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

Funds Flow Statement

• 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

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