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Unit V:

Financial Analysis-I:
FUNDS FLOW STATEMENT

C
D

STATEMENT OF CHANGES IN WORKING CAPITAL


Particulars
Years
Effect on
working capital
2007 2008 Increa Decrea
se
se
Current assets :
Cash in hand
xx
xx
Cash in bank
xx
xx
Bills receivable
xx
xx
Accounts receivable
xx
xx
Sundry Debtors / Book Debts
xx
xx
Short-Term Investments
xx
xx
Stock or Inventory
xx
xx
Prepaid expenses
xx
xx
Total Current Assets (A)
xx
xx
Current Liabilities :
Sundry Creditors
xx
xx
Bills payable
xx
xx
Bonds/ Notes Payable
xx
xx
Any short-term loan
xx
xx
Bank Overdraft
xx
xx
Any Unpaid expense
xx
xx
Provision for Bad debts
xx
xx
Provision for taxation
xx
xx
Total Current Liabilities (B)
xx
xx
Working Capital (A B)
xx
xx
Increase / Decrease in W.
xx
xx
Capital
xx
xx
xx
xx
FUNDS FLOW STATEMENT

Sources
Decrease in working
capital
Issue of shares
Issue of Debentures
Bank loan taken

Rs.
xx

Application
Increase in working capital

Rs.
xx

xx
xx
xx

xx
xx
xx

Any loan taken


Sale of investment
Sale of any asset
Operating profit

xx
xx
xx
xx

Redemption of shares
Redemption of debentures
Bank loan paid / loan
refunded
Income tax paid
Purchase of any asset
Dividend paid
Operating loss

xx
xx
xx
xx
1

xx
PROFIT & LOSS ACCOUNT
Particulars
To Dividend paid
To Provision of Tax

Rs.
xx
xx

To Depreciation
To General Reserve
To goodwill written of
To Prelim. Exp. Written of
To Loss on sale of Asset
To Discount on Deb/Shares
W/O
To Closing Balance

xx
xx
xx
xx
xx
xx

Particulars
By Opening Balance
By profit on sale of
Asset
By Dividend received
By Operating Profit

xx
xx

xx
Rs.
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx

ANY ASSET ACCOUNT


Particulars
To opening Balance
To Cash (Purchase)

Rs.
xx
xx

Particulars
By Depreciation
By Cash (Sale)
By Closing Balance

Rs.
xx
xx
xx
xx
xx
NB :- When you open an asset A/c, Opening Balance will be written on debit
side and closing Balance will be written on credit side.
ANY LIABILITY ACCOUNT
Rs.
Particulars
Rs.
xx
By Opening Balance
xx
xx
By Current years
xx
Provision
xx
xx
NB :- When you open any liability A/c, Opening Balance will be written on
credit side and Closing Balance will be written on debit side
Particulars
To Cash
To Closing Balance

(1)

(d)
(2)
(3)
(a)
(b)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)

IMPORTANT RULES
of Working Capital :Increase in current assets means increase in working capital.
Decrease in current assets means decrease in working capital.
Increase in current liability means decrease in working capital.
Decrease in current liability means increase in working capital,
If any fixed asset increases there, is just one reason & that is purchase
of asset.
But if any fixed asset decreases there are two reasons i.e.
Sale of asset
Depreciation of asset.
If sale words are mentioned in the problem then treat it as sale
otherwise treat it as depreciation.
If any Investment decreases it is only sale never depreciation.
If the following items decrease show it on debit side of P.& L. Account.
(a) Goodwill, (b) Patents (c) Any Discount, (d) Preliminary exp. (e)
Under writers commission
If proposed dividend is given in the problem, current year's balance is
written on debit side of P& L A/c and last year's balance on application side.
If any reserve increases show it on debit side of P & L A/c.
If depreciation is given in the adjustment, both opening & closing
balances, open depreciation A/c.
If there is an adjustment on tax then tax provision is not treated as
current liability, but if there is no adjustment on tax then tax provision is
treated as current liability.
Profit given in the adjustment is useless, just ignore it.
The profit & loss A/c is also known as surplus or retained earnings or
reserves surplus. If balances of P & L A/c is not given in the question then
balances of Reserves will be treated as P & L Balances.
If the item is given in the Balance Sheet then there will be only one
entry of it.
If any item is given in the adjustment there will be minimum two
entries.
If dividend is given in percentage then it will be calculated on paid up
capital.
Profit/ Loss will be calculated only in the transaction of sale of asset
but never in the transaction of purchase of asset.
Rules
(a)
(b)
(c)

PROBLEMS ON FUND FLOW STATEMENT


Prob.1.

Ashoka Co. submitted following Balance Sheet


Liabilities

2007

2008

Asset

2007

2008

Creditors

20,00 18,00 Cash


0
0

5,000

6,000

Bills Payable

2,000 4,000 Bills receivable

14,00
0

14,00
0

Income tax
provisions

1,000 1,100 Closing stock

22,00
0

8,000

Capital

30,00 37,00 Prepaid


0
0 insurance

200

250

P&L A/c

12,65 13,65 Prepaid rent


0
0

150

100

300

400

Land

4,000

8,000

Building .

20,00
0

37,00
0

65,65
0

73,75
0

Prepaid Taxes

65,65 73,75
0
0

Adjustments :-Dividend paid Rs.2,000


Depreciation on Building Rs.3,000
Prepare statement showing changes in Working Capital and Funds Flow
Statement.
(Decrease 13000)
Prob.2.
Golden Industries Ltd. submitted following Balance Sheet
for the year 2007 & 2008.
Liabilities

2008

2007

Share Capital

62,500

General
reserve

15,000

P&L A/c

7,650

Bank
Overdraft

--

Creditors

33,800

Tax provisions

8,750

Asset

2008

2007

50,000 Land

47,500

50,000

12,500 Machine

42,250

37,500

7,625 Stock

18,500

25,000

17,500 Debtors

16,050

20,000

150

125

2,000

---

37,500 Cash
7,500 Cash at Bank

Good-Will
1,27,70 1,32,62
0
5

1,250

---

12770 1,32,62
0
5

Adjustments :- In 2008 Dividend paid up Rs.5,750


Depreciation of Machine. Rs.3,500
Tax Provision Rs.8,250
Prepare :- statement of Working Capital and Funds Flow Statement.
(Increase 12775)
Prob.3.
The following Balance Sheet is for the year 2007 and 2008
from that prepare the funds flow statement of 2008.
Liabilities
Share Capital

2007

2008

Asset

1,00,00 1,25,00 Land &


0
0 Building

2007

2008

1,00,00
0

95,000

General reserve

25,000

30,000 Machine

75,000

84,500

P&L A/c

15,250

15,300 Stock

50,000

37,000

Bank Overdraft

35,000

40,000

32,100

Creditors

75,000

67,600 Cash

250

300

Tax provisions

15,000

17,500 Cash at Bank

--

4,000

--

2,500

-- Debtors

Goodwill
2,65,25 2,55,40
0
0

2,65,25 2,55,40
0
0

Adjustments : Dividend paid in 2008 Rs.11,500


Depreciation on Machine Rs.7,000
Tax Provision in current year Rs.16,000

(Decrease 9450)

Prob.4.
The Forward Industries Ltd., submitted following balance
sheet for the year 2007 & 2008.
Liabilities

2007

2008

Trade Creditors

31,200

29,100 Cash

15,000

9,000

Short term
liabilities

16,300

14,900 Debtors

23,500

25,000

8,000 Stock

36,500

42,000

5,000

---

Accrued Exp.
Mortgage Loan

7,500
10,000

Asset

15,000 Investment
s

2007

2008

Share capital

50,000

65,000 Fixed
Assets

Retained
Earnings

14,750

17,000 Goodwill

1,29,75 1,49,00
0
0

44,750

73,000

5,000

---

1,29,75 1,49,00
0
0

Adjustments : For the year 2008 charged the depreciation on fixed assets
Rs.1750
Goodwill written of from retained earnings
Dividend paid for 2008 Rs.3500
You are required to Prepare :- (1) Statement of Working Capital (2) Funds
Flow Statement.
(Increase 4000)
Prob.5.
The following Balance Sheet of 2007 & 2008 of Prakash
Ltd.
Liabilities

2007

2008

Share Capital

4,50,00
0

4,50,00 Fixed
0 assets

General reserve

3,00,00
0

3,10,00 Investment
0

P&L A/c
Creditors
Tax provisions
Mortgage Loan

56,000
1,68,00
0
75,000
-10,49,0
00

Asset

68,000 Stock
1,34,00 Debtors
0
10,000 Bank

2007

2008

4,00,00
0

3,20,00
0

50,000

60,000

2,40,00
0

2,10,00
0

2,10,00
0

4,55,00
0

1,49,00
0

1,97,00
0

10,49,0
00

12,42,0
00

2,70,00
0
12,42,0
00

Adjustments : Investment costing of Rs.8000 sold out in the year 2008 for
Rs.8500
Make a Tax provision of Rs.9,000.
A part of fixed assets costing of Rs.10,000 sold out for Rs.12,000.
Dividend paid in current year Rs.40,000
Prepare Statement of Working Capital and Funds Flow Statement for the year
ending 31-12-2008.
6

(Increase 297000)
Prob.6.
Gajanan spinning and weaving mills submitted following
Balance Sheet for the year 2007 & 2008.
Liabilities

2008

2007

Bills Payable

25,900

Creditors
Short term loan
Share capital

Asset

2008

2007

20,000 Debtors

88,900

73,300

64,100

52,600 Stock (Raw


mate)

60,000

45,500

10,000

60,000 Stock (Fini.


Goods)

60,000

66,200

1,50,00
0

1,40,00 Cash in hand


0

30,300

9,400

Profit

29,000

22,400 Cash in bank

45,000

20,100

Reserve

46,000

30,000 Long term Inv.

7,000

10,500

3,000

---

30,800

40,000

Bills receivable
Land & Building .
3,25,00
0

2,65,00
0

3,25,00 2,65,00
0
0

Adjustments :

Dividend paid in 2008 @7% for the year 2007. (Increase 45300)

Prob.7.
The following are the summaries of the Balance Sheets of
Time Ltd.
Liabilities

2007

2008

Sundry
Creditors

39,500

41,135 Cash in Bank

Bills Payable

33,780

11,525 Sundry Debtors

Bank Overdraft

59,510

Provision for Tax

40,000

Reserves
P&L A/c
Share Capital

Asset

2007

2008

2,500

2,700

85,175

72,625

2,315

735

50,000 Stock

1,11,04
0

97,370

50,000

50,000 Land & Building .

1,48,50 1,44,25
0
0

39,690

41,220 Plant &


Machinery

1,12,95 1,16,20
0
0

2,00,00
0

--- Sundry Advances

2,60,00 Goodwill
0

---

20,000

4,62,48
0

4,53,88
0

4,62,48 4,53,88
0
0

Adjustments :- The following additional information is available from the


general Ledger.
On 31st Dec.2008 an interim dividend of Rs.26,000 was paid.
The Assets of another co. were purchased for Rs.60,000 payable
in fully paid up shares of the Co. These assets consisted of stock
Rs.21,640, machinery Rs.18,360 and goodwill Rs.20,000. An
addition sundry purchase of plant was made totaling Rs.5650.
Income Tax paid during the year amounted to Rs.25,000.
The net profit for the year before tax was Rs.62530.
You are required to prepare a statement of working capital & funds flow
statement.
(Increase 52530)
Prob.8.
By the help of following information prepare funds flow
statement.
Liabilities

2007

2008

Asset

2007

2008

Share capital

3,00,00
0

3,40,00 Fixed Assets


0

5,10,00
0

6,20,00
0

Debentures

1,10,00
0

2,00,00 Investments
0

40,000

70,000

General Reserves

1,50,00
0

2,00,00 Current
0 Assets

2,40,00
0

3,75,00
0

5,000

---

7,95,00
0

10,65,0
00

P&L A/c

60,000

70,000 Discount on

Depreciation Res.

90,000

1,30,00 debentures
0

Bad Debts
Reserve

10,000

15,000

Current liabilities

75,000

1,10,00
0

7,95,00
0

10,65,0
00

Adjustments : Dividend paid for 2007, @15%


Fixed Assets costing of Rs.40,000 (Accumulated depreciation
Rs.17,000) sold out in the year for Rs.25,000. (Increase 95000)
Prob.9.
The Balance Sheet of Zenith Steel Ltd., relation to 2007
and 2008 were as follows.
Liabilities
Capital

2008

2007

50,000

45,000 Cash

Asset

2008
11,200

2007
8,500
8

Creditors

15,000

18,000 Debtors

21,300

23,500

Bills Payable

10,000

7,500 Stock

35,000

30,600

Loan on Mortgage

40,000

40,000 Sinking fund Inv.

16,000

12,000

Sinking fund

16,000

12,000 Land

10,000

10,000

P&L A/c

13,950

16,275 Building

60,000

60,000

8,000

7,000

Prov. for Bad


Debts

1,350

1,425 Furniture &


Fixtures

Depreciation
fund:1) Building
2) Furniture

12,000

9,000

3,200

2,400

1,61,50
0

1,51,60
0

1,61,50 1,51,60
0
0

You are given following additional information : The net profit of 2008 was Rs.6675
A dividend amounting to RS.5000 was paid during the year.
Prob.10. Prepare fund flow statement with the help of following
information.
Liabilities

2008

2007

Creditors

58,000

62,000 Fixed assets

Short term
liabilities

27,000

35,000 (-) Depreciation

Unpaid Expenses

19,000

13,000 Net fixed assets

Mortgage loan

30,000

20,000 Cash

Share capital

Asset

1,20,00
0

95,000 Good will

Proposed
dividend

10,000

5,000 Debtors

Retained
earnings

34,000

29,500 Stock
Short term invt.

2,98,00
0

2,59,50
0

208

2007

1,70,00 1,40,00
0
0
24,000

20,500

1,46,00 1,19,50
0
0
18,000

30,000

---

10,000

54,000

20,000

80,000

70,000

---

10,000

2,98,00 2,59,50
0
0

Adjustment : In 2008 Dividend paid Rs.7000


Goodwill written of.

(Increase 28000)

Prob.11. Prepare a Fund Flow Statement from the following Balance


Sheet of the XYZ company.
Liabilities

2007

2008

Current liabilities

30,000

Bonds Payable

Asset

2007

2008

32,000 Cash

40,000

44,400

22,000

22,000 A/c Receivable

10,000

20,700

Bonds payable
discount

(2,000)

(1,800) Inventories

15,000

15,000

Capital stock

35,000

43,500 Land

4,000

4,000

Retailed earnings

15,000

19,500 Building

20,000

16,000

Equipments

15,000

17,000

Accumulated
Dep.

(5,000)

(2,800)

1,000

900

Patents
1,00,00
0

1,15,20
0

1,00,00 1,15,20
0
0

Additional information : Income for the period was Rs.10000


A building that costs Rs.4000 and which had a book value of
Rs.1000 was sold for Rs.1400.
The depreciation charge for the period was Rs.800.
There was an issue of Rs.5000 issue on common stock.
Cash dividends of Rs.2000 and stock dividend of Rs.3500 were
paid.
(increase 13100)
Prob.12.
year.

Liabilities
Equity capital

Janpriya Trading Co. submitted following Balance Sheet for the

2007
3,00,00
0

Pref. Share capital

2,00,00
0

Debentures

1,00,00

2008

Asset

2007

2008

5,10,00

6,20,00

30,000

80,000

3,50,00 Fixed assets after


0
1,00,00 depreciation
0
2,00,00 Investment

10

0
Reserve and
surplus

1,10,00
0

Bad debt reserve

10,000

0
2,70,00 Stock

1,80,00

2,00,00

60,000

1,60,00

0
15,000 Debtors

0
Creditors

40,000

90,000 Cash

Bills payable

25,000

50,000 Discount on

5,000

5,000 debentures

Tax provisions

----

15,000

10,000

5,000

7,90,00

10,80,0

7,90,00

10,80,0

00

00

Adjustments :

Machine costing of Rs.70,000 sold out for Rs.25,000 on this


machine accumulated depreciation was Rs.30,000.

Redemption of preferential shares made on a premium of 5%.

Dividend paid 13% on equity shares for the year 2007.

On 31/12/2007 accumulated depreciation on assets was


Rs.1,50,000 and on 31/12/2008 the accumulated depreciation
was Rs.1,90,000.

On 31/12/2007 stock valued on Rs.1,80,000 but at the time of


preparing the P&L A/c of year 2008 stock shown on its original
cost Rs.1,90,000.

Prepare fund flow statement.


(Increase 15,000)

11

CASH FLOW STATEMENT


The Balance Sheets of a firm as on 31st December, 2003 and 2004 are
given below:
Liability
2003
2004 Asset
2003
2004
1,60,00 Fixed assets At
1,52,00 2,00,00
Share capital
1,00,000
0 cost
0
0
Retained earnings
70,250
85,300 Inventory
93,400 89,200
Q.1

Accumulated
Depreciation

60,000

12% Debentures

50,000

Sundry creditors

28,000
3,08,250

40,000 Debtors
Prepaid
Expenses
48,000 Bank
3,33,30
0
--

30,800

21,100

3,950

3,000

28,100 20,000
3,08,25 3,33,30
0
0

Additional information :
(i)
Net Profit Rs.27050.
(ii)
Depreciation charged Rs.10000
(iii) Cash dividend declared during the period Rs.12000.
(iv) An addition to the building was made during the year at a cost of
Rs.78000 and fully depreciated equipment costing Rs.30000 was
discarded as no salvage being realized.
Prepare a cash flow statement.
Q.2 The comparative balance sheets of a company are given below:
Liabilities
200 2004
Assets
2003
2004
3
Share capital
35,0 37,00 Cash
4,500
3,900
00
0
Debentures
6,00 3,000 Book
7,450
8,850
0
debts
Creditors
5,18 5,920 Stocks
24,600 21,350
0
Provision for doubtful
350
400 Land
10,000 15,000
debts

Profit and loss

5,02 5,280 Goodwill


0
51,5 51,60
50
0

5,000

2,500

51,550

51,600

Additional informations :
(i)
Dividends paid amounted to Rs.1750.
(ii)
Land was purchased for Rs.5000 and amount provided for the
amortization of goodwill amounted to Rs.2500.
(iii) Debentures were repaid to the extent of Rs.3000.
You are required to prepare a cash flow statement.
Q.3 From the following particulars prepare cash flow and fund flow
statement of Kumar.
12

1st Jan. 2004


Rs.

31st Dec.
2004
Rs.
Cash
5,000
4,000
Debtors
40,000
45,000
Stock
30,000
25,000
Land
30,000
40,000
Buildings
50,000
55,000
Machinery
70,000
80,000
2,25,000
2,49,000
Current liabilities :
35,000
40,000
Loan from Shankar
-25,000
Bank loan
40,000
30,000
Capital
1,50,000
1,54,000
2,25,000
2,49,000
During the year, Kumar brought an additional capital of Rs.10000 and
his drawings during the year were Rs.31000. provision for depreciation on
machinery: opening balance Rs.30000 and closing balance Rs.40000. No
depreciation need be provided for other assets.
Balance sheets of Ram and Shyam as on 1st January 2004 and 31st
December 2004 were as follows:
1.1.200 31.12.20
4
04
Assets :
Cash
10,000
7,000
Debtors
30,000
50,000
Stock
35,000
25,000
Machinery
80,000
55,000
Land
40,000
50,000
Buildings
35,000
60,000
2,30,00 2,47,000
0
Liabilities :
Creditors
40,000
44,000
Mrs. Rams Loan
25,000
-Loan from parry
40,000
50,000
Capital
1,25,00 1,53,000
0
2,30,00 2,47,000
0
During the year a machine costing Rs.10,000 (accumulated
depreciation Rs.3000) was add for Rs.5000. The balance of provision for
depreciation against machinery as on 1st January 2004 was Rs.25000 and on
31st December 2004 Rs.40000. Net Profit for the year 2004 amounted to
Rs.45000.Prepare cash flow statement.
Q.4

13

A company finds on 1st January 2004 that it is short of funds with which
to implement its programme of expansion. On 1st January 2003 it had a
credit balance of Rs.180000. From the following information, prepare a
statement of cash for the board of directors to show how the overdraft
of Rs.68750 as at 31st December 2003 has arisen.
Figures as per Balance sheet as at 31st December.
2003
2004
Fixed assets
7,50,000 11,20,000
Stocks & stores
1,90,000
3,30,000
Debtors
3,80,000
3,35,000
Bank
1,80,000(c 68,750(O/
r.)
D)
Trade creditors
2,70,000
3,50,000
Share capital (Rs.10 each)
2,50,000
3,00,000
Bills receivable
87,500
95000
st
The profit for the year ended 31 December 2004 before charging
depreciation and taxation amounted to Rs.240000.
5000 shares were issued on 1st January 2004 at a premium of Rs.5 per
share. Rs.137500 were paid in March 2004 by way of Income tax.
Dividend was paid as follows :
2003 (final) on the capital on 31 st December 2003 at 10% less tax at 25%.
2004 (interim) 5% free of tax.
Q.6 The financial position of M/s SY on 1 st January and 31st December 2004
was as follows :
Liabilities
1st Jan.
31st
Assets
1st Jan.
31st Dec.
Dec.
Current liabilities
3,600
40,600 Cash
4,000
3,600
Mrs. As loan
-20,000 Debtors
35,000
38,000
Long from bank
30,000
25,000 Stock
25,000
22,000
Hire purchase
-20,000 Land
20,000
30,000
vendor
Capital
1,48,00 1,54,00 Buildings
50,000
55,000
0
0
Machinery
80,000
86,000
Delivery
-25,000
Van
2,14,00 2,59,60
2,14,00 2,59,600
0
0
0
The delivery van was purchased in December 2004 on Hire purchase
basis : a payment of Rs.5000 was made immediately and the balance of the
amount is to be paid in 20 monthly installments of Rs.1000 each together
with interest @12% p.a. During the year the partners withdrew Rs.26000 for
domestic expenditure. The provision for depreciation against machinery as
on 1st January 2004 was Rs.27000 and on 31st December 2004 Rs.36000.
You are required to prepare the cash flow statement and fund flow
Q.5

14

statement.

15