What is a fund flow statement?

A fund flow statement reveals the periodic increase or decrease in a business enterprise’s funds.

What is a balance sheet?

An accounting balance sheet is a financial document that shows the relationship between a company’s assets, liabilities, and shareholder equity at a particular point in time.

A Debenture is a debt vehicle that is backed solely by the credit worthiness of the issuer.

What are current liabilities?

Current liabilities are short-term financial obligations that are due either in one year or within the company’s operating cycle. Current liabilities are different from long-term liabilities, which refer to debts or obligations that are due in more than a year.

What are prepaid expenses?

Unexpired or prepaid expenses are the expenses for which payments have been made, but full benefits or services have yet to be received during that period.

Fund Flow Statement: Practical Problems and Solutions

Problem 1

Prepare a fund flow statement from the following information:

Increase in working capital: $4,000

Net profit of $10,750 before written-off goodwill

Depreciation on fixed assets: $1,750

Dividend paid: $3,500

Goodwill written-off: $5,000 out of profits

$5,000 in share capital was issued for cash

Machinery purchased for $10,000

Solution

An overview of the funds from operations is shown as follows:

Net profit before writing off goodwill	$10,750
Add: Depreciation	$1,750
	$12,500

In turn, the fund flow statement can be prepared as follows:

Sources of Funds	$	Application of Funds	$
Income from operations	12,500	Payment of dividend	3,500
Issue of share capital	5,000	Purchase of machinery	10,000
		Increase in working capital	4,000
	17,500		17,500

Problem 2

Prepare a fund flow statement from the balance sheet of John Trading Co. for the year 2024-25.

John Trading Co. Balance Sheet For the year 2024-25

	2024	2025		2024	2025
	$	$		$	$
Share capital	500,000	650,000	Goodwill	20,000	15,000
Share premium	50,000	-	Investments	150,000	200,000
P & L A/c	-	25,000	Fixed Assets	550,000	550,000
Debentures	200,000	-	Debtors	60,000	40,000
Bank overdraft	80,000	100,000	Stock	120,000	80,000
Creditors	60,000	75,000	Cash	12,000	5,000
Proposed dividend	10,000	15,000	Prepaid	-	-
Provision of tax	20,000	25,000	Expenses	8,000	-
	920,000	890,000		920,000	890,000

The following information is also given:

Adjustments: Net profit before tax and dividend is $63,000, provision of tax during the year is $23,000, actual tax paid is $18,000, and provision of dividends is $15,000

Depreciation charged: $80,000

Bonus shares of $50,000 out of share premium

Solution

Income From Operations

		$
Net profit		63,000
Less: Income tax dividend provision	23,000 + 15,000	38,000
Add: Depreciation (Fixed Assets)	80,000	25,000
Goodwill written off 5,000	5,000	85,000
Proposed tax 23,000 + Proposed dws 15,000		38,000
		148,000

Change in Working Capital

Current assets (Dr.)	$ Increase	$ Decrease
Drs.		20,000
Stock		40,000
Cash		7,000
Prepaid expenses		8,000
Current liabilities
Bank overdraft		20,000
Crs.		15,000
Decrease in working capital		110,000

Proposed Dividend

	$		$
To bank	10,000	By balance b/d	10,000
To c/d	15,000	By P & L	15,000
	25,000		25,000

Proposed Income Tax

	$		$
To balance c/d	25,000	By balance b/d	20,000
To bank	18,000	By P & L	23,000
			43,000

Fixed Assets

	$		$
To b/d	550,000	By depreciation	80,000
To bank	80,000	By balance c/d	550,000
	630,000		630,000

Fund Flow Statement

Sources of Funds	$	Application of Funds	$
Share capital (50,000 bonus shares out of premium)	100,000	Deb. redemption	200,000
Income from operations	148,000	Tax paid	18,000
Decrease in working capital	110,000	Dividend paid	10,000
		Investment purchased	50,000
		Fixed assets purchased	80,000
	358,000		358,000

Fund Flow Statement: Practical Problems and Solutions FAQs