Question 1 Prepare fund flow statement from the following: 1. Increase in working capital: $4,000 2. Net profit $10,750 before written off goodwill 3. Depreciation on fixed assets: $1,750 4. Dividend paid: $3,500 5. Goodwill written off $5,000 out of profits 6. $5,000 share capital was issued for cash 7. Machinery purchased for $10,000 Solution …
Fund Flow Statement
Every business may be big or small final accounts are prepared to know the financial position of that specific period. The financial statements: Income statement discloses the income of a particular period whereas the Balance Sheet discloses the value of various assets and liabilities. The assets and liabilities are always changed from time to time. During a specific period, some funds are generated and some are spent, the surplus of inflows over outflows are known as increase or decrease of funds.
The Balance sheet shows an increase or decrease in fixed or current assets and liabilities, but how these changes have come in is not explained. For this, a separate statement is prepared known as Fund Flow statement which clearly shows how funds have come in and how the same are used.
A fund statement is prepared in summary form to indicate changes occurring in items of financial conditions between two different Balance sheet dates.
In this chapter, an effort is made to study various aspects of fund flow statement which deals with various sources of funds and the use of raised funds.