FUNDS FLOW STATEMENTS

Illustration 1:
The following are the Balance Sheets of PQR Ltd. For the years 2011 and 2012. Prepare a Funds Flow Statement for the yea

BALANCE SHEET

Liabilities 31.12.11 31.12.12 Assets

Share Capital 300 460 Fixed Assets
General Reserve 150 180 Investments
Profit & Loss A/c. 30 65 Debtors
Term Loans 210 150 Stock
Sundry Creditors 80 100 Bank Balance
Bank Overdraf 250 300 Other Advances
Other Liabilities 85 100
Total 1105 1355

Additional Information:
1 Additional Capital of Rs. 160 lacs was brought in during the year and is eligible for dividend for the full year. For 2012, t
proposed dividend of Rs. 85 lacs is included in other liabilities.
2 Depreciation on Fixed Assets has been provided to the extent of Rs. 90 lacs.

Solution 1:

FUNDS FLOW STATEMENT

Sources Amount Applications

Funds from Operations 240 Purchase of Fixed Assets (690 - 630 + 90)
Issue of Share Capital 160 Decrease in Term Loan
Investments made
Increase in Working Capital
400

PROFIT & LOSS ADJUSTMENT ACCOUNT

Particulars Amount Particulars

To Proposed Dividend 85 By Balance b/d
To Depreciation 90 By Funds from Operations
To Transfer to General Reserve 30 (Balancing Figure)
To Balance c/d 65
270

SCHEDULE OF CHANGE IN WORKING CAPITAL

31.12.11 31.12.12 Increase in Working Capital

I Current Assets:
Bank 5 15 10
Debtors 135 220 85
 Stock 180 220 40
Others 25 30 5
II Current Liabilities:
Creditors 80 100
Bank Overdraf 250 300
Other Liabilities 85 15 70
Total 210
Net Increase in Working Capital 140

Working Notes:
1 Funds raised by the issue of Share Capital have been used to purchase fixed assets.
2 Funds generated by operations have been used for increasing working capital and repaying the term loan. The balance
been invested in securities.

Illustration 2:
The following are the Balance Sheets of X Ltd. for the years 2011 and 2012. Prepare a Funds Flow Statement for the year 20
BALANCE SHEETS

Liabilities 31.12.11 31.12.12 Assets

Share Capital 200 320 Goodwill
8% Preference Shares 100 40 Land & Building
General Reserve 40 70 Plant & Machinery
Profit & Loss A/c. 30 48 Debtors
Debentures 150 140 Stock
Sundry Creditors 55 83 Bank Balance
Bills Payable 20 16 Bills Receivable
Proposed Dividend 42 50 Preliminary expenses
Provision for Tax 40 50
Total 677 817

Additional Information:
1 An Interim Dividend of Rs. 20,000 has been paid in 6 A part of plant was sold for Rs. 20,000 (W.D.V Rs. 25,0
2012. Depreciation on plant Rs 20,000 for the current year
2 Rs. 35,000 income - tax was paid during the year. has been provided.
3 Final Dividend of Rs. 28,000 was paid during the year 7 The company depreciates Land & Building by Rs. 10,00
2012. Land costing Rs.20,000 was sold for Rs. 50,000.
4 During the year assets of another company were 8 Equity shares of Rs.10,000 were issued as bonus share
purchased for a consideration of Rs. 50,000 payable in 9 Rs. 10,000, 10% debentures were redeemed by
shares. The assets purchased were stock Rs. 20,000 purchase in the open market @ Rs.95.
and Machinery Rs. 25,000. 10 The company also made a right issue of equity shares
5 Rs. 60,000, 8% Preference Share Capital was redeemed during the years.
at a premium of 5%.

Solution 2:
FUNDS FLOW STATEMENT

Sources Amount Applications

Funds from Operations 196,500 Purchase of Plant
 Right Issue 60,000 Redemption of Debentures
Sale of Plant 20,000 Interim Dividend paid
Sale of Land 50,000 Tax paid
Final Dividend
Redemption of Pref. Share Cap.
Increase in working capital
326,500

PROFIT & LOSS ADJUSTMENT ACCOUNT

Particulars Amount Particulars

To Preliminary Expenses 5,000 By Balance b/d.
To Depreciation on Plant 20,000 By Profit on sale of Land & Building
To Depreciation on Land & Building 10,000 By Profit on Red. of Debentures
To Loss on sale of Plant 5,000 By Funds from Operations
To Goodwill written of 25,000 (Balancing Figure)
To Prem. Paid on preference shares 3,000
To Trf. To General Reserve 40,000
To Provision for Tax 45,000
To Preference Dividend 36,000
To Interim Dividend 20,000
To Balance c/d. 48,000
257,000

SCHEDULE OF CHANGE IN WORKING CAPITAL

31.12.11 31.12.12 Increase in Working Capital

Current Assets:
Bank 25 18
Debtors 150 250 100
Stock 87 39
Bills Receivable 20 30 10
Current Liabilities:
Creditors 55 83
Bills Payable 20 16 4
Total 114
Net Increase in Working Capital 31

Working Notes:
1 The purchase of business for Rs. 50,000 Share Capital 2 The amount of Goodwill written of during the year is
does not involve any fund and it does not appear in the Rs.25,000 i.e (1,00,000 + 5,000 - 80,000).
FFS. The Assets acquired are Rs.45,000 (25,000 + 20,000) 3 Proposed Dividend and final dividend paid are assume
So, balance 5,000 has been paid for Goodwill. Stock to be inclusive of Pref. dividend.
acquired (Rs. 20,000) has been adjusted in the Schedule
of Working Capital.
TS

nds Flow Statement for the year 2012.

(Rs. In Lacs)
31.12.11 31.12.12
630 690
130 180
135 220
180 220
5 15
25 30

1105 1355

end for the full year. For 2012, the

(Rs. In Lacs)
ations Amount
s (690 - 630 + 90) 150
60
50
pital 140
400

(Rs. In Lacs)
culars Amount
30
ons 240

270

AL
(Rs. In Lacs)
Decrease in Working Capital
 20
50

70

ing the term loan. The balance has

Flow Statement for the year 2012.

(Rs. In '000)
31.12.11 31.12.12
100 80
200 170
80 200
150 250
87 59
25 18
20 30
15 10

677 817

for Rs. 20,000 (W.D.V Rs. 25,000).

s 20,000 for the current year

es Land & Building by Rs. 10,000.

was sold for Rs. 50,000.
000 were issued as bonus shares.
ures were redeemed by
market @ Rs.95.
e a right issue of equity shares

Amount
140,000
 9,500
20,000
35,000
28,000
63,000
31,000
326,500

Amount
30,000
30,000
500
196,500

257,000

AL
(Rs. In '000)
Decrease in Working Capital

48

28

83

ll written of during the year is

+ 5,000 - 80,000).
final dividend paid are assumed
 CASH FLOW STATEMENTS
Illustration 1:
From the following summarised Balance Sheets of ABC Ltd. As at 31st Dec 2011 and 2012, and the Income statement for th
year 2012, you are required to prepare Cash Flow Statement. All working should form part of your answer.

Liabilities 2011 2012

Equity Share Capital 14,000 24,000
Profit & Loss A/c. 7,000 9,600
Debentures 20,000 20,000
Trade Creditors 14,000 12,000

Total 55,000 65,600

INCOME STATEMENT FOR THE YEAR 2012

Revenue 84,000 1
Less: Cost of Goods sold 48,000
Depreciation 4,000 +
Interest 6,000
Other Expenses 22,000 80,000 -
4,000

Solution 1: 2

CASH FLOW STATEMENT

A. Cash from Operating Activities:
Net Profit 4,000
Add: Depreciation 4,000
Discount on Debentures (2000-1600) 400
Interest 6,000 10,400
Operating Profit 14,400
Less: Increase in Debtors 5,000
Increase in Stock 2,000
Decrease in Creditors 2,000 9,000
5,400
B. Cash from Investment Activities:
Purchase of Fixed Assets (24000-20000) -4,000

C. Cash from Financing Activities:

Issue of Share Capital 10,000
Interest paid -6,000
Dividend paid (W.No 1) -1,400 2,600
Increase in Cash 4,000
Cash in the Beginning 16,000
Cash Balance at the end 20,000

Illustration 2:
The following are the Balance Sheets of Swaraj Ltd. For the year 2011 and 2012. Prepare a Cash Flow Statement for the yea
Liabilities 31.12.11 31.12.12
Share Capital 100,000 200,000
General Reserve 63,250 68,250
Depreciation Fund 50,000 55,000
Debentures 50,000 -
Sundry Creditors 122,750 114,850
Accrued Expenses 9,000 18,000
Provision for Tax 5,000 5,400

Total 400,000 461,500

Additional Information:
1 Sales for the year amounted to Rs. 10,50,000. In arriving
at the Net Profit, items reduced from the sales included
among others: Cost of Goods Sold Rs. 8,25,000;
Depreciation on Plant Rs. 25,000; Wages and Salaries Rs.
1,00,000; and a Profit of Rs. 5,000 on Sale of a Plant.
The machinery was sold for Rs. 15,000 and had a cost of
Rs. 30,000 (accumulated depreciation of Rs. 20,000).
2 The Company declared and paid dividends of Rs. 30,000.
3 Debentures were redemmed for 49,000.

Solution 2:
CASH FLOW STATEMENT
for the year ending 31.12.2012
A. Cash from Operating Activities:
Increase in Net Profit (68250 - 63250) 5,000
Add: Depreciation (W.No 2) 25,000
Goodwill written of (15000-10000) 5,000
Dividend paid 30,000
Tax Provision (W.No.3) 5,400 65,400
70,400
Less: Profit from sale of Assets 5,000
Profit on Redemption of Debs.(50000-49000) 1,000 6,000
Operating Profit 64,400
Less: Increase in Debtors 5,000
Increase in prepaid Insurance 500
Decrease in Creditors 7,900 13,400
51,000
Add: Increase in Accrued Exp. 9,000
Decrease in stock 48,000 57,000
Cash Before Tax 108,000
Less: Tax paid during the year 5,000
103,000
B. Cash from Investment Activities:
Purchase of Machine (W.No 1) -120,000
Purchase of Land & Building -20,000
 Sale of Assets (W.No 1) 15,000 -125,000

C. Cash from Financing Activities:

Issue of Share Capital 100,000
Redemption of Debentures -49,000
Dividend paid -30,000 21,000
Decrease in Cash 1,000
Cash in the Beginning 29,000
Cash Balance at the end 28,000

Illustration 3:
The comparative Balance Sheet of XYZ Company are given below:
Liabilities 2011 2012
Share Capital 500 500
Reserves and Surplus 425 500
Long-Term Debt 300 330
Short Term Bank Borrowing 200 225
Trade Creditors 100 95
Provisions 75 80

Total 1,600 1,730

The Income Statement of XYZ Company for the year 2012 is give below:
(Rs. In lac)
Net Sales 2,040
Cost of goods sold :
Stock 1,010
Wages and Salaries 210
Other Manufacturing Expenses 140 1,360
Gross profit 680
Operating Expenses :
Depreciation 110
Selling,Administration and General 230 340

Prepare a Cash Flow Statement

Solution 3:
CASH FLOW STATEMENT
for the year ending 31.12.2012
(Rs. In lac)
A. Cash from Operating Activities :
Profit before Tax etc. 295
Add: Depreciation 110
Interest 70
Less: Non-Operating Surplus -25
Operating Profit 450
Less: Increase in Stock -10
Decrease in Creditor -5
Add: Increase in Provisions 5
Decrease in other current asset 5
Decrease in Debtor 30
Increase in short term borrowings 25
Cash before Tax 500
Less: Tax paid during a year -130
Cash from Operating Activities 370 370
B. Cash from Investment Activities:
Purchase of Fixed Assets -260
Non-Operating Surplus 25 -235
C. Cash from Financing Activities:
Issue of long term 30
Interest paid -70
Dividend paid -90 -130
Increase in cash 5
Cash in the beginning 30
Cash balance at the end 35

Working Notes :
1 Since the amount of tax paid during the year is not given,
therefore the amount of tax provided (Rs.130 lacs) has been
presumed to be paid during the year.

2 Non-operating surplus has been assumed to be earned on

short term investment activities.

3 The cash from operating activities can be calculated by

Direct Method also as follows:

Cash from customers: (Rs. In lacs)

Sales Accured 2,040
Add: Opening Debtors 360
Opening other current assets 20
Less: Closing Debtors (330)
Closing other current assets (15) 2075

Cash paid to suppliers, etc.:

Cost od goods sold 1,360
Add: Opening Creditor 100
Opening Short term Borrowing 200
Opening Provision 75
Opening Stock 350
Less: Closing Creditor (95)
Closing Short Term Borrowing (225)
Closing Provision (80)
Opening stock (340)
1,345
Selling Expenses 230 1575
Cash generated from Operations 500
Less: Tax paid (130)
Cash from Operating Activities 370

Illustration 4:

The balance sheet of Hari Ltd. as on Dec 31, 2011 and 2012 are given below:
Liabilities 31.12.11 31.12.12
Share Capital 600,000 800,000
Capital Reserve _ 20,000
General Reserve 340,000 400,000
Profit and Loss A/c 120,000 150,000
Debentures 400,000 280,000
Current Liabilities 240,000 260,000
Proposed Dividend 60,000 72,000
Provision for Tax 180,000 170,000
Unpaid Dividend _ 8,000
Total 1,940,000 2,160,000

Additional Information : 4
During the year 2012, the Company:
1 Sold one machine for Rs.50,000, the cost of which was 5
Rs. 1,00,000 and the Deprication provided on it was
Rs. 40,000.

2 Provided Rs. 1,80,000 as deprication.

3 Sold some investment at a profit of Rs. 20,000, which was 6

credited to Capital Reserve.

Prepare a Cash Flow Statement.

Solution 4:
CASH FLOW STATEMENT
for the year ending 31.12.2012
Amount Amount
A. Cash from Operating Activities:
Increase in P&L A/c 18,000
Increase in General Reserve 60,000
Add: Depreciation 180,000
Provision for Tax 170,000
Loss on Sale of Machine 10,000
Prem. On Red. of Deb 6,000 (120000*5%)
Proposed Dividend 72,000 (C.Yr Provision)
Preliminary Exp. Written of 20,000
Lose on sale of Fixed Assets 8,000
Operating Profit 544,000
Less: Increase in current assets (88,000)
Add: Increase in Creditors 20,000
 Cash before Tax 476,000
Less: Tax paid during the year (180,000)
Cash from Operating Activities 296,000 296,000

B. Cash from Investment Activities:

Purchase of Fixed Assests (428,000)
Sale of Investment 60,000
Sale of Fixed Assets 50,000 (318,000)

C. Cash from Financing Activities:

Issue of Share Capital 200,000
Redemption of Deb. (126,000)
Dividend paid (52,000) 22,000
Increase/Decrease in cash 0

Working Notes :
1 Since there is no opening or closing cash balance given in
the question, there is therefore, no change in cash balance
during the year. The current assests of Rs.5,60,000 and
Rs. 6,60,000 have been considered as other current assets.

2 The opening bLnce of profit and loss account have been taken
at Rs. 1,32,000(i.e 1,20,000+12,000 profit on revaluation of
opening stock).

3 The opening balance of current assets have been taken at

Rs. 5,72,000(i.e 5,60,000+12,000 profit on revaluation of
opening stock).

4 Fixed assets written of(cost Rs. 28,000 and accmulated

depreciation Rs.20,000) during the year does not invole any
cash flow. Hence, it is not appearing in the cash flow
statement.

5 The dividend paid during the year are Rs. 52,000

(i.e 60,000 - 8,000).

Illustration 5:

From the following summarized Balance Sheet of a Comapany, as at 31st March, you are required to prepare Cash Flo
All working should form part of your answer.

Liabilities 2011 2012

Equity Share Capital 75,000 120,000
10% Redeemable - -
Pref. Share Capital 100,000 100,000
P&L A/c 100,350 102,700
Reserve for Replacement of
 machinery 15,000 10,000
Long term loss - 40,000
Bank Overdraf 22,000 -
Trade Creditor 84,450 75,550
Proposed dividend 12,000 24,000

Total 408,800 472,250

Additional Information:
1 During the year, additional equity capital was issued to 5
the extent of Rs. 25,000 by the way of bouns shares fully paid
up.
6
2 Final dividend on prefernce shares and an interim dividend of
Rs. 4,000 on equity shares were paid on 31st March,2012.

3 Proposed dividends for the year ended 31st March,2011 were 7

paid in Oct 2011.

4 Movement in Reserve for replacement of Machinery account

represents transfer to profit and loss account. 8

Prepare a Cash Flow Statement.

Solution 5:
CASH FLOW STATEMENT
for the year ending 31.12.2012
Amount Amount
A. Cash from Operating Activities:
Increase in P&L A/c 2,350
Add: Issue of Bouns Share 25,000
Depreciation 13,260
Interim Dividend paid 4,000
Loss on sale of Fixed Assets 950
Prem. On Red. Of Pref. Shares 2,000
Final Dividend on Pref. Shares 8,000
Proposed Dividend on Equity Shares 24,000
Less: Revaluation of Fixed Assets (3,000)
Reserve for replacement (5,000)
Operating Profit 71,560
Less: Increase in stock (6,000)
Decrease in creditors (8,900)
Add: Decrease in debtors 1,300
Cash from Operating Activities: 57,960 57,960

B. Cash from Investment Activities:

Purchase of fixed asset (14,960)
 Purchase of Investments (15,000)
Sale of fixed assets 250 (29,710)

C. Cash from Financing Activities:

Issue of share capital 20,000
Increase in long term loans 40,000
Redemption of pref. share capital (22,000)
Dividend(4000 + 8000 + 12000) (24,000)
Repayment of bank overdraf (22,000) (8,000)
Increase in cash during the year 20,250
Opening balance 11,750
Closing cash balance at the end 32,000

Working Notes:
1 The company has also issued bonus shares of Rs. 25000 by capitalization of profits during the year.

Fixed Assets A/c

Particulars Amount
To balance b/d 240,070
To adjusted P&L A/c 3,000
To sundry debtorsA/c 1,700
To Bank (Purchase) 14,960
259,730

Accumlated Depreciation A/c

Particulars Amount
To fixed assets A/c 4,800
To balance c/d 98,480
103,280
W STATEMENTS
2011 and 2012, and the Income statement for the
hould form part of your answer.

Assets 2011 2012

Fixed Assets at cost 20,000 24,000
Less: Depreciation 4,000 8,000
16,000 16,000
Cash 16,000 20,000
Stock 14,000 16,000
Trade Debtors 7,000 12,000
Discount on Debentures 2,000 1,600
55,000 65,600

Working Notes:
Dividend paid during the year:
Profit & Loss A/c. (Opening Balance) 7,000
Net Profit (current year) 4,000
Total 11,000
Closing Balance 9,600
Therefore, Dividend paid (Balancing Figure) 1,400

Decrease of Rs. 400/- in Discount on Debenture account

is taken as the amount written of during the current
year.

Profit & Loss A/c

By Balance B/Fd. 7,000
To Dividend paid during the 1,400
Year (Balancing Figure) By Profit & Loss A/c 4,000
(Current Years Profit)

To Balance C/Fd. 9,600

11,000 11,000
2012. Prepare a Cash Flow Statement for the year 2012.
Assets 31.12.11 31.12.12
Goodwill 15,000 10,000
Land & Building 20,000 40,000
Plant & Machinery 150,000 240,000
Debtors 75,000 80,000
Stock 108,000 60,000
Bank Balance 29,000 28,000
Prepaid Insurance 3,000 3,500

400,000 461,500

Plant & Machinery A/c.

To Balance B/D 150,000 By Bank 15,000
To Profit & Loss A/c (Profit on 5,000 By Provision for Depreciation 20,000
Sale of Plant & Machinery) (Accumulated Depreciation)

To Bank (Balancing Figure) 120,000

By Balance C/Fd 240,000

275,000 275,000

Depreciation Fund A/c

By Balance B/Fd 50,000
To Sale of Plant & Machinery A/c 20,000

By Plant & Machinery A/c 25,000

(C.Yr Depreciation) (Balancing Fig)

To Balance C/Fd 55,000

75,000 75,000

Provision for Tax A/c

By Balance B/Fd 5,000
To Bank (Actual Tax Paid) 5,000

By Profit & Loss A/c (Provision 5,400

made for the Current Year)

To Balance C/Fd 5,400

10,400 10,400
 (Rs. In lac)
Assets 2011 2012
Fixed Assets (net) 850 1,000
Inventories 340 350
Debtors 360 330
Cash 30 35
Other Current Assets 20 15

1,600 1,730

Operating Profit 340

Non Operating Profit 25
Profit Before Interest and Tax 365
Interest 70
Profit and Tax 295
Tax 130
Profit afer Tax 165
Dividends 90
Retained Earning 75
 (figure in Rs)
Assets 31.12.11 31.12.12
Fixed Assets 1,600,000 1,900,000
Less: Depreciation 460,000 580,000
1,140,000 1,320,000
Investment 200,000 160,000
Current Assets 560,000 660,000
Preliminary Exp. 40,000 20,000

1,940,000 2,160,000

Redeemed 30% of the Debentures @105.

Decided to value stock at cost, whereas previously the

practise was to value stock at cost less than 10%. The stock
according to books on 31.12.2011 was Rs.1,08,000. The
stock on 31.12.2012 was correctly valued at Rs. 1,50,000,
and

Depreciation to write of fixed assets costing Rs. 28,000 on

which depreciation amounting to Rs. 20,000 has been
provided.

(Stock Undervaluation Rs 12000 due to which Profit has

been Inflated by the same Amount)
30,000
Less:- Undervaluation of Stock -12,000
18,000

Current Assets
Opening Balance 560,000
Add:- Undervaluation of Clg. Stk 12,000
572,000

Closing Balance 660,000

 Addition in Current Assets 88,000

Fixed Assets A/c

To Balance B/D 1,600,000 By Bank 50,000
By Provision for Depreciation 40,000
By Profit & Loss A/c (Loss) 10,000

To Bank (Balancing Figure) 428,000 By Provision for Depreciation 20,000

By Profit & Loss A/c (Loss) 8,000

By Balance C/Fd 1,900,000

2,028,000 2,028,000

31st March, you are required to prepare Cash Flow Statement.

Assets 2011 2012

Fixed Assets at cost 240,070 253,730
Less: Depreciation 90,020 98,480
150,050 155,250
Bank 11,750 32,000
Investment 61,000 76,000
Stock 98,000 104,000
Trade Debtors 88,000 85,000

408,800 452,250

During the year, one item of plant was upvalued by Rs.3,000

and credit for this was taken in the profit and loss account.

Rs. 1,700 being expenditure of Fixed Assets for the year

ended 31st March,2010 wrongly debited to sundry debtors
then, was corrected in the next year.

Fixed assets costing Rs. 6,000(accmulated depreciation

Rs.4,800) were sold for Rs. 250. Loss arising therefrom was
written of.

Preference shares redeemed during the year were out of

a fresh issue of equity shares. Premium paid on
redemption was 10%.
ation of profits during the year.

Assets A/c
Particulars Amount
By depreciation A/c 4,800
By Bank (Sale) 250
By adjusted P&L A/c (Loss) 950
By balance c/d 253,730
259,730

Depreciation A/c
Particulars Amount
By balance b/d 90,020
By adjusted P&L A/c 13,260
103,280