3 Unit

3 mark
1.What is Fund Flow Statement?
A fund flow statement is a document that covers the inflows and outflows of funds.
The funding sources and the use of funds in a given period will be included.
Therefore, the reasons behind the change in a company's finances can be analysed.
2.Define fund flow statement?
A fund flow statement is a statement prepared to analyse the reasons for changes in the
financial position of a company between two balance sheets. It portrays the inflow and
outflow of funds i.e. sources of funds and applications of funds for a particular period.
3.What is fund from operation?
The term funds from operations (FFO) refers to the figure used by real estate
investment trusts (REITs) to define the cash flow from their operations. Real estate
companies use FFO as a measurement of operating performance.
4.What is work
ing capital?
Working capital is a financial metric that is the difference between a company's
curent assets and current liabilities. As a financial metric, working capital helps plan
for future needs and ensure the company has enough cash and cash equivalents
meet short-term obligations, such as unpaid taxes and short-term debt.
5.What do you mean by flow of funds?
Fund flow is the sum of all cash inflows/outflows from

and into different financial assets. Fund flow is usually
calculated on a monthly or quarterly basis; no account is
taken of the output of an asset or fund. It is only the
share redemptions or outflows, and share purchases or
inflows.
6.Write a note on Schedule of Change in Working Capital?
preparing a schedule of changes in working capital

involves analysing and presenting the movements in
current assets and current liabilities over a specific
period, providing insights into the company's liquidity,
operational efficiency, and financial condition.
7.What is Cash flow statement?
A cash flow statement is a financial statement that shows how cash entered and
exited a company during an accounting period. Cash coming in and out of a
business is referred to as cash flows, and accountants use these statements to
record, track, and report these transactions.
8.State the objectives of cash flow statement?
Objectives Of Cash Flow Statement:

To provide information about cash inflows and outflows
from operating, investing and financing activities. To
determine net changes in cash and cash equivalents.
9.Write a note on cash from operation?
Cash flow from operating activities (CFO) indicates the

amount of money a company brings in from its ongoing,
regular business activities, such as manufacturing and
selling goods or providing a service to customers.
10.State any two limitations of Cash flow statement?

As a cash flow statement is based on the cash basis of
accounting, it ignores the basic accounting concept of
accrual. Cash flow statements are not suitable for
judging the profitability of a firm, as non-cash charges
are ignored while calculating cash flows from operating
activities.
11.What do you mean by non-cash items?
Non-cash items are referred to as those entries on a

cash flow statement or income statement that do not
involve actual cash transactions. In other words, these
are expenses that are listed in an income statement that
do not involve cash payment.
12.State any two uses of cash flow statement?
A cash flow statement is a valuable measure of strength,

profitability, and the long-term future outlook of a
company. The CFS can help determine whether a
company has enough liquidity or cash to pay its
expenses. A company can use a CFS to predict future
cash flow, which helps with budgeting matters.
13.Define the term Cash flow?
Cash flow is the movement of money in and out of a

company. Cash received signifies inflows, and cash
spent is outflows. The cash flow statement is a financial
statement that reports a company's sources and use of
cash over time.
8 marks
14.Explain the importance of funds flow statement?
Importance of Funds Flow Statement

The following are the uses and significance of fund flow
statement:
 Financial Position: A profit and loss statement or balance

sheet does not explain the reasons for the change in a
company’s financial position. The statement will give
information about where the funds have come (Source of
Funds) and where the funds have been used (Application
of Funds).
 Company Analysis: Often, companies that are making
profits end up in cash crunch scenarios. In such
scenarios, the funds flow statement offers a clear picture
of the source and usage of funds.
 Management: The funds flow statement assists
management in determining its future course of action and
also serves as a management control tool.
 Changes in Assets and Liabilities: The statement
shows the reason behind the change in assets and
liabilities between two balance sheet dates. As a result,
you can conduct an in-depth analysis of the balance
sheet.
 Creditworthiness: Lending institutions use this statement
of a company to analyse creditworthiness. They compare
the statement over the years before approving a loan.
Therefore, the statement depicts a company’s credibility in
terms of fund management.
15.Distinguish between funds flow statement and cash flow statement?
16.List out the limitations of Cash flow statement?
Limitations of Cash Flow Statement Even though a cash flow statement is a useful
tool for financial analysis, it has its own limitations. Some of these are discussed
below:
1. Does not show a complete picture: A cash flow statement, on its own, cannot give
an exhaustive analysis of the financial position of a business.
2. Needs other tools for analysis: For better interpretation, a cash flow statement
would need to be seen in confirmation with other financial statements (like balance
sheet & income statement) and analytical tools like ratio analysis. In isolation, its
usage is limited.
3. Shows cash position only: Since it depicts only the cash position, one cannot
arrive at the actual profit and loss of the business by just looking at this statement
alone. Moreover, as working capital is a wider concept of funds, a funds fund
statement might give a clearer picture than a cash flow statement.
4. Difficult to define the term “cash”: It becomes quite difficult to precisely define the
term “cash”.
5. Cannot be equated with income statement: You cannot equate the cash flow
statement with the income statement of a business entity. Since an income
statement takes into consideration both cash as well as non-cash transactions, the
net cash flow arising from the cash flow statement need not necessarily depict the
net income of the business.
6. May not represent the real liquid position: You cannot assess the real liquid
position of a business by looking at the net cash balance as disclosed by the cash
flow statement. This is so because many times, this balance may be easily
influenced by postponing purchases and other payments.
7. Pay higher dividends: A comparatively greater amount of cash generated from

business operations in comparison to net profit earned may influence the
management to pay a higher rate of dividend, which may have a negative impact on
the financial health of the company.
17.Explain the advantages of cash flow statement?
Benefits of a Cash Flow Statement

 Cash Flow Statement helps in knowing the exact
figure of cash inflows and outflows from various
operations of the business. It helps in comparing the
cash budgets of past assessments with the present to
assess the future requirements of the cash. It gives the
accurate information about the cash-based transactions
in the business.
 Cash flow statement majorly used in preparing the
cash budget for future needs and helps in knowing the
periodical requirement of cash in the business.
 It reveals the key changes required for the financial
positioning of the business and prioritizes important
activities to the management.
 It provides the information about various investing
and financing cash transactions takes place during the
year and helps in evaluating the financial structure of
the business. Cash Flow statement helps in identifying
the profitability of the business when it compared with
the ratio analysis.
15 marks
18.Describe the uses of funds flow statement?
Uses of Fund Flow Statement

1. Share Capital
The very first item on the liabilities side indicates an increase in the
owner’s funds, i.e., the Share Capital. An increase in the Share Capital
can only be in the case of a fresh issue of shares which here is to the tune
of 200. This is a source of the funds for the organisation hence will appear
on the sources side of the Funds-Flow Statement.
2. Reserves and Surplus
Next comes the Reserves and Surplus also having an increase of 125
between the two balance sheet dates. This reflects the retained profits of
the organisation which is another source of funds and will appear on the
sources side of the Funds-Flow Statement.
3. Long Term Loans
Moving on, the third item on the Balance Sheet is the Long Term Loans. It
shows a decrease in the amount by 100 which can be on account of
repayment. This indicates a use of the available funds and hence will be
reflected on the uses side of the Statement.
4. Fixed Assets
The first item on the Assets side of the Balance Sheet shows an increase
in the value of the fixed assets. This indicates a fresh purchase of an asset
in the current year and thus will be reflected in the uses side of the Funds-
Flow Statement.
5. Current Assets and Current Liabilities
The remaining items on the Balance sheet namely the Current Assets and
the Current Liabilities have to be looked at together to get a clear picture
regarding the working capital of the organisation. The changes in the
working capital also indicate an allocation of the funds available and
therefore, a typical Funds-Flow Statement also includes a Statement
Showing Change in Working Capital.
19.Discuss the advantages and limitations of cash flow statement?

Limitations:
1. Omission of Non-Cash Transactions: The cash flow statement

does not include non-cash transactions, such as depreciation and
amortization, which are included in the income statement.
Consequently, it may not provide a complete picture of a
company's overall financial performance.
2. Timing Differences: Cash flow does not always coincide with the
recognition of revenues and expenses. For instance, cash payments
or receipts may occur before or after the related revenue or
expense is recognized in the income statement, leading to timing
differences that may distort the analysis.
3. Manipulation: Companies may manipulate cash flow figures
through various means, such as delaying payments to vendors or
accelerating collections from customers, to present a more
favorable image of their financial health. This can mislead
stakeholders and make it challenging to assess the true financial
position.
4. Inaccuracy: The accuracy of the cash flow statement depends on
the reliability of the underlying data and assumptions used in its
preparation. Errors in recording cash transactions or forecasting
future cash flows can lead to inaccuracies in the statement.
5. Limited Information: While the cash flow statement provides
valuable insights into a company's cash position, it does not
provide detailed information about the sources and uses of cash
within specific operating,

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3 mark

1.What is Fund Flow Statement?

2.Define fund flow statement?

3.What is fund from operation?

5.What do you mean by flow of funds?

Fund flow is the sum of all cash inflows/outflows from

preparing a schedule of changes in working capital

7.What is Cash flow statement?

8.State the objectives of cash flow statement?

Objectives Of Cash Flow Statement:

9.Write a note on cash from operation?

Cash flow from operating activities (CFO) indicates the

10.State any two limitations of Cash flow statement?

11.What do you mean by non-cash items?

Non-cash items are referred to as those entries on a

12.State any two uses of cash flow statement?

A cash flow statement is a valuable measure of strength,

13.Define the term Cash flow?

Cash flow is the movement of money in and out of a

14.Explain the importance of funds flow statement?

Importance of Funds Flow Statement

 Financial Position: A profit and loss statement or balance

15.Distinguish between funds flow statement and cash flow statement?

16.List out the limitations of Cash flow statement?

7. Pay higher dividends: A comparatively greater amount of cash generated from

17.Explain the advantages of cash flow statement?

Benefits of a Cash Flow Statement

18.Describe the uses of funds flow statement?

Uses of Fund Flow Statement

2. Reserves and Surplus

3. Long Term Loans

5. Current Assets and Current Liabilities

19.Discuss the advantages and limitations of cash flow statement?

1. Omission of Non-Cash Transactions: The cash flow statement

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