Financial Analysis-I:
FUNDS FLOW STATEMENT
C
D
Sources
Decrease in working
capital
Issue of shares
Issue of Debentures
Bank loan taken
Rs.
xx
Application
Increase in working capital
Rs.
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
Redemption of shares
Redemption of debentures
Bank loan paid / loan
refunded
Income tax paid
Purchase of any asset
Dividend paid
Operating loss
xx
xx
xx
xx
1
xx
PROFIT & LOSS ACCOUNT
Particulars
To Dividend paid
To Provision of Tax
Rs.
xx
xx
To Depreciation
To General Reserve
To goodwill written of
To Prelim. Exp. Written of
To Loss on sale of Asset
To Discount on Deb/Shares
W/O
To Closing Balance
xx
xx
xx
xx
xx
xx
Particulars
By Opening Balance
By profit on sale of
Asset
By Dividend received
By Operating Profit
xx
xx
xx
Rs.
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
Rs.
xx
xx
Particulars
By Depreciation
By Cash (Sale)
By Closing Balance
Rs.
xx
xx
xx
xx
xx
NB :- When you open an asset A/c, Opening Balance will be written on debit
side and closing Balance will be written on credit side.
ANY LIABILITY ACCOUNT
Rs.
Particulars
Rs.
xx
By Opening Balance
xx
xx
By Current years
xx
Provision
xx
xx
NB :- When you open any liability A/c, Opening Balance will be written on
credit side and Closing Balance will be written on debit side
Particulars
To Cash
To Closing Balance
(1)
(d)
(2)
(3)
(a)
(b)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
IMPORTANT RULES
of Working Capital :Increase in current assets means increase in working capital.
Decrease in current assets means decrease in working capital.
Increase in current liability means decrease in working capital.
Decrease in current liability means increase in working capital,
If any fixed asset increases there, is just one reason & that is purchase
of asset.
But if any fixed asset decreases there are two reasons i.e.
Sale of asset
Depreciation of asset.
If sale words are mentioned in the problem then treat it as sale
otherwise treat it as depreciation.
If any Investment decreases it is only sale never depreciation.
If the following items decrease show it on debit side of P.& L. Account.
(a) Goodwill, (b) Patents (c) Any Discount, (d) Preliminary exp. (e)
Under writers commission
If proposed dividend is given in the problem, current year's balance is
written on debit side of P& L A/c and last year's balance on application side.
If any reserve increases show it on debit side of P & L A/c.
If depreciation is given in the adjustment, both opening & closing
balances, open depreciation A/c.
If there is an adjustment on tax then tax provision is not treated as
current liability, but if there is no adjustment on tax then tax provision is
treated as current liability.
Profit given in the adjustment is useless, just ignore it.
The profit & loss A/c is also known as surplus or retained earnings or
reserves surplus. If balances of P & L A/c is not given in the question then
balances of Reserves will be treated as P & L Balances.
If the item is given in the Balance Sheet then there will be only one
entry of it.
If any item is given in the adjustment there will be minimum two
entries.
If dividend is given in percentage then it will be calculated on paid up
capital.
Profit/ Loss will be calculated only in the transaction of sale of asset
but never in the transaction of purchase of asset.
Rules
(a)
(b)
(c)
2007
2008
Asset
2007
2008
Creditors
5,000
6,000
Bills Payable
14,00
0
14,00
0
Income tax
provisions
22,00
0
8,000
Capital
200
250
P&L A/c
150
100
300
400
Land
4,000
8,000
Building .
20,00
0
37,00
0
65,65
0
73,75
0
Prepaid Taxes
65,65 73,75
0
0
2008
2007
Share Capital
62,500
General
reserve
15,000
P&L A/c
7,650
Bank
Overdraft
--
Creditors
33,800
Tax provisions
8,750
Asset
2008
2007
50,000 Land
47,500
50,000
12,500 Machine
42,250
37,500
7,625 Stock
18,500
25,000
17,500 Debtors
16,050
20,000
150
125
2,000
---
37,500 Cash
7,500 Cash at Bank
Good-Will
1,27,70 1,32,62
0
5
1,250
---
12770 1,32,62
0
5
2007
2008
Asset
2007
2008
1,00,00
0
95,000
General reserve
25,000
30,000 Machine
75,000
84,500
P&L A/c
15,250
15,300 Stock
50,000
37,000
Bank Overdraft
35,000
40,000
32,100
Creditors
75,000
67,600 Cash
250
300
Tax provisions
15,000
--
4,000
--
2,500
-- Debtors
Goodwill
2,65,25 2,55,40
0
0
2,65,25 2,55,40
0
0
(Decrease 9450)
Prob.4.
The Forward Industries Ltd., submitted following balance
sheet for the year 2007 & 2008.
Liabilities
2007
2008
Trade Creditors
31,200
29,100 Cash
15,000
9,000
Short term
liabilities
16,300
14,900 Debtors
23,500
25,000
8,000 Stock
36,500
42,000
5,000
---
Accrued Exp.
Mortgage Loan
7,500
10,000
Asset
15,000 Investment
s
2007
2008
Share capital
50,000
65,000 Fixed
Assets
Retained
Earnings
14,750
17,000 Goodwill
1,29,75 1,49,00
0
0
44,750
73,000
5,000
---
1,29,75 1,49,00
0
0
Adjustments : For the year 2008 charged the depreciation on fixed assets
Rs.1750
Goodwill written of from retained earnings
Dividend paid for 2008 Rs.3500
You are required to Prepare :- (1) Statement of Working Capital (2) Funds
Flow Statement.
(Increase 4000)
Prob.5.
The following Balance Sheet of 2007 & 2008 of Prakash
Ltd.
Liabilities
2007
2008
Share Capital
4,50,00
0
4,50,00 Fixed
0 assets
General reserve
3,00,00
0
3,10,00 Investment
0
P&L A/c
Creditors
Tax provisions
Mortgage Loan
56,000
1,68,00
0
75,000
-10,49,0
00
Asset
68,000 Stock
1,34,00 Debtors
0
10,000 Bank
2007
2008
4,00,00
0
3,20,00
0
50,000
60,000
2,40,00
0
2,10,00
0
2,10,00
0
4,55,00
0
1,49,00
0
1,97,00
0
10,49,0
00
12,42,0
00
2,70,00
0
12,42,0
00
Adjustments : Investment costing of Rs.8000 sold out in the year 2008 for
Rs.8500
Make a Tax provision of Rs.9,000.
A part of fixed assets costing of Rs.10,000 sold out for Rs.12,000.
Dividend paid in current year Rs.40,000
Prepare Statement of Working Capital and Funds Flow Statement for the year
ending 31-12-2008.
6
(Increase 297000)
Prob.6.
Gajanan spinning and weaving mills submitted following
Balance Sheet for the year 2007 & 2008.
Liabilities
2008
2007
Bills Payable
25,900
Creditors
Short term loan
Share capital
Asset
2008
2007
20,000 Debtors
88,900
73,300
64,100
60,000
45,500
10,000
60,000
66,200
1,50,00
0
30,300
9,400
Profit
29,000
45,000
20,100
Reserve
46,000
7,000
10,500
3,000
---
30,800
40,000
Bills receivable
Land & Building .
3,25,00
0
2,65,00
0
3,25,00 2,65,00
0
0
Adjustments :
Dividend paid in 2008 @7% for the year 2007. (Increase 45300)
Prob.7.
The following are the summaries of the Balance Sheets of
Time Ltd.
Liabilities
2007
2008
Sundry
Creditors
39,500
Bills Payable
33,780
Bank Overdraft
59,510
40,000
Reserves
P&L A/c
Share Capital
Asset
2007
2008
2,500
2,700
85,175
72,625
2,315
735
50,000 Stock
1,11,04
0
97,370
50,000
1,48,50 1,44,25
0
0
39,690
1,12,95 1,16,20
0
0
2,00,00
0
2,60,00 Goodwill
0
---
20,000
4,62,48
0
4,53,88
0
4,62,48 4,53,88
0
0
2007
2008
Asset
2007
2008
Share capital
3,00,00
0
5,10,00
0
6,20,00
0
Debentures
1,10,00
0
2,00,00 Investments
0
40,000
70,000
General Reserves
1,50,00
0
2,00,00 Current
0 Assets
2,40,00
0
3,75,00
0
5,000
---
7,95,00
0
10,65,0
00
P&L A/c
60,000
70,000 Discount on
Depreciation Res.
90,000
1,30,00 debentures
0
Bad Debts
Reserve
10,000
15,000
Current liabilities
75,000
1,10,00
0
7,95,00
0
10,65,0
00
2008
2007
50,000
45,000 Cash
Asset
2008
11,200
2007
8,500
8
Creditors
15,000
18,000 Debtors
21,300
23,500
Bills Payable
10,000
7,500 Stock
35,000
30,600
Loan on Mortgage
40,000
16,000
12,000
Sinking fund
16,000
12,000 Land
10,000
10,000
P&L A/c
13,950
16,275 Building
60,000
60,000
8,000
7,000
1,350
Depreciation
fund:1) Building
2) Furniture
12,000
9,000
3,200
2,400
1,61,50
0
1,51,60
0
1,61,50 1,51,60
0
0
You are given following additional information : The net profit of 2008 was Rs.6675
A dividend amounting to RS.5000 was paid during the year.
Prob.10. Prepare fund flow statement with the help of following
information.
Liabilities
2008
2007
Creditors
58,000
Short term
liabilities
27,000
Unpaid Expenses
19,000
Mortgage loan
30,000
20,000 Cash
Share capital
Asset
1,20,00
0
Proposed
dividend
10,000
5,000 Debtors
Retained
earnings
34,000
29,500 Stock
Short term invt.
2,98,00
0
2,59,50
0
208
2007
1,70,00 1,40,00
0
0
24,000
20,500
1,46,00 1,19,50
0
0
18,000
30,000
---
10,000
54,000
20,000
80,000
70,000
---
10,000
2,98,00 2,59,50
0
0
(Increase 28000)
2007
2008
Current liabilities
30,000
Bonds Payable
Asset
2007
2008
32,000 Cash
40,000
44,400
22,000
10,000
20,700
Bonds payable
discount
(2,000)
(1,800) Inventories
15,000
15,000
Capital stock
35,000
43,500 Land
4,000
4,000
Retailed earnings
15,000
19,500 Building
20,000
16,000
Equipments
15,000
17,000
Accumulated
Dep.
(5,000)
(2,800)
1,000
900
Patents
1,00,00
0
1,15,20
0
1,00,00 1,15,20
0
0
Liabilities
Equity capital
2007
3,00,00
0
2,00,00
0
Debentures
1,00,00
2008
Asset
2007
2008
5,10,00
6,20,00
30,000
80,000
10
0
Reserve and
surplus
1,10,00
0
10,000
0
2,70,00 Stock
1,80,00
2,00,00
60,000
1,60,00
0
15,000 Debtors
0
Creditors
40,000
90,000 Cash
Bills payable
25,000
50,000 Discount on
5,000
5,000 debentures
Tax provisions
----
15,000
10,000
5,000
7,90,00
10,80,0
7,90,00
10,80,0
00
00
Adjustments :
11
Accumulated
Depreciation
60,000
12% Debentures
50,000
Sundry creditors
28,000
3,08,250
40,000 Debtors
Prepaid
Expenses
48,000 Bank
3,33,30
0
--
30,800
21,100
3,950
3,000
28,100 20,000
3,08,25 3,33,30
0
0
Additional information :
(i)
Net Profit Rs.27050.
(ii)
Depreciation charged Rs.10000
(iii) Cash dividend declared during the period Rs.12000.
(iv) An addition to the building was made during the year at a cost of
Rs.78000 and fully depreciated equipment costing Rs.30000 was
discarded as no salvage being realized.
Prepare a cash flow statement.
Q.2 The comparative balance sheets of a company are given below:
Liabilities
200 2004
Assets
2003
2004
3
Share capital
35,0 37,00 Cash
4,500
3,900
00
0
Debentures
6,00 3,000 Book
7,450
8,850
0
debts
Creditors
5,18 5,920 Stocks
24,600 21,350
0
Provision for doubtful
350
400 Land
10,000 15,000
debts
5,000
2,500
51,550
51,600
Additional informations :
(i)
Dividends paid amounted to Rs.1750.
(ii)
Land was purchased for Rs.5000 and amount provided for the
amortization of goodwill amounted to Rs.2500.
(iii) Debentures were repaid to the extent of Rs.3000.
You are required to prepare a cash flow statement.
Q.3 From the following particulars prepare cash flow and fund flow
statement of Kumar.
12
31st Dec.
2004
Rs.
Cash
5,000
4,000
Debtors
40,000
45,000
Stock
30,000
25,000
Land
30,000
40,000
Buildings
50,000
55,000
Machinery
70,000
80,000
2,25,000
2,49,000
Current liabilities :
35,000
40,000
Loan from Shankar
-25,000
Bank loan
40,000
30,000
Capital
1,50,000
1,54,000
2,25,000
2,49,000
During the year, Kumar brought an additional capital of Rs.10000 and
his drawings during the year were Rs.31000. provision for depreciation on
machinery: opening balance Rs.30000 and closing balance Rs.40000. No
depreciation need be provided for other assets.
Balance sheets of Ram and Shyam as on 1st January 2004 and 31st
December 2004 were as follows:
1.1.200 31.12.20
4
04
Assets :
Cash
10,000
7,000
Debtors
30,000
50,000
Stock
35,000
25,000
Machinery
80,000
55,000
Land
40,000
50,000
Buildings
35,000
60,000
2,30,00 2,47,000
0
Liabilities :
Creditors
40,000
44,000
Mrs. Rams Loan
25,000
-Loan from parry
40,000
50,000
Capital
1,25,00 1,53,000
0
2,30,00 2,47,000
0
During the year a machine costing Rs.10,000 (accumulated
depreciation Rs.3000) was add for Rs.5000. The balance of provision for
depreciation against machinery as on 1st January 2004 was Rs.25000 and on
31st December 2004 Rs.40000. Net Profit for the year 2004 amounted to
Rs.45000.Prepare cash flow statement.
Q.4
13
A company finds on 1st January 2004 that it is short of funds with which
to implement its programme of expansion. On 1st January 2003 it had a
credit balance of Rs.180000. From the following information, prepare a
statement of cash for the board of directors to show how the overdraft
of Rs.68750 as at 31st December 2003 has arisen.
Figures as per Balance sheet as at 31st December.
2003
2004
Fixed assets
7,50,000 11,20,000
Stocks & stores
1,90,000
3,30,000
Debtors
3,80,000
3,35,000
Bank
1,80,000(c 68,750(O/
r.)
D)
Trade creditors
2,70,000
3,50,000
Share capital (Rs.10 each)
2,50,000
3,00,000
Bills receivable
87,500
95000
st
The profit for the year ended 31 December 2004 before charging
depreciation and taxation amounted to Rs.240000.
5000 shares were issued on 1st January 2004 at a premium of Rs.5 per
share. Rs.137500 were paid in March 2004 by way of Income tax.
Dividend was paid as follows :
2003 (final) on the capital on 31 st December 2003 at 10% less tax at 25%.
2004 (interim) 5% free of tax.
Q.6 The financial position of M/s SY on 1 st January and 31st December 2004
was as follows :
Liabilities
1st Jan.
31st
Assets
1st Jan.
31st Dec.
Dec.
Current liabilities
3,600
40,600 Cash
4,000
3,600
Mrs. As loan
-20,000 Debtors
35,000
38,000
Long from bank
30,000
25,000 Stock
25,000
22,000
Hire purchase
-20,000 Land
20,000
30,000
vendor
Capital
1,48,00 1,54,00 Buildings
50,000
55,000
0
0
Machinery
80,000
86,000
Delivery
-25,000
Van
2,14,00 2,59,60
2,14,00 2,59,600
0
0
0
The delivery van was purchased in December 2004 on Hire purchase
basis : a payment of Rs.5000 was made immediately and the balance of the
amount is to be paid in 20 monthly installments of Rs.1000 each together
with interest @12% p.a. During the year the partners withdrew Rs.26000 for
domestic expenditure. The provision for depreciation against machinery as
on 1st January 2004 was Rs.27000 and on 31st December 2004 Rs.36000.
You are required to prepare the cash flow statement and fund flow
Q.5
14
statement.
15