Funds Flow Statement Schedule of Changes in Working Capital - Illustration

Funds Flow Cash Flow • Funds Flow Analysis • Study Notes •     ... 8910 ...

Preperation of Funds Flow Statement - Schedule/Statement of Changes in working capital

From the following information prepare

i) A Schedule of Changes in Working Capital
ii) A Funds Flow Statement
Balance Sheet of M/s ______
Liabilities as on 31stMarch Assets as on 31stMarch
2006 2007 2006 2007
Capital
Profit/Loss Appropriation
Bank Loan
Bills Payable
Sundry Creditors
Reserve for Taxation 		18,50,000
14,78,000
12,00,000
4,00,000
14,00,000
2,00,000  		21,00,000
17,64,000
9,00,0000
6,80,000
12,20,000
1,80,000  		Goodwill (at Cost)
Land and Buildings
Plant and Machinery
Furniture and Fittings
Stock/Inventories
Sundry Debtors
Bills Receivable
Bank
Cash 		6,00,000
18,50,000
4,74,000
1,94,000
8,26,000
12,00,000
8,00,000
5,00,000
84,000  		6,00,000
22,00,000
5,24,000
1,94,000
7,24,000
12,80,000
7,21,000
4,83,000
1,18,000 
TOTAL 65,28,000 68,44,000 TOTAL 65,28,000 68,44,000

Solution : Working Notes

Identify the Current and Non-Current accounts from within the balance sheet distinctly.
Balance Sheet of M/s ______
Liabilities as on 31stMarch Assets as on 31stMarch
2006 2007 2006 2007
Capital
Profit/Loss Appropriation
Bank Loan
Bills Payable
Sundry Creditors
Reserve for Taxation		 18,50,000
14,78,000
12,00,000
4,00,000
14,00,000
2,00,000  		21,00,000
17,64,000
9,00,0000
6,80,000
12,20,000
1,80,000  		Goodwill (at Cost)
Land and Buildings
Plant and Machinery
Furniture and Fittings
Stock/Inventories
Sundry Debtors
Bills Receivable
Bank
Cash		 6,00,000
18,50,000
4,74,000
1,94,000
8,26,000
12,00,000
8,00,000
5,00,000
84,000  		6,00,000
22,00,000
5,24,000
1,94,000
7,24,000
12,80,000
7,21,000
4,83,000
1,18,000 
TOTAL 65,28,000 68,44,000 TOTAL 65,28,000 68,44,000

We need not redraw the total balance sheet, but we should ensure that we are taking all the accounts into consideration.

Marking in the problem itself is an option. But in examination conditions, we may not be allowed to mark anything on the question paper. In such situations, a list of the account names would help.

Liabilities Assets
Capital
Profit/Loss Appropriation
Bank Loan
Bills Payable
Sundry Creditors
Reserve for Taxation		Goodwill (at Cost)
Land and Buildings
Plant and Machinery
Furniture and Fittings
Stock/Inventories
Sundry Debtors
Bills Receivable
Bank
Cash

Solution » Statement/Schedule of Changes in Working Capital

Schedule/Statement of Changes in Working Capital for the period from 31/03/06 to 31/03/07
Particulars/AccountBalance as on 31st MarchWorking Capital Change
20062007IncreaseDecrease
a) CURRENT ASSETS
1) Stock/Inventories
2) Sundry Debtors
3) Bills Receivable
4) Bank
5) Cash

8,26,000
12,00,000
8,00,000
5,00,000
84,000 
7,24,000
12,80,000
7,21,000
4,83,000
1,18,000 

80,000


34,000 
1,02,000

79,000
17,000
 
TOTAL 34,10,000 33,26,000 1,14,000 1,98,000
b) CURRENT LIABILITIES
1) Bills Payable
2) Sundry Creditors
3) Provision for Taxation

4,00,000
14,00,000
2,00,000 
6,80,000
12,20,000
1,80,000 

1,80,000
20,000 
2,80,000

 
TOTAL 20,00,000 20,80,000 2,00,000 2,80,000
Working Capital [(a) - (b)] 14,10,000 12,46,000
TOTAL 3,14,000 4,78,000
Net Change in Working Capital 1,64,000

There is a decrease in working capital to the extent of 1,64,000.

The net change can also be obtained from the working capital figures relating to the two balance sheet dates.

Change in Working Capital = Working Capital as on 31/03/07 - Working Capital as on 31/03/06
= 12,46,000 - 14,00,000
= - 1,64,000
Negative value indicates a decrease in working capital.

Solution » Working Notes

Make up the ledgers for all the non-current accounts. We may skip making up the ledgers for the non-current accounts which have not changed over the period. If in doubt make up all the accounts.

Try Placing the account holding the accumulated profits towards the end.

Dr Capital a/c Cr
Date Particulars Amount Date Particulars Amount
31/03/07
To Balance c/d
21,00,000
01/04/06
— 		By Balance b/d
By Bank a/c (?)		 18,50,000
2,50,000 
21,00,000 21,00,000
01/04/07 By Balance b/d 21,00,000
Assumption :
Capital has been raised during the period for cash.
Dr Bank Loan a/c Cr
Date Particulars Amount Date Particulars Amount
—
31/03/07 		To Bank a/c (?)
To Balance c/d 		3,00,000
9,00,000  		01/04/06 By Balance b/d 12,00,000
12,00,000 12,00,000
01/04/07 By Balance b/d 9,00,000
Assumption :
Bank loan has been repaid during the period through a cheque.
Dr Land and Buildings a/c Cr
Date Particulars Amount Date Particulars Amount
01/04/06
— 		To Balance b/d
To Bank a/c (?)		 18,50,000
3,50,000  		31/03/07 By Balance c/d 22,00,000
22,00,000 22,00,000
01/04/07 To Balance b/d 22,00,000
Assumption :
Additional assets have been purchased during the period for cash.
Dr Plant and Machinery a/c Cr
Date Particulars Amount Date Particulars Amount
01/04/06
— 		To Balance b/d
To Bank a/c (?)		 4,74,000
50,000  		31/03/07 By Balance c/d 5,24,000
5,24,000 5,24,000
01/04/07 To Balance b/d 5,24,000
Assumption :
Additional assets have been purchased during the period for cash.

Posting by name Bank on the credit side indicates an inflow and on the debit side indicates an outflow.

Dr Profit and Loss Appropriation Cr
Date Particulars Amount Date Particulars Amount
31/03/07
To Balance c/d
17,64,000
01/04/06
31/03/07 		By Balance b/d
By Funds From
    Operations (?)		 14,78,000

2,86,000 
17,64,000 17,64,000
01/04/07 By Balance b/d 17,64,000
Assumption :
Funds have been generated through operations during the period.

Treat the Funds from operations posting as if it is a posting by name bank.

Alternative : Using the Statement of Changes in Non-Current accounts

Where there is no additional data apart from the balance sheets and we are sure that there are no other transactions that have affected the non-current accounts, we may derive the inflow/outflow by comparing the opening and closing figures.
Statement of changes in Non-Current Accounts
Account Balance as on 31st Dec Change Type Result
2004 2005 Amount Direction
Capital
Profit/Loss Appropriation
Bank Loan
Land and Building
Plant and Machinery 		18,50,000
14,78,000
12,00,000
18,50,000
4,74,000  		21,00,000
17,64,000
9,00,000
22,00,000
5,24,000  		2,50,000
2,86,000
3,00,000
3,50,000
50,000  		Increase
Increase
Decrease
Increase
Increase 		Liability
Liability
Liability
Assets
Assets 		Inflow
Inflow
outflow
outflow
outflow

Solution » Funds Flow Statement

Funds Flow Statement for the period from 31/03/06 to 31/03/07
Particulars Amount Amount
a) Sources (Inflow) of Funds
1) Share Capital
2) Funds from Operations
     [P/L appropriation account]

2,50,000
2,86,000 

5,36,000
b) Applications (Outflow) of Funds
1) Land and Buildings
2) Plant and Machinery
3) Bank Loan

3,50,000
50,000
3,00,000 


7,00,000
Change in Working Capital [a - b] - 1,64,000

Since the Net change is negative, there is a decrease in Fund (Working Capital)

Alternative : T Form

Statement of Sources and Applications of Funds for the period from __ to __
Sources/Inflows of Funds Amount Applications/Outflows of Funds Amount
Capital
Funds from Operations
    [P/L Appropriation account] 		2,50,000
2,86,000
  		Land and Buildings
Plant and Machinery
Bank Loan 		3,50,000
50,000
3,00,000 
5,36,000 7,00,000
Change in Fund (Working Capital) 1,64,000

Since the Applications/outflows are more, there is a Net decrease in Fund (Working Capital)

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