37 Acharya Nagarjuna University

(f) Depreciation has been provided during the year on machinery and furniture at 20%
whose total cost is Rs.6,50,000.
Solution :
Statement of funds from operations
Particulars Amount Amount
Rs. Rs.
Net profit for the year 6,50,000
Add: Non-fund items :
Goodwill written off [1,80,000 x 10/100] 18,000
Loss on sale of machinery (8,000 – 6,500) 1,500
Depreciation on machinery and furniture 1,30,000 1,49,500
(6,50,000 x 20/100)
7,99,500
Add: Appropriations :
Transfer to general reserve 1,25,000
9,24,500
Less: Non-operating income :
Gain on sale of buildings 35,500
Funds from operations 8,89,000

Illu.14 : From the following Balance Sheets of Sujatha Ltd., prepare funds flow
statement :
Liabilities 2004 Rs. 2005 Rs. Assets 2004 Rs. 2005 Rs.
Share capital 5,00,000 5,00,000 Land & Buildings 6,50,000 5,85,000
Reserves 25,000 70,000 Plant & 3,50,000 6,00,000
Machinery
Profit and Loss 95,000 1,10,000 Furniture & - 1,15,000
a/c Fixtures

Loans 4,00,000 5,50,000 Stock 1,00,000 1,10,000

Sundry creditors 1,30,000 1,50,000 Debtors 40,000 50,000
 Accounting and Finance 17.38 Funds Flow Analysis

Bills payable 10,000 25,000 Bills receivable - 10,000

Outstanding exp. 5,000 4,000 Cash at bank 20,000 15,000
Provision for tax 35,000 60,000 Cash in hand 5,000 6,000
Proposed - 50,000 Goodwill 35,000 28,000
dividend
12,00,000 15,19,000 12,00,000 15,19,000

Additional information :
(a) During the year no land and buildings was purchased.
(b) Depreciation on plant and machinery charged Rs.60,000
(c) Tax paid Rs.35,000.
Solution :
Schedule of changes in working capital
Particulars 2004 2005 Working capital
Rs. Rs. Increase Decrease
Rs. Rs.
Current assets :
Stock 1,00,000 1,10,000 10,000 -
Debtors 40,000 50,000 10,000 -
Bills receivable - 10,000 10,000 -
Cash at bank 20,000 15,000 - 5,000
Cash in hand 5,000 6,000 1,000 -
Total current assets (A) 1,65,000 1,91,000
Current Liabilities :
Sundry creditors 1,30,000 1,50,000 - 20,000
Bills payable 10,000 25,000 - 15,000
Outstanding expenses 5,000 4,000 1,000 -
Total current liabilities (B) 1,45,000 1,79,000
Working capital (A – B) 20,000 12,000
Net decrease in working - 8,000 8,000 -
capital
 C.D.E. 17.39 Acharya Nagarjuna University

20,000 20,000 40,000 40,000

Working Notes :
Provision for tax a/c
Dr. Cr.
Particulars Rs. Particulars Rs.
To Bank a/c 35,000 By Balance b/d 35,000
To Balance c/d 60,000 By P & L a/c (non-fund) 60,000
(B/f)
95,000 95,000

Plant & Machinery a/c

Dr. Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 3,50,000 By Depreciation 60,000
To Bank (B/f) 3,10,000 By Balance c/d 6,00,000
6,60,000 6,60,000

Funds from operations

Particulars Amount Rs. Amount Rs.
Profit & Loss a/c closing balance 1,10,000
Add: Non – fund items :
Goodwill written off 7,000
Depreciation on Plant & Machinery 60,000
Income tax provision 60,000
Depreciation Land & Buildings 65,000 1,92,000
(Rs.6,50,000 – 5,85,000)
3,02,000
Add: Appropriations :
Proposed dividend (2005) 50,000
 Accounting and Finance 17.40 Funds Flow Analysis

Transfer to reserves 45,000 95,000

(Rs.70,000 – 25,000)
3,97,000
Less: Profit & Loss a/c opening balance 95,000
Funds from operations 3,02,000

Funds Flow Statement for the year ended 31-12-2005

Sources Amount Uses Amount
Rs. Rs.
Funds from operations 3,02,000 Tax paid 35,000
Decrease in working capital 8,000 Purchase of plant 3,10,000
Raising of loans 1,50,000 Purchase of Furniture & 1,15,000
(Rs.5,50,000 – 4,00,000) Fixtures
4,60,000 4,60,000

Illu.15 : The Balance sheets of Ravi as on 31.12.2001 and 31.12.2002 where as follows
:
Liabilities 31.12.01 31.12.02 Assets 31.12.01 31.12.02
Creditors 40,000 44,000 Cash 10,000 7,000
Mr. Ravi’s loan 25,000 - Debtors 30,000 50,000
Loan from Bank 40,000 50,000 Stock 35,000 25,000
Capital 1,25,000 1,53,000 Machinery 80,000 55,000
Land 40,000 50,000
Building 35,000 60,000
2,30,000 2,47,000 2,30,000 2,47,000

During the year machine costing Rs.10,000 (accumulated depreciation on Rs.3,000) was
sold for Rs.5,000. The provision for depreciation against machinery as on 31.12.2001
was Rs.25,000 and on 31.12.2002 Rs.40,000. Net profit for the year 2002 amounted to
Rs.45,000.
You are required to prepare :
 C.D.E. 17.41 Acharya Nagarjuna University

(a) a schedule of change in working capital

(b) a funds flow statement.
Solution :
Schedule of changes in working capital
Increase
2001 2002 Decrease
Particulars Rs.
Rs. Rs. Rs.
Current assets :
Cash 10,000 7,000 3,000
Debtors 30,000 50,000 20,000
Stock 35,000 25,000 10,000
Total Current assets (A) 75,000 82,000
Current Liabilities :
Creditors 40,000 44,000 4,000
Total Current Liabilities (B) 40,000 44,000
Working capital (A-B) 35,000 58,000
Net increase in working capital 3,000
20,000 20,000

Funds from operations

Rs. Rs.
Profit for 2002 45,000
Add: Depreciation on Machinery 18,000
Loss on sale of machinery 2,000 20,000
Funds from operations 65,000

Funds Flow Statement

Dr. Cr.
Sources Rs. Applications Rs.
Loan from bank 10,000 Mr. Ravi’s Loan 25,000
Sale of Machinery 5,000 Purchased of Land 10,000
 Accounting and Finance 17.42 Funds Flow Analysis

Funds from operations 65,000 Purchase of Buildings 25,000

Drawings (Rs.1,25,000 +
45,000 – 1,53,000) 17,000
Increase in working capital 3,000
80,000 80,000

Working Notes :
Provision for Depreciation Account
Dr. Cr.
Rs. Rs.
31-12-2002 1-1-2002
To Machinery a/c 3,000 By Balance b/d 25,000
To Balance c/d 40,000 By Profit & Loss a/c (Bal. fig) 18,000
43,000 43,000

Machinery Account
Dr. Cr.
Rs. Rs.
1-1-2002 31-12-2002
To Balance b/d 80,000 By Bank 5,000
By Profit & Loss a/c –
Loss on sale 2,000
By Profit & Loss a/c –
Depreciation 18,000
By Balance c/d 55,000
80,000 80,000

Illu.16 : Find out the changes in working capital of ABC Ltd. from the particulars
given below :
Liabilities 2004 Rs. 2003 Rs. Assets 2004 Rs. 2003 Rs.
Capital 1,50,000 1,25,000 Goodwill 5,000 10,000
 C.D.E. 17.43 Acharya Nagarjuna University

Creditors 45,000 50,000 Cash 70,000 25,000

Bills payable 35,000 20,000 Debtors 90,000 98,000
Loans 20,000 - Stock 1,20,000 87,000
Profit and loss 75,000 60,000 Investment 10,000 15,000
a/c
Land 27,000 15,000
Preliminary 3,000 5,000
expenses
3,25,000 2,55,000 3,25,000 2,55,000

Solution :
Statement showing change in working capital
Increase
2004 2003 Decrease
Particulars Rs.
Rs. Rs. Rs.
Current assets :
Cash 25,000 70,000 45,000 -
Debtors 98,000 90,000 - 8,000
Stock 87,000 1,20,000 33,000 -
Current Liabilities :
Creditors 50,000 45,000 5,000 -
Bills payable 20,000 35,000 - 15,000
Loans (Due 1997) - 20,000 - 20,000
83,000 43,000

Net increase in working capital = Rs.83,000 – 43,000 = Rs.40,000

Note : Loans raised in 2005 will be payable in 2004 is considered to be short term loan and as
current liability.
Illu.17 : From the following Balance Sheet of a firm, prepare funds flow statement :
 Accounting and Finance 17.44 Funds Flow Analysis

Liabilities 2001 Rs. 2002 Rs. Assets 2001 Rs. 2002

Rs.
Equity shares 2,40,000 3,60,000 Buildings 1,66,200 3,39,600
capital
Share premium 24,000 36,000 Machinery 1,06,800 1,53,900
General reserve 18,000 27,000 Furniture 7,200 4,500
Profit and loss 58,500 62,000 Stock 66,300 78,000
a/c
8% debentures - 78,000 Debtors 1,09,500 1,17,300
Provision for 29,400 32,700 Bank 14,400 12,000
taxes
Creditors 1,00,500 1,09,600
4,70,400 7,05,300 4,70,400 7,05,300

Provide depreciation on machinery Rs.38,400, on furniture Rs.1,200.

Solution :
Schedule of changes in working capital
Increase Decrease
in in
2001 2002
Particulars working working
Rs. Rs.
capital capital
Rs. Rs.
Current assets :
Stock 66,300 78,000 11,700 -
Debtors 1,09,500 1,17,300 7,800 -
Bank 14,400 12,000 - 2,400
1,90,200 2,07,300
Current Liabilities :
Sundry Creditors 1,00,500 1,09,600 9,100
Provision for taxation 29,400 32,700 - 3,300
1,29,900 1,42,300 -
 C.D.E. 17.45 Acharya Nagarjuna University

Working capital 60,300 65,000

Net increase in working capital 4,700 4,700
65,400 65,400 19,500 19,500

Funds flow Statement

Sources Rs. Applications Rs.
Issues of Share Capital 1,20,000 Purchase of land & Building 1,73,400
Share Premium 12,000 Purchase of Machinery 85,500
Issue of Debentures 78,000 Net increase in working
capital 5,100
Sale of furniture 1,500
Funds from operations 52,500
2,64,000 2,64,000

Working Notes :
Machinery Account
Dr. Cr.
Rs. Rs.
To Balance b/d 1,06,800 By Depreciation 38,400
To Purchases during the By Balance c/d 1,53,900
year (Balancing figure) 85,500
1,92,300 1,92,300

Land & Building A/c

Dr. Cr.
Rs. Rs.
To balance b/d 1,66,200 By Balance c/d 3,39,600
To Purchases (balancing
figure) 1,73,400
3,39,600 3,39,600
 Accounting and Finance 17.46 Funds Flow Analysis

Furniture Account
Dr. Cr.
Rs. Rs.
To balance b/d 7,200 By Depreciation 1,200
By Cash – sale (Bal. Fig) 1,500
By Balance c/d 4,500
7,200 7,200

Adjusted Profit and Loss Account

Dr. Cr.
Rs. Rs.
To Transfer to Reserves 9,000 By Balance b/d 58,500
To Depreciation on machinery 38,400 By Funds from operations 52,500
To Depreciation on furniture 1,200
To Balance c/d 62,400
1,11,000 1,11,000

Illu.18 : Prepare funds flow statement from the following information of Jeevan Ltd.
(Rs. Thousands)
2003 2004 2003 2004
Share capital 500 750 Cash 150 225
Reserves 250 300 Stock 300 325
Profit & Loss a/c 50 85 Debtors 150 350
Share premium - 25 Investments 300 400
Debentures 350 250 Furniture 35 45
Provision for tax 100 150 Plant 520 500
Accumulated Land and 500 500
depreciation : Buildings
Plant 250 280
Furniture 25 30
 C.D.E. 17.47 Acharya Nagarjuna University

Creditors 430 475

1,955 2,345 1,955 2,345

Additional Information :
(i) A plant worth Rs.20,000 (depreciation accumulated Rs.10,000) was sold for cash
Rs.4,000
(ii) Furniture worth of Rs.10,000 was purchased
(iii) Dividend paid during 2004 was Rs.20,000.
(iv) Tax paid during 2004 was Rs.40,000.
(v) Depreciation provided on buildings during 2004 was Rs.25,000
Solution :
Schedule of changes in working capital
Particulars 2003 2004 Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets :
Cash 1,50,000 2,25,000 75,000 -
Stock 3,00,000 3,25,000 25,000 -
Debtors 1,50,000 3,50,000 2,00,000 -
Total Current Assets (A) 6,00,000 9,00,000
Current Liabilities :
Creditors 4,30,000 4,75,000 - 45,000
Total Current Liabilities 4,30,000 4,75,000
(B)
Working capital (A-B) 1,70,000 4,25,000
Net increase in working 2,55,000
capital
3,00,000 3,00,000
 Accounting and Finance 17.48 Funds Flow Analysis

Working Notes :
Investment Account
Rs. Rs.
To Balance b/d 3,00,000 By Balance c/d 4,00,000
To Bank (Bal. Fig) 1,00,000
4,00,000 4,00,000

Furniture Account
Rs. Rs.
To Balance b/d 35,000 By Balance c/d 45,000
To Bank 10,000
45,000 45,000

Provision for depreciation on Furniture

Rs. Rs.
To Balance c/d 30,000 By Balance b/d 25,000
By P & L a/c (Bal. Fig) 5,000
30,000 30,000

Plant Account
Rs. Rs.
To Balance b/d 5,20,000 By Provision for depreciation
a/c 10,000
By Bank 4,000
By P & L a/c (Loss on sale) 6,000
By Balance c/d 5,00,000
5,20,000 5,20,000

Provision for depreciation on Plant

Rs. Rs.
To Plant a/c 10,000 By Balance b/d 2,50,000
To Balance c/d 2,80,000 By P & L a/c (Bal. Fig) 40,000
 C.D.E. 17.49 Acharya Nagarjuna University

2,90,000 2,90,000

Land & Buildings A/c

Rs. Rs.
To Balance b/d 5,00,000 By Depreciation 25,000
To Balance (Bal. Fig) 25,000 By Balance c/d 5,00,000
5,25,000 5,25,000

Depreciation on Land & Buildings

Rs. Rs.
To Land & Buildings 25,000 By P & L a/c 25,000
25,000 25,000

Provision for tax

Rs. Rs.
To Bank 40,000 By Balance b/d 1,00,000
To Balance c/d 1,50,000 By P & L a/c (Bal. Fig) 90,000
1,90,000 1,90,000

Funds from operations

Rs. Rs.
Net profit as per P & L a/c 85,000
Add: Non – fund and non – operating expenses
Depreciation on furniture 5,000
Loss on sale of Plant 6,000
Depreciation on Plant 40,000 `
Depreciation on Buildings 25,000
Provision for taxation 90,000
Transfer to Reserve 50,000
Dividends 20,000 2,36,000
3,21,000
 Accounting and Finance 17.50 Funds Flow Analysis

Less: Non – fund and non – operating incomes :

NIL - -
3,21,000
Less: Balance of Profit as per P & L a/c on 1-1-96 50,000
Funds from operations 2,71,000

Funds Flow Statement

Rs.
Sources of funds :
Sale of Plant 4,000
Issue of shares 2,50,000
Premium on issue of shares 25,000
Funds from operations 2,71,000
5,50,000
Application of funds :
Purchase investments 1,00,000
Purchase of furniture 10,000
Payment of tax 40,000
Redumption of debentures 1,00,000
Dividends paid 20,000
Purchase of Land & Buildings 25,000
Net increase in working capital 2,55,000
5.50,000

Illu.19 : The Balance Sheets of A, B Ltd. as on December 31, 1998 and December 31,
1999 are as follows.
Dec 31 Dec 31 Dec 31 Dec 31
Liabilities Assets
1998 Rs. 1999 Rs. 1998 Rs. 1999 Rs.
Share capital 2,00,000 2,50,000 Fixed assets 3,50,000 4,75,000
Retained earnings 1,60,000 3,00,000 Merchandise
inventory 1,00,000 95,000
 C.D.E. 17.51 Acharya Nagarjuna University

Premium on - 5,000 Accounts

shares Receivables 43,000 50,000
Accumulated Prepaid expenses 4,000 5,000
depreciation 80,000 60,000
Debentures 60,000 - Cash 15,800 10,200
Accounts Payable 37,800 40,200 Commission on
shares 25,000 20,000
5,37,800 6,55,200 5,37,800 6,55,200

Additional Information :
(i) An addition to the fixed assets was made during the year at a cost of Rs.1,65,000
and fully depreciated machinery costing Rs.40,000 was discarded no salvage
being realised.
(ii) Depreciation for the year Rs.20,000.
(iii) Income tax paid was Rs.40,000
(iv) Interim dividend paid during the year Rs.20,000.
You are required to prepare :
(1) A statement of schedule of changes in working capital.
(2) A statement of sources and applications of funds.
Solution :
Schedule of Changes in Working Capital

Assets 1998 1999 Increase Decrease

Rs. Rs. Rs. Rs.
Stocks 1,00,000 95,000 5,000
Accounts receivable 43,000 50,000 7,000
Prepaid expenses 4,000 5,000 1,000
Cash 15,800 10,200 5,600
 Accounting and Finance 17.52 Funds Flow Analysis

Total Assets (A) 1,62,800 1,60,200

Liabilities
Accounts payable 37,800 40,200 2,400
Total Liabilities (B) 37,800 40,200
Working capital (A-B) 1,25,000 1,20,000
Net decrease in working 5,000
capital
13,000 13,000

Funds from Operations

Rs. Rs.
Retained earnings as on 31-12-1999 3,00,000
Add : Non – fund and Non – operating expenses
Accumulated depreciation Rs.60,000 – [80,000 – 20,000
40,000]
Income tax paid 40,000
Interim dividend paid 20,000
Commission on shares written off (Rs.25,000 – 20,000) 5,000 85,000
3,85,000
Less: Retained earnings as on 31-12-1998 1,60,000
Funds from operations 2,25,000

Funds Flow Statement as on 31-3-1999

Dr. Cr.
Sources Rs. Applications Rs.
Funds from operations 2,25,000 Fixed assets purchased 1,65,000
Issue of share capital 50,000 Income tax paid 40,000
Premium on issue of shares 5,000 Interium dividend paid 20,000
Deovease in working Debentures redeemed 60,000
capital 5,000
2,85,000 2,85,000
 C.D.E. 17.53 Acharya Nagarjuna University

Illu.20 : From the following Balance Sheets of Ramu Ltd. you are requested to
Prepare (a) a statement of changes in working capital and (b) a statement of sources and
uses of funds :
Liabilities 2004 Rs. 2005 Rs.
Share capital 1,05,000 1,30,500
Retained Earnings 45,000 58,500
8% Debentures 66,000 66,000
Current liabilities 90,000 96,000
Accumulated depreciation 15,000 8,400
3,21,000 3,59,400

Assets 2004 Rs. 2005 Rs.

Land & Buildings 72,000 60,000
Equipment 45,000 51,000
Patents 3,000 2,700
Stock 45,000 45,000
Accounts receivable 30,000 62,100
Cash & Bank 1,20,000 1,33,200
Discount on Debentures 6,000 5,400
3,21,000 3,59,400

Additional Information :
(a) Income for the period Rs.30,000
(b) Dividends paid during the year Rs.6,000
(c) Bonus shares issued during the year Rs.10,500. Shares worth Rs.15,000 wee
issued to public in the year.
(d) A building that costs Rs.12,000 and had a book value of Rs.3,000 was sold for
Rs.4,200
(e) The depreciation charge for the period was Rs.2,400.
 Accounting and Finance 17.54 Funds Flow Analysis

Solution :
Schedule of changes in working capital
Particulars 2004 2005 Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets :
Stock 45,000 45,000
Accounts receivable 30,000 62,100 32,100
Cash bank 1,20,000 1,33,200 13,200
Total Current Assets (A) 1,95,000 2,40,300
Current liabilities 90,000 96,000 6,000
Total Current Liabilities 90,000 96,000
Working capital 1,05,000 1,44,300
Net increase in working 39,300
capital
45,300 45,300

Dr. Funds Flow Statement Cr.

Sources Rs. Application Rs.
Issue of shares 15,000 Purchase equipment 6,000
Sale of buildings 4,200 Dividends paid 6,000
Funds from operations 32,100 Increase in working capital 39,300
51,300 51,300

Working Notes :
Dr. Accumulated Depreciation Account Cr.
Rs. Rs.
To Land & Buildings 9,000 By Balance b/d 15,000
To Balance c/d 8,400 By Profit & Loss a/c 2,400
17,400 17,400
 C.D.E. 17.55 Acharya Nagarjuna University

Dr. Land and Buildings Account Cr.

Rs. Rs.
To Balance b/d 72,000 By Accumulated Depreciation 9,000
To Profit & Loss a/c 1,200 By Banks 4,200
By Balance c/d 60,000
73,200 73,200

Dr. Retained Earnings Account Cr.

Rs. Rs.
To Dividends 6,000 By Balance b/d 45,000
To Bonus shares 10,500 By Income for the period 30,000
To Balance c/d 58,500
75,000 75,000

Funds from operations

Rs.
Income for the period 30,000
Add: Depreciation written off 2,400
Patents written off 300
Discount on debentures 600
33,300
Less: Profit on sale of buildings 1,200
Funds from operations 32,100

Illu.21 : The following are the summarised Balance Sheet of RIL Ltd. as on 31-12-2003
and 31-12-2004:

Liabilities 31-12-03 31-12-04 Assets 31-12-03 31-12-04

Rs. Rs. Rs. Rs.
Equity Capital 80,000 80,000 Fixed Assets 82,000 80,000
 Accounting and Finance 17.56 Funds Flow Analysis

7% Redeemable - 20,000 - Depreciation 22,000 30,000

preference shares

General 4,000 4,000 60,000 50,000

Reserve
P & L a/c 2,000 2,400 Current
Assets:
Debtors 12,000 14,000 Debtors 40,000 48,000
Creditors 24,000 22,000 Stock 60,000 70,000
Provision for 6,000 8,400 Prepaid 600 1,000
Tax expenses
Proposed 10,000 11,600 Cash 2,400 7,000
Dividend
Bank overdraft 25,000 13,600
1,63,000 1,76,000 1,63,000 1,76,000

You are required to prepare:

(a) Statement of changes in working capital
(b) Statement of sources and application of funds.

Solution :
(i) Schedule of changes in working capital :

Particulars 2003 2004 Effect on working capital

(Rs.) (Rs.) Increase Decrease
(Rs.) (Rs.)
I. Current Assets :
Debtors 40,000 48,000 8,000
Stock 60,000 70,000 10,000
Prepaid expenses 600 1,000 400
Cash 2,400 7,000 4,600
Total Current Assets (A) 1,03,000 1,26,000
 C.D.E. 17.57 Acharya Nagarjuna University

II. Current liabilities :

Creditors 24,000 22,000 2,000
Provision for tax 6,000 8,400 2,400
Proposed dividend 10,000 11,600 1,600
Bank overdraft 25,000 13,600 11,400
Total Current liabilities (B) 65,000 55,600
Working capital (A – B) 38,000 70,400
Increase in working capital 32,400 - - 32,400
70,400 70,400 36,400 36,400

(ii) Funds from Operations

Particulars Amount Particulars Amount
Rs. Rs.
To Depreciation on fixed assets By Opening balance 2,000
(30,000 – 22,000) 8,000
To Closing balance 2,400
By Funds from operators 8,400
(Balance c/d)
10,400 10,400

(iii) Funds Flow Statement

Sources Amount Application Amount
Rs. Rs.
Issue of Redeemable Increase in working capital 32,400
preference shares 20,000
Issue of debentures 2,000
Sale of Fixed Assets 2,000
Funds from operators 8,400
32,400 32,400

Illu.22 : From the following balance sheets of A Ltd., make out the statement of
sources and uses of funds .
 Accounting and Finance 17.58 Funds Flow Analysis

Liabilities 2000 Rs. 2001 Rs. Assets 2000 Rs. 2001 Rs.
Equity share Goodwill 1,15,000 90,000
capital 3,00,000 4,00,000
8% Redeemable Land and
Preference 1,50,000 1,00,000 Buildings 2,00,000 1,70,000
shares
General Reserve 40,000 70,000 Plant 80,000 20,000
Profit and Loss 30,000 48,000 Debtors 1,60,000 2,00,000
a/c
Proposed 42,000 50,000 Stock 77,000 2,09,000
dividend
Creditors 55,000 83,000 Bills receivable 20,000 30,000
Bills payable 20,000 16,000 Cash in hand 15,000 90,000
Provision for 40,000 50,000 Cash at Bank 10,000 8,000
taxes
6,77,000 8,17,000 6,77,000 8,17,000

Additional information :
(i) Depreciation of Rs.10,000 and Rs.20,000 have been charged on plant account and
land and buildings account respectively in 2001.
(ii) An interim dividend of Rs.20,000 has been paid in 2001.
(iii) Income tax Rs.35,000 was paid during the year 2001.

Solution :
(I) Schedule changes in working capital :

Particulars 2000 (Rs.) 2001 (Rs.) Working capital

Increase Decrease
(Rs.) (Rs.)
Current Assets :
 C.D.E. 17.59 Acharya Nagarjuna University

Debtors 1,60,000 2,00,000 40,000 -

Stock 77,000 2,09,000 1,32,000 -
Bills receivable 20,000 30,000 10,000 -
Cash in hand 15,000 90,000 75,000
Cash at bank 10,000 8,000 - 2,000
Total Current Assets (A) 2,82,000 5,37,000
Current liabilities :
Creditors 55,000 83,000 - 28,000
Bills payable 20,000 16,000 4,000 -
Total Current Liabilities 75,000 99,000
(B)
Working capital (A – B) 2,07,000 4,38,000
Increase in working capital 2,31,000 - 2,31,000
4,38,000 4,38,000 2,61,000 2,61,000

(II) Funds from operations

Dr. Cr.
Particulars Amount Particulars Amount Rs.
Rs.
To Goodwill written off 25,000 By Opening balance 30,000
To Depreciation on plant 10,000 By Funds from operations
(Balancing Fig) 1,76,000
To Depreciation on buildings 20,000
To Increase in general reserve 30,000
To Income tax 45,000
To Proposed dividend 28,000
To Closing Balance 48,000
2,06,000 2,06,000
 Accounting and Finance 17.60 Funds Flow Analysis

Funds Flow Statement

Sources Amount Application Amount Rs.
Rs.
Increase in Equity share Redumption of preference
capital 1,00,000 share capital 50,000
Sale of buildings 10,000 Income tax paid 35,000
Sale of plant 50,000 Dividend paid 20,000
Funds from operations 1,76,000 Increase in working capital 2,31,000
3,36,000 3,36,000

Working Notes :
Building’s a/c
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Opening balance 2,00,000 By Depreciation 20,000
By Sale of Buildings (Bal. fig) 10,000
By Closing balance 1,70,000
2,00,000 2,00,000

Plant a/c
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Opening balance 80,000 By Depreciation 10,000
By Sale of Plant (Bal. Fig) 50,000
By Closing balance 20,000
80,000 80,000
 C.D.E. 17.61 Acharya Nagarjuna University

Provision for Tax a/c

Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Income tax paid 35,000 By Opening balance 40,000
To Closing balance 50,000 By Balance c/d 45,000
85,000 85,000

Proposed Dividend a/c

Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Interim dividend paid 20,000 By Opening balance 42,000
To Closing balance 50,000 By Balance c/d 28,000
70,000 70,000

17.5 QUESTIONS:

1. What is Funds Flow Analysis?

2. What are the sources and Applications of Funds
3. Draw a Proforma Funds Flow Statement
4. How do you the Statement of Changes in Working Capital position help in Funds flow
Analysis?
5. What are the uses of Funds Flow Statement? What are its disadvantages?
6. Income statement concentrates on operating part while Funds Flow statement throws light
on the activities and the direction of operations. Comment.

17.6 EXERCISES :

1. Calculate funds from operations from the following:

 Accounting and Finance 17.62 Funds Flow Analysis

Net profit for the year Rs.80,000

Administrative expenses Rs.20,000
Depreciation Rs.42,000
Loss on sale of Machinery Rs.10,000
Interest on investments Rs.5,000
Selling and distribution expenses Rs.15,000
[Ans.: Funds from Operations Rs.1,27,000]

2. The following were the Balance Sheet of XYZ Co. Ltd. as on 31st March 2002 and 2003.

31-3-02 31-3-03 31-3-02 31-3-03

Liabilities Assets
Rs. Rs. Rs. Rs.
Share capital 2,64,000 3,96,000 Land & Buildings 1,66,200 3,39,600
General Reserve 18,000 27,000 Machinery 1,06,800 1,53,900
P & L a/c 58,500 62,400 Furniture 7,200 4,500
12% Debentures 10,000 78,000 Stock 66,300 78,000
Provision for Tax 29,400 37,700 Debtors 1,09,500 1,17,300
Creditors 1,00,500 1,09,200 Cash at Bank 14,400 12,000
Preliminary expenses 10,000 5,000
4,80,400 7,10,300 4,80,400 7,10,300

You are required to prepare funds flow statement after taking into account the following:
(a) Depreciation written off during year
On Buildings Rs.20,400
On Machinery Rs.38,400
On Furniture Rs.1,200
(b) Interim dividend paid during the year Rs.26,000
(c) Income tax paid Rs.30,000.
[Ans.: Net increase in working capital Rs.8,400; Funds from operations Rs.1,42,200]

3. The following are the summarised balance sheets of M/s Vivek Ltd. on 31 st December, 2003
and 31st December, 2004.
 C.D.E. 17.63 Acharya Nagarjuna University

Liabilities 2003 (Rs.) 2004 (Rs.)

Share capital 12,00,000 16,00,000
Debentures 4,00,000 6,00,000
Profit & Loss Account 2,50,000 5,00,000
Creditors 2,30,000 1,80,000
Provision for :
Bad and doubtful debts 12,000 6,000
Depreciation on land and buildings 40,000 48,000
Depreciation on plant & Machinery 60,000 70,000
21,92,000 30,04,000
Assets :
Plant and Machinery (at cost) 8,00,000 12,90,000
Land and buildings (at cost) 6,00,000 8,00,000
Stock 6,00,000 7,00,000
Bank 40,000 80,000
Preliminary expenses 14,000 12,000
Debtors 1,38,000 1,22,000
21,92,000 30,04,000

Additional Information :

(a) During the year a part of the machinery costing Rs.1,40,000 (accumulated depreciation
thereon Rs.4,000) was sold for Rs.12,000.
(b) Dividend for Rs.1,00,000 was paid during the year.

Ascertain :

(i) Change in working capital for 2004

(ii) Funds Flow statement for 2004.

[Ans.: Net increase in working capital Rs.1,74,000; Funds from operations Rs.4,92,000]

4. From the following Balance Sheets of B Ltd., prepare a source and uses of funds statement for
2004.

Assets 31st December, 31st December,

2004 (Rs.) 2003 (Rs.)
Cash 75,000 35,000
Accounts receivable 90,000 98,000
Merchandise inventory 1,20,000 87,000
 Accounting and Finance 17.64 Funds Flow Analysis

Long term investments 10,000 15,000

Land 30,000 20,000
3,25,000 2,55,000
Liabilities and Stockholders
Equity accounts payable 45,000 50,000
Notes payable (short term) 35,000 20,000
Notes payable (due December, 2005) 20,000 -
Capital stock 1,50,000 1,25,000
Retailed earnings 75,000 60,000
3,25,000 2,55,000

[Ans.: Increase in working capital Rs.35,000; Funds from operations Rs.15,000]

5. Seeta Mahalakshmi Ltd., presents the following financial statements for 2000 and 2001.
Prepare a source and Application of funds statement:

2000 Rs. 2001 Rs.

Assets
Cash 1,06,000 62,000
Investments 1,74,000 -
Sundry Debtors 6,92,000 10,56,000
Stock in trade 8,64,000 13,66,000
Net fixed assets 22,26,000 27,96,000
40,62,000 52,80,000
Liabilities
Sundry Creditors 8,26,000 12,54,000
Bills payable 4,52,000 6,28,000
Loan from bank 2,00,000 4,70,000
Reserves and surplus 13,84,000 17,28,000
Share capital 12,00,000 12,00,000
40,62,000 52,80,000
 C.D.E. 17.65 Acharya Nagarjuna University

Depreciation of Rs.3,78,000 was written off for 2001 on fixed assets.

[Ans.: Increase in working capital Rs.44,000; Funds from operations Rs.7,22,000]

6. From the following Balance Sheet as on 31st December 2003 and 31st December 2004 you are
required to prepare a schedule of changes in the working capital and a funds flow statement
taking the provision for tax and proposed dividends as non – current liabilities.

Liabilities As on 31st Dec. Assets As on 31st Dec.

2003 Rs. 2003 Rs. 2003 Rs. 2003 Rs.
Share capital 10,000 15,000 Fixed Assets 10,000 20,000
Profit and loss a/c 4,000 6,000 Current 13,000 14,500
Provision for tax 2,000 3,000
Proposed Dividends 1,000 1,500
Sundry Creditors 4,000 6,000
Outstanding 2,000 3,000
expenses
23,000 34,500 23,000 34,500

Additional Information:
(a) Tax paid during 2004 Rs.2,500
(b) Dividends paid during 2004 Rs.1,000

[Ans.: Net decrease in working capital Rs.1,500; Funds from operations Rs.7,000]

17.7 SUGGESTED READINGS :

1. Agarwala, A.N., Amitabha Mukherjee, Mohammed Hanif, Principles and Practice of

Accountancy, Kitab Mahal Agencies, New Delhi.
2. Asish K. Bhattacharyya, Financial Accounting for Business Managers, Prentice Hall of India
Private Limited, New Delhi.
3. Basu & Das, Practical in Accountancy, Volume – one, Rabindra Library, Calcutta
 Accounting and Finance 17.66 Funds Flow Analysis

4. Chopde, L.N., & Choudhari, D.H., Accountancy, Sheth Publishers, Pune

5. Jain, S.P., Narang, K.L., Accoutancy, Part - I, Kalyani Publishers
6. Maheswari, S.N., Maheswari, S.K., Advanced Accountancy (Vol.I), Vikas Publishing House
Pvt. Ltd., New Delhi, 2005
7. Pillai, R.S.N., Bagavathi, Uma, S., Fundamentals of Advaned Accounting (Vol.I) S. Chand &
Company Ltd., New Delhi, 2006
8. Ramachandran, T., Accounting for Management, Scitech Publications (India) Pvt. Ltd.,
Chennai.
9. Ravi M., Kishore, Financial Management, Taxman Allied Services (p) Ltd., New Delhi.
10. Shukla, M.C., Grewal, T.S., Gupta, S.C., Advanced Accounts (Volume I) S. Chand &
Company Limited, New Delhi, 2005
11. Tulsian, P.c., Accountancy Tata McGraw-Hill Publishing Company Limited, New Delhi.