Elaborate on limitations of fund flow statement?

Answer 1

Fund may be interpreted in various ways as (a) Cash, (b) Total current assets. Net working capital, (d) Net current assets. For the purpose fund flow statement the term fund means net working capital. The flow fund will occur in a business, when a transaction results in a change i increase or decrease in the amount of fund.

According to Robert Anthony, the Fund Flow Statement describes t sources from which additional funds were derived and the uses to which these funds were put.

Different Names of Fund-flow Statement

* A Funds Statement

* A statement of sources and uses of fund

* A statement of sources and application of fund

* Where got and where gone statement

* Inflow and outflow of fund statement

Objectives of Fund Flow Statement

The main purposes of Fund Flow Statement are:

1. To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statement.

2. To inform as to how the cans to the business have been used.

3. To point out the financial strengths and weaknesses of the business . Format of Fund Flow Statement

Sources Applications

Fund from operation -• Fund lost in operations

Non-trading incomes - Non-operating expenses

Issue of shares - Redemption of redeemable preference share

Issue of debentures- Redemption of debentures

Borrowing of loans Repayment of loans

Acceptance of deposits Repayment of deposits

Sale of fixed assets Purchase of fixed asset Sale of Investments Purchase of long term Instruments (Long Term)

Decrease in working capital Increase in working capital

Steps in Preparation of Fund Flow Statement

1) Preparation of schedule changes in working capital (taking current items only).

2) Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations). 3) Preparation of accounts for non-current items (Ascertain the hidden information).

4) Preparation of the fund flow statement.

Format of Schedule of Changes in Working Capital

Particulars Previous Year Current year Increase In Decrease in

W/c W/c

Current Assets

Cash in hand

Cash at bank

Bills receivable

Debtors

Inventory

Prepaid expenses

Short-term investment

(A) Total

Current Liability

Bills payable

Creditors

Outstanding expenses

Accrued expenses

Income received in advance

Bank overdraft

Cash credit from banks

Short-term loan

Short-term deposit

Provision for taxation

Proposed dividend

Provision against current assets

(B) Total

Working Capital (C)

(C = A - B)

Increase in W/C

Decrease in W/C

Fund from operation can be ascertained by preparing adjusted profit and

loss account. It may be prepared in statement form or account form. Format of Adjusted Profit and Loss Account

To Bal. B/d (P&L Account Dr. Bal.) By Bal. B/d (P&L Account Cr. Bal.)

To Non-operating Exp. By Non-operating Incomes

To Depreciation on Fixed Assets By Profit on sale of Investment

To Goodwill written-off By profit on sale of fixed asset

To Patent & trademark of f By Dividend on Investment

To Preliminary expenditure By Interest on Investment

To Discount on issue of shares & By Rent received, gift received

Debentures

To Loss on sale of investment By Damages received under law

To Loss on sale of Fixed Assets By Transfer from general reserve