Funds Flow Statement Schedule of Changes in Working Capital - Illustration

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Problem

From the following information prepare
i) A Schedule of Changes in Working Capital
ii) A Funds Flow Statement

Balance Sheet of M/s ______ as on
Liabilities 31stMarch Assets 31stMarch
2006 2007 2006 2007
Capital
Profit/Loss Appropriation
Bank Loan
Bills Payable
Sundry Creditors
Reserve for Taxation
18,50,000
14,78,000
12,00,000
4,00,000
14,00,000
2,00,000
21,00,000
17,64,000
9,00,0000
6,80,000
12,20,000
1,80,000
Goodwill (at Cost)
Land and Buildings
Plant and Machinery
Furniture and Fittings
Stock/Inventories
Sundry Debtors
Bills Receivable
Bank
Cash
6,00,000
18,50,000
4,74,000
1,94,000
8,26,000
12,00,000
8,00,000
5,00,000
84,000
6,00,000
22,00,000
5,24,000
1,94,000
7,24,000
12,80,000
7,21,000
4,83,000
1,18,000
65,28,000 68,44,000   65,28,000 68,44,000

Solution » Schedule of Changes in Working Capital

Schedule/Statement of Changes in Working Capital for the period from __ to __
Particulars/Account Previous Period Current Period Working Capital Change
Increase Decrease
A. CURRENT ASSETS
1) Stock/Inventories
2) Sundry Debtors
3) Bills Receivable
4) Bank
5) Cash

8,26,000
12,00,000
8,00,000
5,00,000
84,000

7,24,000
12,80,000
7,21,000
4,83,000
1,18,000

80,000

34,000

1,02,000

79,000
17,000
34,10,000 33,26,000 1,14,000 1,98,000
B. CURRENT LIABILITIES/PROVISIONS
1) Bills Payable
2) Sundry Creditors
3) Provision for Taxation

4,00,000
14,00,000
2,00,000

6,80,000
12,20,000
1,80,000

1,80,000
20,000

2,80,000
20,00,000 20,80,000 3,14,000 4,78,000
Working Capital (A − B) 14,10,000 12,46,000
Change in Working Capital (12,46,000 − 14,10,000)
(Or) (3,14,000 − 4,78,000)
1,64,000

Solution » Working Notes

To be able to work out all the problems on preparation of Funds Flow Statement in a similar manner, it would be convenient to adopt the procedure of preparation of altered fund (ledger) accounts.

• Altered Fund Accounts » Hide/Show

Make up all those ledger accounts within the Fund Area where there is a change in values. These are accounts which have been influenced on account of transactions during the period for which the flow is being analysed.

In this problem, we need to prepare

• Capital a/c
• Profit and Loss Appropriation a/c ⇐ [Please make it a habit to make this the last account you prepare]
• Bank Loan a/c
• Land and Buildings a/c
• Plant and Machinery a/c

Each Ledger account should be prepared so as to reveal all the information relating to that account and for that period

 Dr Capital a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
31-03-07 To Balance c/d 21,00,000 01-04-06
By Balance b/d
By Bank a/c (?)

18,50,000
2,50,000
Total   21,00,000   Total   21,00,000
01-04-07 By Balance b/d 21,00,000

• The higher closing balance indicates additional capital raised during the period.
• Capital has been raised in exchange for cash

 Dr Bank Loan a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

31-03-07
To Bank a/c (?)
To Balance c/d

3,00,000
9,00,000
01-04-06 By Balance b/d 12,00,000
Total   12,00,000   Total   12,00,000
01-04-07 By Balance b/d 9,00,000

• The lower closing balance indicates repayment of loan during the period.
• Loan has been repaid by paying out cash

 Dr Land and Buildings a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
01-04-06
To Balance b/d
To Bank a/c (?)

18,50,000
3,50,000
31-03-07 By Balance c/d 22,00,000
Total   22,00,000   Total   22,00,000
01-04-07 To Balance b/d 9,00,000

• The higher closing balance indicates additional purchase/acquisition during the period.
• Additional Assets have been purchased for cash

 Dr Plant and Machinery a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
01-04-06
To Balance b/d
To Bank a/c (?)

4,74,000
50,000
31-03-07 By Balance c/d 5,24,000
Total   5,24,000   Total   5,24,000
01-04-07 To Balance b/d 5,24,000

• The higher closing balance indicates additional purchase/acquisition during the period.
• Additional Assets have been purchased for cash

• Making up the Funds Flow Statement from these

Every posting read as "By Cash/Bank a/c" indicates a source of fund and as "To Cash/Bank a/c" indicates an application of Fund. Filling the details with the Ledger account head as the identifier in the Funds Flow Statement is all that you need to do.

 Dr Profit and Loss Appropriation a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
31-03-07 To Balance c/d 17,64,000 01-04-06
31-03-07
By Balance b/d
By P/L (FFO) a/c

14,78,000
2,86,000
Total   17,64,000   Total   17,64,000
01-04-07 By Balance b/d 17,64,000

• The higher closing balance indicates additional funds generated through profits during the period.
• FFO = Funds From Operations.

These are the Funds flowing in on account of profits made from regular operations during the period.

• Funds From Operations

One additional detail/item that is to be gathered is the Funds From Operation. This information is derived from the Profit and Loss Appropriation account. Where the posting in the appropriation account reads "By Funds From Operations" it indicates a source of fund and where it reads "To Funds From Operations" it indicates an application of fund

Filling the detail relating to FFO in the Funds Flow Statement and deriving the difference between the total sources and total applications would complete its preparation.

• Changes in Fund Accounts

Just for solving this problem and similar other ones, you may not need to prepare the above notes and you can just manage with a simple comparison of figures as below.

This can be done orally showing the calculation in the Funds Flow Statement itself.

Item Amount
Previous Period
Amount
Current Period
Change Nature Result
Capital
Profit/Loss Appropriation
Bank Loan
Land and Building
Plant and Machinery
18,50,000
14,78,000
12,00,000
18,50,000
3,70,000
21,00,000
17,64,000
9,00,000
22,00,000
4,74,000
2,50,000
2,86,000
3,00,000
3,50,000
50,000
Liability - Increase
Liability - Increase
Liability - Increase
Liability - Increase
Asset - Increase
Inflow
Inflow
Inflow
Inflow
Outflow

• Statement Form

Funds Flow Statement for the period from __ to __
Particulars Amount Amount
SOURCES (INFLOW) of FUNDS :
1) Capital
2) Profit/Loss Appropriation

2,50,000
2,86,000

5,36,000
Less: APPLICATIONS (OUTFLOW) of FUNDS
1) Land and Buildings
2) Plant and Machinery
3) Bank Loan

3,50,000
50,000
3,00,000

7,00,000
Change in Working Capital − 1,64,000

There is a decrease in Net Working Capital to the extent of Rs. 1,64,000

• T Form

Statement of Sources and Applications of Funds for the period from __ to __
Sources (Inflow)
of Funds
Amount Applications (Outflow)
of Funds
Amount
1) Capital
2) Profit/Loss Appropriation
2,50,000
2,86,000
1) Land and Buildings
2) Plant and Machinery
3) Bank Loan
3,50,000
50,000
3,00,000
5,36,000   7,00,000
Change in Working Capital 1,64,000

(Sources/Inflow of Funds) < (Applications/Outflow of Funds)
⇒ There is a decrease in Net Working Capital to the extent of Rs. 1,64,000

 Author Credit : The Edifier ... Continued Page 7