of Working Capital Statement
Thefollowing is the'Principle'forpreparation
Working Capital
Inerease in Current Asset Inereases
Capital
Decrenses Working
Decrease n Current Asset
Capital
Decrenses Working
Increasc in CurrentLiability
Capital
Inereases Working
Decrease iu Current Liability
Statement
oftheWorking Capital
The following is a specimen
Schedule of Changes in Working Capital
(or)
Statement of Changes in Working Capital
Changes in working captal
Year Year Increase Decrease
Particulars
Rs. Rs. Rs.
Rs.
Current Assets:
XXX
Cash
Bank Balance XX XXX1.
Stock XXX XXX XX
Sundry debtors XXX
Trading investments XXX
Prepaid expenses XXX XXX XX
Total (A) OOX XXXX
Current lLiabilities.
Creditors XXXX XXX
Bills payable XX
Outstanding cxpenses XXX XXXX
XXX
Short term loans XXX XXX XXX
Bank overdraft XXX XX
Total (B) XXXX XXXX
Working capital
Net Increase/Decrease
in
-
(A B) XXX XXX
workingcapital
XXX
XXXX
Prndslow
Statement
nds Fow Statement
tow statement is composed of two categories of items: Sources of
Funds
and Applications of funds. It is necessaryto ascertain them in order to
funds
thefunds flow statement.
prepare
The transaction analyss or identification of transactions' which causeflow
is the basis on which different sources and applications of funds are
offunds
However,thefollowing arethe usual sources and appications of funds.
identified.
SourcesofFunds Applications or Uses of Funds
(1) Purchase of fixed assets
IJnternal sources
(1) Funds from operations (2) Purchase of Long term Investments
Sources (3)Redemption of preference shares
IL.External
(1) Issue of
Equity shares (4) Redemption of debentures
shares (6)Repayment of long-term loans, bank
(2) Issue of Preference
loans and public deposits
(3)Issue of Debentures
(6) Payment of dividend
(4)Public deposits accepted
(5)Long-term loans from (7) Payment of tax liability
hanks and other institutions(8) Outflow of funds on account of
operations
(6) Sale offixed assets
() Sale of long term investments
The following is the specimen of funds flow statement
Funds flow statement for the year ending...
Rs. Rs.
Particulars
Sourcesof Funds: XXX
Issue of shares
Issue of debentures
Sale of fixed assets
XXX
Investments sold
XXX
Funds from operations
Total Sources (A)
Applications of Funds:
Repayment of long-term Loans
Redemptionof prcference shares
Redemption of Debentures
Purchase of Fixed Assets
Tax paid
Dividend paid
Investmenis purchased
Outflow of funds on account of operations
Total Applications (B)
Increase in working capital (A - B)
Maagee
Hoeever
one.
preferable as foliow
The above fom is the popalar and format
statement can also be prepared
in an acO yeareeng
forthe
Funds frw statement fFund
Applicationt onaccoun
Soutcet ofFunds offunids
Outflo
Funds from operátios
ofoperationsof long-teTm loare
shares
Issue of shares
xRepayment oof preference
exRedemption of Debentures
Issue of Debentures
0Redetnptionoffixed assets
Sale of fixed assets
Purchase
borrowed
Long term loans Tax paid
sold
0o paid
Investrnents Dividend
working capital
Non-tradingincomne Increasein
Decrease in working
capítal (Bal. fig)
(Bal.fig)
(or)Funds from Operations
of funds
LInternalsources internal source
of
funds. Al
is the onty
operations
Funds from and non operating incomes shouid
or non operating expenses be
funds iterns' funds from operations. This can be done by
the net profit to
ascertaín
adjusted in
and loss account or by preparing a staternert of
profit
preparing an adjusted is preferable when balance
The former method
fundsfrom operations.
When profit and Ioss accOurt
of a period ar available. or
the beginning
and end
alone is available, the latter method can be adopted.
information
(A)Items to beadded back to net profit(or)to be
shown on the debit cidet
adjusted profit and Joss account, if they
were previously debited to Prof
and Loss Account.
L Book Transfers or paper transactions which do not result in outfrs
offunds:
Depreciationon fixed assets;
Intangible assets written off like goodwill, patents.
written offlikepreliminary expenses, discount on
Fictitious assets
shares and debentures.
Transfer to reserves like general reserve, sinking fund;
2. Non trading expenses or losses:
Loss on sale of fixed assets.
Premium on redemption of debentures and preference shares,
Loss on sale of long term
investments;
Flow Statement 4.11
Fonds
3. Provisions in the nature of appropriation of profits:
Provisionfor Income tax
Proposed Dividend
to be reduced from net profit (or)to beshown
(B) Items onthe creditsside of
adjusted profit and loss account, if they were previously credited to Profit
and Loss Account
1. Non trading incomes:
Interest and dividend on long term investments.
Income Tax refund.
2. Non Trading gains:
Profit on saleof fixed assets;
Profit on sale of non trding investments.
Appreciation in fixed assets.
Provision for tax and proposed dividend are treated as 'currentitems' by
Note:
some accountants even in the contextof funds flow statement.In such a
case these two items should not be added back They will
to net profit.
appearalong with other current liabilities in the schedule of changes in
working capital.
Itispreferable to treat the provision for tax and proposed dividend asnon
Current items,unless they are specified as 'current liabilities in a given
problem.
The foliowing is thespecimen ofadjusted profit and loss account to ascertain
funds from operations;
Adjusted Profit and Loss Account
Particulars Rs. Particulars Rs.
Xx| By Balance b/d
To Depreciation on fixed assets
To Loss on sale of fixed assets
Xx|By Profit onsale cf fixed assets
ToLoss on sale of investments
Xx By Profit on sale of investments
To Goodwill written off XxBy lncome from Investments
written off Xx| By Income tax refund
ToDiscount on debentures
To Provision fortax XxBy Funds from operations
XX
XXX (Bal. fig.)
To Proposed dividend
ToBalance c/d
ofProfit and Loss account,as shown
Note: Opening balance and closing balance
on the credit sideand debit side respectively
nthe Balance Sheets,are written
as balances.
Manage balance
in the
use shees
given be ias
ly can opering
have merged
balances are no andsurplus would int
If profit and loss protit
net profitandlog:
or'Reserves the of a
separate
balances of'retained earnings since
absence
logical inthe
This is logical
and closing balances. from operations,whis
Reserves'
the 'retained earnings or oftfunds
account balance. of statementacCount;-
loss
and
The following is the specimen
profit Operations
to the adjusted From Rs.
is an alternative ofFunds Rs
Statement
Particulars
year
for the current from
profit funds
Net
not decrease
Add Items which do to P&ldc
bur debied
eratioz assets
on fixed
Depreciation fixedassets
sale of
Loss on
ofinvestments
Losson sale
written
of off
Goodwill witten
on debentures
Discount
fortax
Provision
dividend
Proposed
funds from
do not increase
Les ltems which
but credited
to P & LAlc:
operations assets
Profit onsale offixed
Profit on sale investments
Income from investments
Inçometaxrefund
Fundsfrom operations(or)
Outflow of funds
on account ofoperations
Erternal SourcesofFunds
routine operatics t
The interma sources of funds are generated through
business ike purchases and sales.
an
The external sources are received from sources Qutsidethe. organisation
are not routine to the business.
1. Éssue of long term instruments:
(a)Fresh issue of equity shares;
(b)Issue cf preference shares,
(c)Issue of debentures or bonds;
() Premium on issue of shares and debentures.
