STATEMENT OF CHANGE

IN FINANCIAL POSITION

STATEMENT OF CHANGE IN
FINANCIAL POSITION

Shows the change in financial position of a firm

occasioned by activities undertaken by the firm in
between two successive Balance sheets.
Statement of Change in Financial Position is
basically of two types:
Statement of Change in Financial Position
(Working Capital Basis) known as a Funds
Flow Statement
Statement of Change in Financial Position
(Cash basis) known as a Cash Flow
Statement

Funds Flow Statement

Funds Flow Statement

Studies the change in financial position from one

Balance sheet to the subsequent Balance sheet
in terms of the change in the funds or the
working capital position of the firm.

Indicates various means by which the funds

have been obtained during a certain period and
the ways to which these funds have been used
during that period.

 The term

Fund here means Working

Capital i.e. excess of current asset over

current liabilities.

Procedure of preparation

The preparation of Funds Flow Statement

consist of two parts:
Statement or Schedule of Change in
Working Capital
Statement of Sources and Applications of
Funds

Statement or Schedule of
Change in Working Capital

The statement is prepared with the help of current assets

and current liabilities derived from the two Balance sheets.

Working Capital = Current Assets - Current Liabilities

An
An
An
An

increase in Current Assets, increases Working Capital

decrease in Current Assets , decrease Working Capital
increase in Current Liabilities, decrease Working Capital
decrease in Current Liabilities, increases Working Capital

Statement or Schedule of Change in Working Capital

Particulars

Previous
Year

Current Assets:

Cash in hand

Cash at bank

Bills receivables

Sundry debtors

Marketable securities

Stock/Inventories

Prepaid Expenses

Accrued Incomes
(A) Total Current Assets
Current Liabilities:

Bills Payable

Sundry Creditors

Outstanding Expenses

Bank Overdraft

Short term loans and advances

Dividend payable

Proposed Dividends*

Provision for taxation*

(B) Total Current Liabilities
Working Capital (A)- (B)
Net Increase or Decrease in
Working Capital

* may or may not be a current liability.

Current Year

Effect on Working Capital

Increase

Decrease

From the following balance sheet

prepare the schedule of change in
working capital
Balance Sheet

Liabilities and Capital

31.12.2008 31.12.2009 Assets

Equity share capital

100000

Preference Share capital

120000

120000Land

31.12.2008 31.12.2009
44000

68000

180000

180000

10000

6250

P&L A/c

25000

75000Machinery
Long term
55000 Investments

Mortgaged Loan

50000

40000Goodwill

13000

13000

Debentures

20000

25000Stock

30000

28000

Bills Payable

1500

19000

20000

Liabilities for tax

3220

29000

9000

70

300

3000

2000

328070

326550

Accrued Expenses
Trade creditors

350
8000
328070

900Trade debtors
5170Cash
160Prepaid Expenses
5320Bilss receivable
326550

Statement of Sources and

Applications of Funds

Indicates various means by which the funds have

been obtained during a certain period and the
ways to which these funds have been used during
that period.

This statement can be prepared in two formats:

T form or Account or Self Balancing Type

Report Form

T form or Account or Self Balancing Type

Funds Flow Statement
(For the year ended..)
Sources

Funds from
Operations
Issue of Share capital
Issues of Debentures
Raising of long-term
loans
Receipts from partly
paid up shares, called
up
Sale of fixed assets
Non-trading receipts
such as dividends
Sale of long-term
Investments
Net decrease in
Working Capital

Amount
(Rs.)

Applications

Funds lost in
Operations
Redemption of
Preference share
capital redemption of
Debentures
Repayment of long
term loans
Purchase of fixed
assets
Purchase of long-term
Investments
Non-trading payments
Payment of Dividends*
Payment of tax*
Net decrease in
Working Capital

Amount
(Rs.)

Funds from Operations

Refers to the funds provided by the

regular activities of the firm. It is equal to

the profit/loss made by the firm from fund
and operating activities i.e. it excludes the
non-operating and non fund expenses and
revenues.

Calculation of Funds from Operations

The first method is to prepare the Income

statement afresh by taking into consideration
only fund and operational items which involve
funds and are related to normal operations of
business.

The second method is to proceed from the

figure of net profit or net loss as arrived at from
the profit and loss account already prepared.

Second method: Calculation of Funds from Operations

Calculation of Funds from Operations
Closing Balance of P & L A/c or Retained Earnings (as given in the Balance Sheet)
Add: Non-fund operating items which have been already debited to
P & L A/c:

Depreciation and Depletion

Amortization of fictitious and Intangible assets such as:

Goodwill

Patents

Trade Marks

Preliminary Expenses

Discount on Issue of shares, etc.

Appropriation of Retained Earnings such as:

Transfer to General Reserve

Dividend Equalization Fund

Transfer to sinking Fund

Contingency Reserves, etc.

Loss on sale of fixed assets such as:

Loss on sale of land and building

Loss on sale of machinery

Loss on sale of furniture

Loss on sale of long-term investments, etc.

Dividends including:

Interim Dividend

Proposed Dividends (if it is not taken as current liability)

Provision for taxation (if it is not taken as current liability)
Any other non-fund/non-operating items which have been debited to P &
L A/c.
Total (A)

Amount (Rs.)

Less: Non-fund operating items which have been already credited to

P & L A/c:
Profit or gain from sale of fixed assets such as:
Profit on sale of land and building
Profit on sale of machinery
Profit on sale of furniture
Profit on sale of long-term investments, etc.
Appreciation in the value of fixed assets, such as increase in the value
of land if it has been credited to P & L A/c
Dividends received
Excess provision retransferred to P & L A/c or written off
Any other non-fund/non-operating items which have been credited to
P & L A/c.
Opening Balance of P & L A/c or Retained Earnings (as given in the
Balance Sheet)
Total (B)

Total (A) - Total (B) = Funds generated by Operations

Following are the extracts from the balance sheet of the

company as on 31st Dec 2009 and 2010. you are required
to calculate Funds from Operations.
2009

2010

Profit and Loss account

30000

40000

General Reserve

20000

25000

Goodwill

10000

5000

Preliminary Expenses

6000

4000

Provision for Depreciation

10000

12000

T form or Account or Self Balancing Type

Funds Flow Statement
(For the year ended..)
Sources

Funds from
Operations
Issue of Share capital
Issues of Debentures
Raising of long-term
loans
Receipts from partly
paid up shares, called
up
Sale of fixed assets
Non-trading receipts
such as dividends
Sale of long-term
Investments
Net decrease in
Working Capital

Amount
(Rs.)

Applications

Funds lost in
Operations
Redemption of
Preference share
capital redemption of
Debentures
Repayment of long
term loans
Purchase of fixed
assets
Purchase of long-term
Investments
Non-trading payments
Payment of Dividends*
Payment of tax*
Net decrease in
Working Capital

Amount
(Rs.)

The following are the balance sheets of PQR Ltd. For the year 2009
and 2010. Prepare the Funds flow statement for the year 2010.
Balance Sheets (Rs. In Lacs)

Liabilities and 31.12.2009

Capital

31.12.2010 Assets

31.12.2009

31.12.2010

Share capital

300

460

Fixed
assets

630

690

General
reserve

150

180

Long term
investments

130

180

P &L a/c

30

65

Debtors

135

220

Term loan

210

150

Stock

180

220

Creditors

80

100

Bank

15

Bank overdraft

250

300

Short term
investments

25

30

Other liabilities

85

100

1105

1355

1105

1355

Additional capital of 160 lacs was brought during the year and is eligible for dividend
for full year. For 2010, the proposed dividend is Rs. 85 lacs is included in other
liabilities. Depreciation on fixed assets has been provided to the extent of Rs. 90 lacs.

Signification of Funds Flow

Statement

Helps in analysis of financial operations

Helps in formation of a realistic dividend policy

Helps in proper allocation of recourses

Acts as a future guide

Helps in appraising the use of working capital

Helps in knowing the overall credit worthiness of

a firm

Cash Flow Statement

CASH FLOW STATEMENT

Shows the historical changes in
Cash & CE
During a particular period
Operating, Investing & Financing
activities

C.F.S. Benefits
Ability to generate Cash & CE
Needs to utilise cash flows
Assess Liquidity & Solvency
Indicator of future cash flow
Relationship: Profitability & Net Cash

Flow

Cash Flow from Operating Activities-Direct

Cash receipts from

Customers
Cash paid to Suppliers & Employees
Cash generated from Operation
- Income taxes paid
Cash flow before Extra-ordinary items
- Extra-ordinary items
Net cash from Operating Activities

Cash Flow from Operating Activities-Indirect

N.P. before Tax & Extra-ordinary item

Adjustments for:

Op. Profit before W.C. changes

Income Taxes paid

Cash flow before Extra-ordinary item

Changes in S. Drs. & Inventory

Changes in S. Crs.

Cash generated from Operation

Depreciation
Foreign Exchange Loss
Interest & Dividend Income
Interest Expense

Extra-ordinary Items

Net Cash from Operating Activities

Cash Flow from Operating

Activities

Net Profit/Loss before tax and extraordinary items

(+)Depreciation
(+)Provision for contingences-debt/tax/depreciation
(+)Provision for retirement benefits
(+)Loss/(Gain) on sale of fixed assets
(+) Discount on issue of shares/Debentures
(+)Interest paid
(-)Dividend received
(-)Interest received
Operating profit before working capital changes
Adjustments for:
(+) Decrease/(increase) in Current assets
(+)Increase /( decrease) in Current Liabilities
Cash generated from Operations
(-)Direct taxes paid
Cash flow before extraordinary items
(+/-) Extraordinary items

Net cash inflow / (outflow) from Operating Activities

Amount
(Rs.)

From the following income statement,

calculate the cash flow from operations
Particulars
Salaries
Rent
Commissions
Provision for Doubtful debts
Interest
Provision for depreciation
Provision for tax
Loss on sales of vehicle
Discount on issue of shares
Net Profit

Dr.
(Rs.)
50000
30000
5000
20000
20000
30000
40000
10000
5000
40000
250000

Particulars
Gross profit
Profit on sale of
machinery
Dividend received

Cr. (Rs.)
225000
5000
20000

250000

Cash Flow from Investing Activities

Purchase of Fixed Assets
Sale of F.A.
Purchase of other Investments
Sale of other Investments
Interest Received
Dividend Received
Net cash from

(used in) Investing Activities

Cash Flow from Financing Activities

Proceeds from

issue of Share Capital

Proceeds from Long-term Borrowings
Repayments of Long-term Borrowing
Interest Paid
Dividend Paid
Net Cash from (used in) Financing Activities

Dividend Paid
Opening balance of P &L a/c
Add: Net profit
Less: Closing balance of P &L a/c
Dividend paid

CASH FLOW STATEMENT

Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash increase (decrease) in cash & CE
Cash & CE at beginning of the period
Cash & CE at the end of the period.

From the following summarized Balance Sheets of ABC Ltd. For 2009 and 2010 and
the Income statement of 2010. you are required to prepare the Cash Flow statement.
Liabilities
Amount Amount
Assets
Amount Amount
(Rs. )
(Rs. )
(Rs. )
(Rs. )
Equity Share
Capital

14000

24000

P &L a/c

7000

9600

Debenture

20000

20000

Trade
creditors

14000

12000

55000

Fixed assets
Less: Dep

20000
4000

24000
8000

16000

16000

Cash

16000

20000

Stock

14000

16000

Trade debtors

7000

12000

Discount on
debentures

2000

1600

55000

65600

65600
Income Statement-2010

Revenue:
Less: Cost of goods sold Rs. 48000
Depreciation
4000
Interest
6000
Other Expenses
22000
Net Profit

Rs.84000

80000
4000

From the following Balance Sheet of Samrat Construction Ltd. as on March 31,
2009 and March 31, 2010, Prepare a cash flow statement
Liabilities

Amount
(Rs. )

Amount
(Rs. )

Assets

Amount
(Rs. )

Amount
(Rs. )

Equity Share
Capital

200000

200000

Land and
Building
Machinery

140000

170000

214000
354000
54000

244000
414000
72000

300000

342000

Stock

50000

44000

Trade debtors

70000

76800

Cash

8000

7200

428000

470000

Less: Dep
Reserves

96000

98000

Debenture

60000

90000

Trade
creditors

72000

82000

428000

470000

Dividend paid during the year is Rs.60000