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fund flow doubt??

sandhya (CA Final) (185 Points)

23 March 2011  
In the attatched file pls see question no. 9 of financial management - fund flow statement. the answer is given only for finding funds from operations...but i want the whole answer i.e Schedule of changes in working capital and Statement of sources and application of funds(fund flow statement) someone please solve the answer ...

 14 Replies

Krish (CA Final ) (3326 Points)
Replied 24 March 2011

I am not confirm about solution. Please do correct me, if i m wrong.



Attached File : 28 fund flow statment.xls downloaded: 227 times
1 Like

sandhya (CA Final) (185 Points)
Replied 24 March 2011

thank you.. i just made a silly mistake in the assets a/c - took 90000 instead of 210000.that was why i was getting a difference of 120000.

 

 just a small change in ur answer - you also have to include unpaid dividend in the statement of changes in working capital in the current liabilities...thus there will be an increase in the working capital of Rs. 241500

 

see below for the fund flow statement:

 

sources:

 

Increase in share capital                                                       200000

 

fund from operations                                                           1244400

 

issue of debentures                                                               150000

 

sale of fixed assets                                                                  75000

 

sale of investments                                                               150000

 

income from investments                                                        8100

 

financial resources provided (a)                                      1827500

 

 

 

application :

 

tax paid                                                                                    15000

 

purchase of fixed assets                                                    860000

 

purchase of investments                                                   270000

 

interim dividend paid                                                          225000

 

interest on debentures paid                                                36000

 

proposed dividend of previous year paid                       180000

 

financial resources applied(b)                                       1586000

 

 

Increase in W.C (a-b)                                                         241500

 

 correct me if i am wrong..

 

Thanks a lot once a again!!

 

 

sandhya (CA Final) (185 Points)
Replied 24 March 2011

i have a doubt ..not related to this sum. If there is an decrease in misc expenditure you add back this to operational profit while finding funds from operations but what if it increases..do u show it as currents asset in changes of W.C statement??

Krish (CA Final ) (3326 Points)
Replied 24 March 2011

Nice Question Sandhya..............If it increases, we should treat it under application of funds. See, we were doing wrong in underwriting commission (this is also a miscellaneous expenditure) we should treat it under Application of funds because this is an utilisation of funds and we are capitalsing the same instead of deducting it from P&L A/c. That's why we cannot add back while calculating the Fund from operation and also we cannot treat it as a Current Assets as we were doing earlier.

 

Now see the answer again, i have rectified the same.

 


Attached File : 4 fund flow statment.xls downloaded: 175 times

Krish (CA Final ) (3326 Points)
Replied 24 March 2011

Originally posted by : sandhya
 just a small change in ur answer - you also have to include unpaid dividend in the statement of changes in working capital in the current liabilities...thus there will be an increase in the working capital of Rs. 241500 
 
 

 and i think unpaid dividend is a part of proposed dividend which is still pending to pay. And we have adjusted the same while calculating proposed dividend i.e. 170000 instead of 180000, so there is no need to adjust it again while calculating statement of changes in working capital.

 

Refer Illustration 9 of study material (Cost Accounting and Financial Management) page no. 3.89.

sandhya (CA Final) (185 Points)
Replied 27 March 2011

sorry for the late reply...

 

you are right - the underwriting comm needs to be treated as application of funds.

 

we also have made another mistake - bank overdrafts decreases ,so money have gone out and hence we need to treat it as application of funds.

 

Regarding the unpaid dividend i saw the module question - it is excluded from current liability shown in statement of changes in W.C and subtracted from dividend paid shown as application of funds. But i came across these 2 websites given below where the unpaid funds are treated as current liability...which method is correct? should we follow the module itself?

 

see pg 10 of the document -

 

https://www.docstoc.com/docs/20052416/Fund-Flow

 

scroll down to pg 9 of the document

 

https://www.scribd.com/doc/23960241/Fund-Flow-Statement-Skv

 

i have the following doubts - please carify if time permits

 

1. if reserves decreases do you treat it as application of funds?

 

2.if the rate on interest on debentures is mentioned in the b/s and regarding its payment it is not mentioned in the additionnal information can we assume it as paid by providing a note?

 

3.if bad debts are written off against the provision for doubtful debts..how do you account this? saw this adjustment in padhuka guide..seems like this adjustment doesnt affect the fund flow at all..please explain concept to me.

Sarita (Article) (154 Points)
Replied 28 March 2011

Hi Sandhya,

Plz follow the institute module method.

Krish (CA Final ) (3326 Points)
Replied 28 March 2011

1. if reserves decreases do you treat it as application of funds?

 

--> Yes, if the amount of reserves decreases, it is treated as application of funds, reason is at the time of calculating Fund From operation we add back it in the same (FFO) because it does not affect any fund and it is appeared in the balance sheet as Shareholder fund. But now if we utilise the same, it should be treated as uses of fund.

 

2.if the rate on interest on debentures is mentioned in the b/s and regarding its payment it is not mentioned in the additionnal information can we assume it as paid by providing a note?

 

--> Yes obviously we can mention it by providing proper note, because in both case answer will be same either we include or not.

 

3.if bad debts are written off against the provision for doubtful debts..how do you account this? saw this adjustment in padhuka guide..seems like this adjustment doesnt affect the fund flow at all..please explain concept to me.

 

--> Bad debts written off against the provision account have no significance for fund flow statement, as they do not affect working capital.

See provision for doubtful debt is an expenditure of operation for a company. Means it has already been treated as operating expenses. And again if we write off bad debts against provision, that means we are just adjusting it with already deducted provisions. And there is no need to treat it again as application of funds.

sandhya (CA Final) (185 Points)
Replied 29 March 2011

thank u namratha..i will follow the module itself

 

thanks a lot krish for clarifying my doubts..i think i am 95% done with this chapter..any new adjustments in the exams..i really have to face it.

Krish (CA Final ) (3326 Points)
Replied 29 March 2011

Same situation is here, I wish questions will be in favour, Best of luck.

Gaurav Dadu (STUDENT) (22 Points)
Replied 17 July 2012

I have doubt regarding treatment of Debenture interest in fund flow statement ?

whether it is considered as operating or non operating ?

please dont tell both... either one of the above please with your explaination !!

 

Regards and Thanks,

Gaurav Dadu

Ranjana (NA) (26 Points)
Replied 07 February 2015

Hi.
This is regarding cash flow. In my practise manual they have taken the bad debts and adjusted with the provision and since it is a non cash item they added it back. But, they've also added back the bad debts amount in the closing debtors

pk r (2 Points)
Replied 04 October 2016

Point no.3 - "Provisoin For Doubtful Debts"

Why shouldn't we deduct current's year provision for doubtful debts(as it is a non cash expense) from profit while calculating funds from operations?

Please reply ASAP.

 

pk r (2 Points)
Replied 04 October 2016

Originally posted by : Krish

 

3.if bad debts are written off against the provision for doubtful debts..how do you account this? saw this adjustment in padhuka guide..seems like this adjustment doesnt affect the fund flow at all..please explain concept to me.

 

--> Bad debts written off against the provision account have no significance for fund flow statement, as they do not affect working capital.

See provision for doubtful debt is an expenditure of operation for a company. Means it has already been treated as operating expenses. And again if we write off bad debts against provision, that means we are just adjusting it with already deducted provisions. And there is no need to treat it again as application of funds.

Why shouldn't we add current's year provision for doubtful debts from profit while calculating funds from operations?


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