Funds Flow Statement: Numerical 1
Funds Flow Statement: Numerical 1
Funds Flow Statement: Numerical 1
NUMERICAL 1
Item # 1. Provision for Taxation:
There are two ways of treating this item in the fund flow statement:
When provision for taxation is being treated as current liability the following points are
notable:
(i) It will appear in the schedule of changes in working capital like other current liabilities.
(ii) Any payment of tax will not be an application of fund as decrease in cash or bank balance (i.e.,
Current Assets) is matched by a corresponding decrease in current liability (i.e., provision for
Taxation). Hence, while attempting a practical problem on fund flow statement, the item of tax (if
any) given outside the trial balance should be ignored under this approach.
(ii) The amount of current provision for taxation made during the year will be shown on the debit
side of Adjusted Profit and Loss Account or added to net profit after tax to find out fund from
operation.
(iii) Any payment of tax during the year will be shown as an application of fund in fund flow
statement.
or an item of appropriation of profit. If, proposed dividend is treated as a current liability, it will
appear as one of the item, decreasing working capital in the schedule of changes in working capital.
It will not be shown as an application of funds when dividend is paid later on.
On the other hand, if proposed dividend is considered as appropriation of profit, it will not be
shown in the schedule of changes in working capital. The amount of dividend proposed during the
year will be debited to Adjusted Profit and Loss Account and actual payment of dividend once
proposed will be shown as application of fund.
If, in the given problem nothing is mentioned regarding the actual payment of dividend, the
proposed dividend of the opening balance sheet has to be supposed to have been paid fully during
the current year. This is so because dividend has to be paid compulsorily.
annual general meeting of a company. It is a non-operating item. Thus the amount of interim
dividend proposed during the year will be debited to Adjusted Profit and Loss Account and actual
payment of such dividend will be shown as an application of fund.