by The term “fund” refers to a pool of money or financial assets that are set aside for a specific purpose, such as investment, spending, or saving. Funds can be managed by individuals, organizations, or financial institutions, and they can be used for various purposes.
Some common types of funds include:
- Investment funds: These are funds that pool money from individual investors and use it to invest in a range of financial assets, such as stocks, bonds, and commodities.
- Pension funds: These are funds that are set up by employers to provide retirement benefits to their employees.
- Hedge funds: These are private investment funds that use sophisticated investment strategies to generate high returns for their investors.
- Mutual funds: These are investment funds that are open to the public and managed by professional investment managers. They offer investors the opportunity to invest in a diversified portfolio of securities.
- Government funds: These are funds managed by governments at the local, state, or federal level, and they can be used for various purposes such as infrastructure development, education, and social welfare programs.
Preparation of Fund Flow Statement (As-3)
A Fund Flow Statement, also known as a statement of changes in financial position, is a financial statement that provides information about the sources and uses of funds during a specific period. The statement is prepared using the information contained in the balance sheet and income statement, and it helps to analyze the changes in a company’s financial position over time.
Here is an example of how to prepare a Fund Flow Statement using a table:
| Sources of Funds | Amount (Rs.) | Uses of Funds | Amount (Rs.) |
| Increase in Share Capital | 100,000 | Purchase of Machinery | 300,000 |
| Long-term Borrowings | 200,000 | Payment of Dividends | 50,000 |
| Sale of Fixed Assets | 50,000 | Increase in Working Capital | 150,000 |
| Operating Profit | 80,000 | Total | 500,000 |
| Total | 430,000 | Total | 500,000 |
In this example, the sources of funds are shown in the first column, with the corresponding amounts in the second column. The uses of funds are shown in the third column, with the corresponding amounts in the fourth column.
The total sources of funds (Rs. 430,000) and total uses of funds (Rs. 500,000) are shown at the bottom of each column.
To calculate the net increase or decrease in funds during the period, we subtract the total uses of funds from the total sources of funds:
Net increase or decrease in funds = Total sources of funds – Total uses of funds
Net increase or decrease in funds = Rs. 430,000 – Rs. 500,000 = -Rs. 70,000
In this example, the net decrease in funds is Rs. 70,000, indicating that the company used more funds than it generated during the period. The Fund Flow Statement helps to identify the sources and uses of funds, which can be useful in making investment and financial decisions.
Preparation of Cash Flow Statement (As-3)
The Cash Flow Statement is a financial statement that provides information about the cash inflows and outflows of a company during a specific period. It is prepared using the information contained in the balance sheet and income statement, and it helps to analyze the company’s liquidity and ability to generate cash.
Here is an example of how to prepare a Cash Flow Statement using the indirect method:
ABC Company Cash Flow Statement for the year ended December 31, 2022
| Particulars | Amount (Rs.) |
| Cash flows from operating activities: | |
| Net Profit Before Tax | 500,000 |
| Adjustments for: | |
| Depreciation | 100,000 |
| Loss on Sale of Asset | 20,000 |
| Increase in Trade Receivables | (80,000) |
| Decrease in Inventory | 50,000 |
| Increase in Trade Payables | 70,000 |
| Cash generated from operations | 660,000 |
| Income tax paid | (150,000) |
| Net cash from operating activities | 510,000 |
| Cash flows from investing activities: | |
| Purchase of fixed assets | (400,000) |
| Proceeds from Sale of Asset | 30,000 |
| Net cash used in investing activities | (370,000) |
| Cash flows from financing activities: | |
| Issue of share capital | 200,000 |
| Long-term borrowing | 150,000 |
| Dividend paid | (80,000) |
| Net cash from financing activities | 270,000 |
| Net increase in cash and cash equivalents | 410,000 |
| Add: Opening balance of cash and cash equivalents | 90,000 |
| Closing balance of cash and cash equivalents | 500,000 |
In this example, the Cash Flow Statement is divided into three sections: Operating activities, investing activities, and Financing activities.
The operating activities section starts with the Net Profit before Tax, and then adjustments are made for non-cash items like depreciation and loss on sale of assets. The changes in working capital items such as trade receivables, inventory, and trade payables are also taken into account. The result is the cash generated from operations. Income tax paid is also included in this section. The net cash from operating activities is calculated by adding back the income tax paid to the cash generated from operations.
The investing activities section shows the cash flows related to the purchase and sale of fixed assets. In this example, the company purchased fixed assets worth Rs. 400,000 and sold an asset for Rs. 30,000. The net cash used in investing activities is calculated by subtracting the purchase of fixed assets from the proceeds from the sale of assets.
The financing activities section shows the cash flows related to the company’s financing activities, such as the issue of share capital, long-term borrowing, and payment of dividends. In this example, the company issued share capital of Rs. 200,000 and took long-term borrowing of Rs. 150,000. It also paid dividends of Rs. 80,000. The net cash from financing activities is calculated by adding the cash inflows from share capital and long-term borrowing and subtracting the cash outflow for dividends.
Finally, the net increase in cash and cash equivalents is calculated by adding the net cash from operating activities, investing activities, and financing activities. This amount is added to the opening balance of cash and cash equivalents to get the closing balance of cash and cash equivalents.
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