Fund flow statement

• FFS is a statement in summary form that indicates

the changes in the items of financial position
between two balance sheet dates showing clearly
the sources and application of funds.
• The fund flow statement involves the preparation
of three statements
– Statement or schedule of changes in working capital
– P&L Appropriation account
– Sources and uses of fund statements
• Schedule of Changes in Working Capital
• The ultimate purpose of preparing the
schedule of changes in the working capital is
to illustrates the changes in the volume of net
working capital which envisages either sources
or application of fund.
Rules for preparing the statement of changes
in working capital
Statement of changes in working capital
 Fund flow statement
Particulars Rs Particulars Rs

Sources of funds : Application of funds:

Issue of shares Redemption of preference
Issue of debentures shares
Long term borrowings Redemption of shares
sale of fixed assets Redemption of debentures
Operating profit/fund from Payment of long term loans
operation * Purchase of fixed assets
Decrease in working capital* Operating loss/fund lost on
operations*
Increase in working capital*
-------- --------------
xxxxxx -
* Only one figure will be there Xxxxxxxxx
 Adjustment of some typical items
• Treatment of tax and dividend:-
• It is preferable to treat them as non current
items if nothing is specified
• If tax payable or ‘dividend payable’ is given on
the balance sheet liabilities side, it is to be
taken as current liabilities. Provision for tax and
proposed dividend are non current. Once tax is
assessed or dividend is declared, it becomes a
liability to be paid off immediately.
 Tax and dividend in different ways
• If provision for tax and dividend are given in
the adjustments alone and nothing is given in
the balance sheets, the given amount is
debited to the adjusted P&L a/c. it is also
shown as application of funds flow statement.
It is presumed that provision is made and
payment also is made immediately
• If provision for tax and proposed dividend are
given in the balance sheet alone and nothing
is mentioned in the adjustments, the opening
balance of these items can be assumed to
have been paid in cash during the current
year. The opening balance are shown as
application of funds. The closing balances are
debited to the adjusted profit and loss a/c as
provision made during the year
• If provision for tax and proposed dividend are
given in the balance sheet as well as in
adjustments, it is necessary to prepare
separate ledger accounts for them. From those
accounts, the tax and dividend paid are shown
as application as application of funds. The
provisions made are shown in the debit side of
adjusted P/L a/c.