UNIT – III FUND FLOW STATEMENT DEPARTMENT OF MANAGEMENT STUDIES UNIT – III FUND FLOW STATEMENT 7/20/2018 Dr. G. MAHESWARAN/AP 1/21

AND LIMITATIONS OF FUND FLOW STATEMENT.  WHAT IS FUND FLOW? DIAGRAM OF FUND FLOW USES AND LIMITATIONS OF FUND FLOW STATEMENT. OBJECTIVES OF FUND FLOW STATEMENT. DIFFERENCE BETWEEN FUND FLOW AND CASH FLOW STATEMENT PREPARATION OF FUND FLOW STATEMENT. CONCLUSION. BIBLIOGRAPHY.   Dr. G. MAHESWARAN/AP 2/21 7/20/2018

IN NARROW SENSE,IT MEANS CASH ONLY AND A  IN NARROW SENSE,IT MEANS CASH ONLY AND A FUNDS FLOW STATEMENT PREPARED ON THIS BASIS IS CALLED A CASH FLOW STATEMENT.SUCH A STATEMENT ENUMERATES NET EFFECTS OF THE VARIOUS TRANSCATIONS ON CASH AND TAKES INTO ACCOUNT RECIPTS AND DISBURSEMENT OF CASH.  IN A BROADER SENSE, THE TERM ‘FUNDS’ REFERS TO MONEY VALUES IN WHATEVER FORM IT MAY EXSIST. MEANS ALL FINANCIAL RESOURCES USED IN BUSINESS WHETHER IN THE FORM OF MEN,MATERIAL ,MONEY,MACHINERY,METHODES ETC. IN A POPULAR SENSE THE TERM ‘FUNDS’ MEANS  WORKING CAPITAL WHICH IS THE EXCESS OF CURRENT ASSETS OVER CURRENT LIABILITIES Dr. G. MAHESWARAN/AP 3/21 7/20/2018

TRANSFER OF ECONOMIC VALUES FROM ONE ASSET OF EQUITY TO ANOTHER.  TRANSFER OF ECONOMIC VALUES FROM ONE ASSET OF EQUITY TO ANOTHER. MOVEMENT OF FUNDS IN WORKING CAPITALS IT TAKES PLACE WHEN ANY TRANSACTION MAKES CHANGES IN THE AMOUNT OF FUNDS AVAILABLE BEFORE HAPPENING OF THE TRANSACTION. IF THERE IS INCREASE OF FUNDS,IT IS SOURCE OF FUNDS IF THERE IS A DECREASE OF FUNDS,IT IS AN APPLICATION OF FUNDS    INCREASES DECREASE SOURCE OR INFLOW APPLICATION OR OUT FLOW 4/21 7/20/2018 Dr. G. MAHESWARAN/AP

USES: BUSINESS. PROFITS. AS AN INSTUMENT FOR ALLOCATION  EXPLAINS THE FINANCIAL CONSEQUENSES OF BUSINESS.  DEBT CAPITAL IS ESSENTIAL FOR INCREASED PROFITS.  ACTS AS AN INSTUMENT FOR ALLOCATION OF COMPANY’S RESOURCES.  TEST FOR EVALUATING USE OF WORKING CAPITAL BY THE MANAGEMENT INFORMATION. 5/21 7/20/2018 Dr. G. MAHESWARAN/AP

 IGNORES NON – FUND ITEMS.  DOES NOT REVEAL SHIFTS ITEMS MAIKING UP THE CURRENT ASSETS AND CURRENT LIABILITIES.  IT IS HISTORICAL IN NATURE. 6/21 7/20/2018 Dr. G. MAHESWARAN/AP

CHANGES THAT HAS TAKEN PLACE, DURING A SPECIFIC PERIOD.  TO INDICATE THE RESULTS FINANCIAL MANAGEMENT. OF CURRENT  TO LAY EMPHASIS ON THE MOST SIGNIFICANT CHANGES THAT HAS TAKEN PLACE, DURING A SPECIFIC PERIOD.  TO SHOW HOW GENERAL EXPANSION IN THE BUSINESS HAS BEEN FINANCED OR TO DESCRIBED THE SOURCES FROM WHICH ADDITIONAL FUNDS WERE DERIVED. 7/21 7/20/2018 Dr. G. MAHESWARAN/AP

BETWEEN PROFIT FROM OPERATIONS, DISTRIBUTION OF DIVIDEND AND RISING OF  TO ESTABLISHED THE RELATIONASHIP BETWEEN PROFIT FROM OPERATIONS, DISTRIBUTION OF DIVIDEND AND RISING OF CAPITAL OR CONTRATING OF LOANS.  TO GIVE RECOGNITION TO THE FACT THAT A BUSINESS EXISTS IN THE FLOW OF FUNDS AND IS NOT STATIC ORGANISATION. 8/21 7/20/2018 Dr. G. MAHESWARAN/AP

FUND FLOW STATEMENT CASH FLOW STATEMENT NECESSARY. 1. IT IS BASED ON THE CONCEPT OF WORKING CAPITAL.. 2. IT REVEALS CHANGES IN WORKING CAPITAL POSITION BETWEEN TWO BALANCE SHEET DATES. 3.CLASSIFICATION OF ASSETS AND LIABILITIES INTO CURRENT AND NON – CURRENT CATEGORIES IS ESSENTIAL. 4. THESE STATEMENTS MATCH SOURC ES AND APPLICATION OF FUND. 1. IT IS BASED ON THE CONCEPT OF CASH. 2. IT REVEALS CHANGE IN CASH POSITION BETWEEN TWO BALANCE SHEET DATES. 3. NO SUCH CLASSIFICATION NECESSARY. 4. IT COMMENCES WITH OPENING CASH BALANCE AND ENDS WITH CLOSING CASH BALANCE. 9/21 7/20/2018 Dr. G. MAHESWARAN/AP

FUND FLOW STATEMENT CASH FLOW STATEMENT FINANCIAL ANALYSIS. 5. AN IMPROVEMENT IN CASH POSITION RESULTS IN THE IMPROVEMENT IN WORKING CAPITAL. 6. IT IS LONG –TERM TOOL FINANCIAL ANALYSIS. 5. AN INCREASE IN CASH ON HAND DOES NOT RESULT IN INCREASE IN WORKING CAPITAL.. 6. IT IS A SHORT – TERM TOOL OF FINANCIAL ANALSIS. 10/21 7/20/2018 Dr. G. MAHESWARAN/AP

ISSUE OF SALES OF FIXED Long term Operational SHARES ASSETS borrowings profit Funds Redemption of Purchase of Payment or long Payment of pref.shares. fixed assets. term loans. tax/Dividend. 11/21 7/20/2018 Dr. G. MAHESWARAN/AP

INVOLVES TWO STATEMENTS: 1. STATEMENT OR SCHEDULE OF CHANGES IN WORKING CAPITAL 2. SOURCES AND USES OF FUND STATEMENT. 12/21 7/20/2018 Dr. G. MAHESWARAN/AP

1. INCREASE IN CURRENT ASSET, RESULTS  RULES FOR PREPARING THE STATEMENT OF CHANGES IN WORKING CAPITAL: 1. INCREASE IN CURRENT ASSET, RESULTS INCREASE (+) IN WORKING CAPITAL. 2. DECREASE IN CURRENT ASSET, RESULTS DECREASES (-) IN WORKING CAPITAL. IN IN 3. INCREASE IN A CURRENT LIABILITY, RESULTS IN DECREASE (-) 4. DECREASE IN A IN INCREASE (+) IN WORKING CAPITAL. CURRENT LIABILITY, RESULTS 13/21 Dr. G. MAHESWARAN/AP 7/20/2018

RS. INCREASE RS. DECREASE RS. PREVIOUS YEAR RS. CURRENT YEAR EFFECT OF WORKING CHANGE ON CAPITAL INCREASE RS. DECREASE RS. CURRENT ASSETS CASH BANK B/R DEBTORSSTOCK PREPAID EXPENSES TOTAL (a) CURRENT LIABILITIES OUTSTANDING EXP B/P CREDITORS 14/21 Dr. G. MAHESWARAN/AP 7/20/2018

TOTAL (b) WORKING CAPITAL WORKING CAPITAL (a-b) NET INCREASE/DECREASE IN WORKING CAPITAL 15/21 Dr. G. MAHESWARAN/AP 7/20/2018

Eg.: FROM THE FOLL. TWO BALANCE SHEETS ON 31.03.2001 AND 31.03.2002 PREPARE A SCHEDULE OF CHANGES IN WORKING CAPITAL. LIABILITIES 2002 RS. 2001 RS. ASSETS 2002 RS. 2001 RS. SHARE CAPITAL P and L A/C 9% DEBENTURES TRADE CREDITORS OUTSTANDING 3,25000 1,20000 2,00000 98,000 2,000 7,45000 3,00000 1,00000 2,00000 75,000 5,000 6,80000 LAND &, BUILDINGS MACHINERY STOCK – IN TRADE DEBTORS CASH 5,00000 1,00000 1,00,000 30,000 5,000 7,45,000 4,00000 1,60000 80,000 36,000 4,000 6,80000 16/21 Dr. G. MAHESWARAN/AP 7/20/2018

RS. RS. WORKING CASH (a) TOTAL CURRENT ASSET 36,000 4,000 30,000 5,000 2001 RS. 2002 RS. EFFECTS ON CAPITAL WORKING INCREASE (+) RS. DECREASE (-) RS. CURRENT ASSETS: STOCK – IN TRADE DEBTORS CASH (a) TOTAL CURRENT ASSET 80,000 36,000 4,000 1,10,000 30,000 5,000 30,000 1,000 6,000 1,20000 1,45,000 17/21 Dr. G. MAHESWARAN/AP 7/20/2018

-b) 45,000 45,000 34,000 34,000 CURRENT LIABILITIES: TRADE CREDITORS OUTSTANDING (b) TOTAL CURRENT LIABILITIES WORKING CAPITAL (a -b) NET INCREASE IN WORKING CAPITAL 75,000 5,000 98,000 2,000 3,000 23,000 5,000 80,000 1,00,000 40,000 5,000 45,000 45,000 45,000 34,000 34,000 18/21 Dr. G. MAHESWARAN/AP 7/20/2018

SOURCES RS. APPLICATIONS RS. LONG TERM & MIDDLE – TERM LAONS TAKEN ISSUES OF SHARES ISSUES OF DEBENTURES LONG TERM & MIDDLE – TERM LAONS TAKEN SALES OF INVESTMENTS SALES OF FIXED ASSETS TRADING PROFITS NON – TRADING INCOME NET DECREASE IN WORKING CAPITAL, AS PER SCHEDULE OF REDEMPTION OF SHARES REDEMPTION OF DEBENTURES REPAYMENT OF LOANS PURCHASE OF INVESTMENTS PURCHASE OF FIXED ASSETS PAYMENT OF DIVIDENDS (LAST YEAR AND INTERIM) FUNDS LOST FROM OPERATIONS NON – TRADING PYMENTS NET INCREASE IN WORKING CAPITAL AS PER SCHEDULE OF CHANGES IN WORKING 19/21 Dr. G. MAHESWARAN/AP CHANGES IN WORKING CAPITAL

organization. It can really determine how the business should be Fund flow statement is very important for every organization. It can really determine how the business should be carried on in the future. we can proper utilize the budget of the company and the strategy to cope the financial problems of the company through the preparation of the fund flow statement. As we know the aim of fund flow statement is to know the working capital of the company whether it increases or decreases during a given period of time. So it in is a main tool to make a organization to survive the future. 20/21 Dr. G. MAHESWARAN/AP 7/20/2018

THANK YOU 21/21 Dr. G. MAHESWARAN/AP 7/20/2018