Fund Flow Statement

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Fund flow statement is also known as the statement of  “Source And Application Of Funds.” Fund Flow Statement presents the movement of funds and it also helps management to understand the change in the structure of assets, liabilities and equity capital.

Meaning of Fund
Fund means working capital. If current assets of company is more than current liability of business, it is called working capital and working capital’s other name is Fund.

Fund = Working capital = Current assets – Current liability

Inflow of Funds
Issue of Equity Share Capital
Issue of Preference Share Capital
Issue of Debentures/Long term Loans
Premium on issue of shares/debentures
Sale of Investments
Sale of Fixed Assets

Outflow of Funds
Redemption of Preference Share Capital
Redemption of Debentures
Repayment of Long term Loans
Premium on redemption of preference shares/debentures
Purchase of Investments/Fixed Assets
Dividend Paid
Taxes Paid
Drawings by proprietor/partner

Features of funds flow statement are as under:
— Shows sources of funds during a specified period.
— Shows uses of that funds during a specified period.
— “funds” used here means working capital, i.e. the excess of current assets over current Liabilities.
— It is also known as
• Sources and Application of funds;
• statement of changes in financial position:
• sources and uses of funds:
• summary of financial operations:
• where got, where gone statement

STEPS FOR CALCULATION FUND FROM OPERATION
FIRST STEP
PREPARE STATEMENT OF CHANGES OF WORKING CAPITAL
It is necessary to make statement of changes of working capital, because net increase in working capital is use of fund while on the other hand net decrease in working capital is source of fund.

WORKING CAPITAL INCREASE/DECREASE WHEN
Increase working capital
• Increase in current assets
• Decrease in current liabilities

Decrease in working capital
• Decrease in current assets
• Increase in current liabilities

No change in working capital
• Realisation from debtors/Bills Receivable
• Payment to creditors/Bills Payable
• Goods sold on credit
• Goods purchased on credit

SECOND STEP
Ascertain the funds from operation
Funds from the operation may be ascertained from following two methods as under:
(i) In statement form
(ii) In account form

Fund from operation is needed for preparation of fund flow statement for SOURCE OF FUND SIDE. Fund from operation can be shown on application of fund side and when there is negative it is known as fund from operation. 

Operation means business activity and fund from operation means profit from business activity.

These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter (Fund Flow Statement) in CS Executive Module I Cost and Management Accounting (MCQ based OMR) Exam.

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