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tbQ1

Conservatism (Latin: conservare, "to preserve")[1] is a political and social philosophy that promotes the maintenance of traditional institutions and supports, at the most, minimal and gradual change in society. Some conservatives seek to preserve things as they are, emphasizing stability and continuity, while others oppose modernism and seek a return to the way things were.[2][3] The first established use of the term in a political context was by Franois-Ren de Chateaubriand in 1819, following the French Revolution.[4] The term, historically associated with right-wing politics, has since been used to describe a wide range of views. Edmund Burke, an Irish politician who served in the British House of Commons and opposed the French Revolution, is credited as one of the founders of conservativism in Great Britain.[5] According to Hailsham, a former chairman of the British Conservative Party, "Conservatism is not so much a philosophy as an attitude, a constant force, performing a timeless function in the development of a free society, and corresponding to a deep and permanent requirement of human nature itself
Q2

The Difference Between a Trading Account and a Manufacturing Account


By Jennifer VanBaren, eHow Contributor

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Trading accounts and manufacturing accounts are used in manufacturing businesses. Trading accounts and manufacturing accounts are two very different accounts but are used together in manufacturing companies. The balance from a manufacturing account is used to calculate the balance of a trading account. Related Searches:

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1. Trading Accounts
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A summary of all transactions from a period are place into an account called a trading account. This account is used to determine a company's gross profit or gross loss during a specified period.

Manufacturing Accounts
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All costs of manufacturing are placed into a manufacturing account. This account is a complete record of all costs of production.

Trading Account Computation


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When calculating the balance in a trading account, an accountant finds the difference between the selling price of all manufactured goods minus the total cost of all goods. This number is found in the manufacturing account. When these two amounts are subtracted, it tells the company's gross profit or gross loss.

Manufacturing Account Computation


o

When calculating the balance in a manufacturing account, an accountant places all costs of production into this account. This includes raw materials, direct labor, indirect costs and overhead. This amount represents the total cost of goods manufactured. This number is used in the trading account to find gross profit

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A Trading Account is a Final and financial statement drawn by a firm at the end of their accounting period showing the relationship that existed between their Sales volume and Purchases and the Gross profit or loss arrived. When Net Sales exceeds the Cost of Sales then there is Gross Profit. However, if the Cost of Sales exceeds the Net Sale(Sales less Return Inwards) then there is Gross loss. A Manufacturing Account is part of the Final accounts drawn by a manufacturing entity before drawing the Trading Account. Since the firm is engaged in the manufacturing or converting of raw materials to finished goods,they express the monetary value of Prime Cost(Direct Materials + Direct Labour + Direct Expense) and Overheads( Sum of all Indirect cost) to determine the cost of Production. The manufacturing account is used to generate the Total Cost which is the sum of the cost of production, Selling and distribution overhead, production overhead and Administration overheads

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Q3

Target costing is a pricing method used by firms. It is defined as "a cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design". A target cost is the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required profit margin from that product at a particular selling price. In the traditional cost-plus pricing method materials, labor and overhead costs are measured and a desired profit is added to determine the selling price.Target costing involves setting a target cost by subtracting a desired profit margin from a competitive market price.[1] [2]

To compete effectively, organizations must continually redesign their

products ( or services) in order to shorten product life cycles. The planning, development and design stage of a product is therefore critical to an organization's cost management process. Considering possible cost reduction at this stage of a product's life cycle (rather than during the production process) is now one of the most important issues facing management accountants in industry. Here are some examples of decisions made at the design stage which impact on the cost of a product. 1. The number of different components 2. Whether the components are standard or not 3. The ease of changing over stools

Japanese companies have developed target costing as a response to the problem of controlling and reducing costs over the product life cycle.
Answer:
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Target Costing refers to the design of product, and the processes used to produce it so the ultimately the product can be manufactured can be manufactured at a cost that will enable the firm to make a profit when the product is sold at an estimated mark driven price . This estimated price is called the target price.

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Q4

What is a contingent liability?


A contingent liability is a potential liabilityit depends on a future event occurring or not occurring. For example, if a parent guarantees a daughters first car loan, the parent has a contingent liability. If the daughter makes her car payments and pays off the loan, the parent will have no liability. If the daughter fails to make the payments, the parent will have a liability. If a company is sued by a former employee for $500,000 for age discrimination, the company has a contingent liability. If the company is found guilty, it will have a liability. However, if the company is not found guilty, the company will not have an actual liability. In accounting, a contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can be estimated. If a contingent liability is only possible (not probable), or if the amount cannot be estimated, a journal entry is not required. However, a disclosure is required. When a contingent liability is remote (such as a nuisance suit), then neither a journal nor a disclosure is required. A product warranty is often cited as a contingent liability that is both probable and can be estimated. Additional examples and a further explanation are presented in FASBs Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. This accounting pronouncement is available

Question: Explain Contingent liabilities? Answer:

Contingent liabilities are liabilities that may or may not be incurred by an entity depending on the outcome of a future event such as a court case. These liabilities are recorded in a company's accounts and shown in the balance sheet when both probable and reasonably estimable. A footnote to the balance sheet describes the nature and extent of the contingent liabilities. The likelihood of loss is described as probable, reasonably possible, or remote. The ability to estimate a loss is described as known, reasonably estimable, or not reasonably estimable
What is a contingent liability? 7. The accounting standard definition of a contingent liability is as follows:

a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the entity's control; or a present obligation that arises from past events but is not recognised because it is not probable that a transfer of economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability.

8. However, the particular contingent liabilities addressed in this section are essentially legally enforceable undertakings given in the form of a guarantee or indemnity which would bind the SG into providing the resources in the event of the guarantee or indemnity maturing; or a letter or general statement of comfort which could be considered to impose a moral financial obligation on the SG. In this section the term also covers undertakings to meet costs resulting from a guarantee or indemnity which will inevitably arise in the future even though the amount and timing may be unknown.

Q5 Answer:
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Treatments of bad debts in financial accounts:A. Revenues should be reported net of discounts and allowances with the discount amount parenthetically disclosed on the face of the statement or in the notes to the financial statements. Alternatively, revenues may be reported gross with the related discounts and allowances reported directly beneath the revenueamount.

B. Provision must be made for bad debt estimates each year. Tuition and fees should be reported net of allowances and discounts. As such, increases in allowances for bad debts are recorded as a reduction in revenues rather than anexpense.

C. With regard to the presentation of the provision for bad debt estimates taken as a reduction of tuition and fee revenue, this should be deducted from the gross tuition and fee line item and should not be separately displayed on the face of the statement. This treatment is different than scholarship allowances which are required to be disclosed either on the face or in the notes to the financial statements.

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Treatments of bad debts in financial accounts:A. Revenues should be reported net of discounts and allowances with the discount amount parenthetically disclosed on the face of the statement or in the notes to the financial statements. Alternatively, revenues may be reported gross with the related discounts and allowances reported directly beneath the revenue amount.

B. Provision must be made for bad debt estimates each year. Tuition and fees should be reported net of allowances and discounts. As such, increases in allowances for bad debts are recorded as a reduction in revenues rather than an expense.

C. With regard to the presentation of the provision for bad debt estimates taken as a reduction of tuition and fee revenue, this should be deducted from the gross tuition and fee line item and should not be separately displayed on the face of the statement. This treatment is different than scholarship allowances which are required to be disclosed either on the face or in the notes to the financial statements. By shruti anupam Q6
ROCE compares the earnings of the company based on the capital invested in the company. We compare the pre-tax operating income and the money invested as capital to run the business to derive the ROCE Formula: ROCE: EBIT / Capital Employed EBIT - Earnings before Interest and Taxes Capital Employed - This is actually the capital investment required to run the company. It can be shareholder funds, bank loans and other debt etc Capital Employed = Total Assets - Current Liabilities

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Q7

Answer: 'Break-even point' and 'shut-down point' appear to sound as similar concepts, but these are concepts from two different topics. Break-even point is a concept for companies to take business decision based on relationship between product cost, price and volume. The concept of competition has no role to play in break-even analysis. Concept of shut-down point is from the field of economics. It is used to understanding the way companies decide on the level of their sales and production volume taking into consideration between production cost, sales price and customer demand under competitive conditions. Break-even Point Break-even point is defined the level of production and sales of product by a firm at which the sales revenue generated is exactly equal to the cost of production. The term break-even is used to mean that the company makes no profit and on loss - it breaks even. Typically the production cost for any product can be be divided in two components, a fixed cost component and a variable cost components. The same fixed cost is incurred by the

company irrespective of the level of production. For example if a production facility is set up some costs will be incurred for the things like rent, depreciation and interest charges which are fixed for a period irrespective of production volume. The variable cost is directly proportional to the volume of production, and is incurred on things like raw material used, piece rate wages paid and other expenses related directly to the production. The company must typically fix a selling price that is more than the variable cost per piece. Unless this is so, more a company produces, more losses it will make. The excess of selling price over the variable cost is called "contribution to fixed cost and profits" or simply contribution. This total amount of contribution can be represented bu the following equation. Total contribution = Sales volume x (Selling price - variable cost) And profit of the company = Total contribution - fixed cost At zero volume the company, the contribution is zero, and the company makes a loss equal to the fixed cost. AS the sales increases the contribution increase in direct proportion. As one point of sales volume called break-even point the contribution is exactly equal to fixed cost. At this point company makes no profit and no loss. Company makes losses below the breakeven point, and profit above this point. The break-even analysis is generally used by the companies to take decision on new investments. Shut-down Point Shut-down point is the minimum market price at which a company would prefer to close down its operation rather than manufacture anything. In determining the shut-down price it is assumed that the variable cost per unit decreases with increasing volume up to a point. After this the the variable cost rises. As a result when a curve of quantity on x-axis and and average variable cost on y-axis is drawn it is a u-shaped curve. The shut down point for the company is the lowest point on this curve. The concept of shut-down point is used to understand and analyse and understand the way companies take decision on the product level under competitive conditions. It is not used by the companies themselves for their decision making.

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Break even point refers to the time frame when you would have made enough money out of a business which equals the money you invested when you started it. For ex: you start a restaurant with a $100,000/- investment and you make a total profit of $25,000/- every month, then the break even point would be 4 months. At the end of the fourth month you would have made enough money that equals your initial investment. Break even point is an important factor which helps people decide on whether to begin a business or not. Sooner the break even point is reached, the better are the chances of that business being started. Nobody would want to wait years before which he can take back the money he invested in starting the firm.

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Q8 PDF file

The difference between Marginal Costing and Absorption Costing can be narrated as below:
Absorption Costing Marginal Costing

Calculation of In this absorption rate include


Manufacture

Marginal costing rates includes

fixed and variable manufacturing only variable manufacturing

Overhead rates Valuation of Inventory

Overheads. In Absorption Costing valuation is on Product cost ie.

Overhead. Marginal costing it will be at prime

Prime cost + cost + applied variable manufactur applied fixed and variable manufacturing overheads.
Classification of In Absorption costing the over In Marginal costing overheads are

ing overhead.

Overhead

head may be classified as factory, administrative, selling and distribution.

are classified as variable and fixed.

Operating Profit

Under Absorptions Costing Gross Profit-NetSales Manufacturing cost = Prime cost +Fixed and Variable manufacturing
Overhead.

In Marginal costing, Marginal income or contribution = net sales - variable manufacturing cost of goods soldvariable administrative selling and distribution overhead.

Net operating

Under Absorption costing,

Under Marginal costing Net

Profit

Net operating profit = Gross Profit = administrative selling And distribution overheads (
Fixed and variable combined).

operating profit = Marginal income or contribution fixed manufacturing overheads fixed administrative

Overheads fixed selling and

distribution overhead

Difference of When production volume

When production volume is less

Profit

exceeds sales volume the net


Profit under absorption costing

than sales volume, absorption cost


ing net profit will be less than marginal net profit

Net Profit. The Net profit will be


equal when production volume is equal to sales volume Q9 Answer:
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System of creating budgets, monitoring progress and taking appropriate action to achieve budgeted performance. Note: a budget should provide the information necessary to enable approval, authorisation and policy-making bodies to assess a project proposal and reach a rational decision.

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Section B Q2

Answer
Accountant A person who has the requisite skill and experience in establishing and maintaining accurate financial records for an individual or a business. The duties of an accountant may include designing and controlling systems of records, auditing books, and preparing financial statements. An accountant may give tax advice and prepare tax returns. A public accountant renders accounting or auditing services for a number of employees, each of whom pays the accountant a fee for services rendered. He or she does more than just bookkeeping but does not generally have all the qualifications of a certified public accountant. A certified public accountant is one who has earned a license in his or her state that attests to a high degree of skill, training, and experience. In addition to passing an accounting examination, a candidate must have the proper business experience, education, and moral character in order to qualify for the license. The letters CPA are commonly used and generally recognized to be the abbreviation for the title Certified Public Accountant. The practice of accounting is a highly skilled and technical profession that affects public welfare. It is entirely appropriate for the state to regulate the profession by means of a licensing system for accountants. Some states do not permit anyone to practice accounting except certified public accountants, but other states use the title to recognize the more distinguished skills of a CPA while permitting others to practice as public accountants. All states limit the use of the title and the initials to those who are licensed as certified public accountants. All accountants are held to high standards of skill in issuing professional opinions. They can be sued for malpractice if performance of their duties falls below standards for the profession. Read more: http://wiki.answers.com/Q/What_is_a_role_of_an_accountant#ixzz1lJuu2TcX

Q3
FUND FLOW STATEMENT

A fund flow statement is a summary of a firm's inflow and outflow of funds. It tells us from where funds have come and where funds have gone. Fund flows statement can indicate whether sourcing of funds and their use match in ALM sense and also reveal the prudence or otherwise of a firm's financing and investment decisions. A firm's balance sheet From a bank's perspective a borrower's balance sheet can be seen as a structure of five boxes as below. We can observe the following from above figure:

Owner's fund and long term loans represent long term sources of funds Current liabilities (including short term loans repayable within one year) represents short term sources of capital. Thee whole of long term funds is not invested in long term assets but a portion of it is invested in short term or current assets as well. The extent by which current assets are financed by long term funds is known as net working capital or NWC.

If we convert balance sheets of two consecutive years into boxes as above and work out the change in amounts in the boxes, we will get a fund flow statement as below. Therefore, preparation of fund flow statement involves the followings steps:

Take balance sheets as at two dates covering the period for which fund flows statement is intended to be prepared. Work out increase /decrease in each of items Classify change in each item under any of the four heads: (1) Long term sources (2) Long term uses (3) Short term sources (4) Short term uses. The deficit or the surplus in the long term category will be equal to the surplus or deficit in the short term category.

Preparing fund flow statement Generally changes in assets and liabilities lead to inflows or outflows of cash (or funds). Increase in assets or liabilities, however does not always lead to flow of funds, for instance, depreciation or any kind of revaluation. Therefore, all increases/decreases in asset or liabilities will not form part of fund flow statement but only those that result in the flows of funds. The following table encapsulates the fund flow implications of changes in asset/liabilities values.

Table -1 Asset Increase Decrease Increase Decrease Liability Type of fund flow Outflows Inflows Inflows Outflows Non-fund based adjustments Upward revaluation Depreciation Upward revaluation (as in the case foreign currency liabilities) Depreciation (as in the case foreign currency liabilities)

When preparing fund flow statement we have to nullify the non-fund based adjustments in order to capture only those changes in the values of assets and liabilities that are accompanied by flows of fund. Increase in the item "reserves and surplus" indicate the amount of retained profits for the year. If we add profits distributed to this figure we will get the amount of net profit for the year after taxes. We need to adjust the net profit figure for all non-cash expenses and noncash incomes. As a rule, we have to add all non-cash expenditure to and deduct all non-cash income from the figure of net profit. For depreciation in assets: Add depreciation to the change in reserve and surplus and correspondingly to the value of assets concerned. The opposite holds for appreciation. For write offs: Add the amount of write offs to net profits. Income accrued but received and expenses incurred but not received reckoned in the profit and loss account should not be excluded from the profit figure for the purpose of Fund Flow Statement. The rationale for this rule is that so long as accrued incomes are expected to be received and outstanding expenses are expected to be paid in the normal course of business there is no harm in treating these as inflow or outflow of funds, albeit with a lag. As regards changes in items of current assets and liabilities, we can either show the items separately or net them to arrive at the figure of "change in net working capital". It is however more informative to show the current items separately. The following example illustrates the preparation of fund flow statement. Table -2 Liabilities 31-3-06 Rs. lakh Capital 90 31-Mar-07 Rs. Lakh 110 Fixed Assets Assets 31-3-06 Rs. lakh 135 31-3-07 Rs. lakh 221

Res. & Sur Term Loan Cash Credit Trade Crs. Bank Borr. TOTAL

35 110 75 20 15 345

50 150 90 100 20 520

Inv. In Associates Inventory Receivables Cash & Bank Other CA TOTAL

30 140 20 10 10 345

86 175 25 8 5 520

The enterprise has made a profit of Rs. 95,00,000 during the year. A provision for tax of Rs. 30,00,000 has been made from the profit. An amount of Rs.50,00,000 was withdrawn by the proprietor from the profits during the year. Besides, the following additional information in respect of the fixed asset items of the enterprise is also available.

Rs. Lakh 31-3-06 Gross FA Total Depreciation Net FA 225 90 135 125 Addition 125 Disposal Nil Nil Nil 31-3-07 350 129 221

The first step in working out fund flows is to compute the changes in assets and liabilities during 2006-07. This is shown in the following table.

Table-3 Liabilities Capital Res. & Sur Term Loan Cash Credit Trade Crs. Other CL Total Change +20 +15 +40 +15 +80 +5 175 Type LTS LTS LTS STS STS STS Assets Fixed Assets Inv. In Associates Inventory Receivables Cash & Bank Other CA Change Type +86 +56 +35 +5 -2 -5 175 LTU LTU STU STU STS STS

Note that increase in assets is use of funds (outflows) while decrease in assets is source of funds (inflows) and so forth as shown in Table-1. Further, depending on which 'box' (see Figure 2) the items belong the change can represent either a long term or short term source/use. Accordingly, the changes have been categorized as LTS, LTU, STS, STU in the table above. This is our skeleton fund flow statement. We now have to nullify the impact of non-fund based adjustments hidden in the above numbers. Also, certain adjustments are made just in order to make a more meaningful presentation. For example, we are told that the proprietor has withdrawn Rs.50,00,000 from Capital A/c. The withdrawal is fund-based adjustment not requiring any adjustment, strictly speaking. But according to our skeleton fund flow statement increase in reserve and surplus (that is, profit for the year) is Rs.15,00,000. This figure is obviously after the withdrawal of Rs.50,000. The true profit is not therefore Rs.15,00,000 but Rs.65,000. Therefore, a better presentation would be to show profit from operations as Rs.65,00,000 on the Source side and Rs.15,00,000 as profits withdrawn on Uses side. This is arithmetically same as showing just Rs.15,00,000 on the Source side. Therefore our adjustment is as under: Profit from operations Rs.lakh Increase in reserves and surplus:15 Add: Profit withdrawn 50 ----------------------------------------------------------------------------------------------------------Total 65 Provision for tax does not require any adjustment as even though a mere provision does entail fund flow as tax will have to be paid anyway; it is just a matter of timing. Finally, the increase in fixed assets shown as Rs.86,000 in Table 3, does not represent the correct figure of fixed assets purchased as the fixed assets values include the effect of depreciation. We will have to nullify that. Rs.lakh

Depreciation provision as on 31.3.2007-129 Depreciation provision as on 31.3.2006-90 Depreciation provided in 2006-07-39 Profit before depreciation adjustment-65 Add depreciation (non-cash expense)-39 Correct cash profit (LT source of funds)-104 Balance of fixed assets as at 31.3.20072-21 Add: depreciation for 2006-07-39 Balance of fixed asset as at 31.3.07 before depreciation-260 Less: Balance of fixed asset as at 31.3.2006-135 Fixed assets purchased during 06-07 (LT application of funds)-125 Fund Flow Statement Rs. Lakh Long term Sources Increase in capital Profit from operations Increase in long term loan Long term deficit Total Short Term Sources Increase in CC Increase in Trade Creditors Increase in Other Current Liabilities Decrease in cash Decrease in other current assets Total 15 80 5 2 5 107 Total 107 20 104 40 67 231 Total Short Term Uses Incraese in inventory Increase in receivables Short term surplus 35 5 67 231 Long Term Uses Purchase of fixed assets Investment in associates Profit withdrawn 125 56 50

How do we interpret the above fund flow statement? Basically, it shows healthy cash flows from operations. However the problem is that the firm is using short term money to finance long term investments. This can lead to liquidity problems in future. The onset of liquidity problems is visible as the firm has increased current assets by Rs.33 lakhs as compared with increase in current liabilities by Rs.100 lakh, which produces incremental current ratio of 0.33. Also, the promoter has withdrawn nearly half the profit, which is serious imprudence when he had plans to invest heavily in fixed assets. From another angle, it can be argued that the promoter has withdrawn the more than the entire bank loan. Prima facie, this also appears to be a case of diversion of funds. In this manner a fund flow statement can be used to derive valuable information on the manner in which a firm raises and deploys its funds.

A fund flow statement is a summary of a firms inflow and outflow of funds. In other words, fund flow is a statement which analyzes the inflow and outflow of funds of an organization or firm in a particular period.

Limitations Of Fund Flow Statement


The fund flow statement suffers from the following limitations: 1. The fund flow statement is prepared with the help of balance sheet and profit and loss account of the current period and these statements are based on historical cost. So a realistic comparison of profitability and the funds position is not possible as the current cost is not considered for the purpose of preparation of fund flow statement. 2. The cash position of the firm is not revealed by fund flow statement. To know the cash position a cash flow statement has to be prepared. 3. The various activities are not classified as operating activities, investing activities and financing activities while preparing fund flow statement.

Uses Of Fund Flow Statement

1. The users of fund flow statement, such as investors, creditors, bankers, government, etc., can understand the managerial decisions regarding dividend distribution, utilization of funds and earning capacity with the help of fund flow statement. 2. The quantum of working capital is revealed by the schedule of working capital changes, which is a part of fund flow statement. 3. The fund flow statement is the best and first source for judging the repaying capacity of an enterprise. 4. The management will be able to detect surplus/shortage of fund balance. 5. The fund from operation is not mentioned in the profit and loss account and balance sheet but it is separately calculated for the purpose of fund flow statement. A fund flow statement is a summary of a firms inflow and outflow of funds. In other words, fund flow is a statement which analyzes the inflow and outflow of funds of an organization or firm in a particular period.

Limitations Of Fund Flow Statement


The fund flow statement suffers from the following limitations: 1. The fund flow statement is prepared with the help of balance sheet and profit and loss account of the current period and these statements are based on historical cost. So a realistic comparison of profitability and the funds position is not possible as the current cost is not considered for the purpose of preparation of fund flow statement. 2. The cash position of the firm is not revealed by fund flow statement. To know the cash position a cash flow statement has to be prepared. 3. The various activities are not classified as operating activities, investing activities and financing activities while preparing fund flow statement.

Uses Of Fund Flow Statement


1. The users of fund flow statement, such as investors, creditors, bankers, government, etc., can understand the managerial decisions regarding dividend distribution, utilization of funds and earning capacity with the help of fund flow statement. 2. The quantum of working capital is revealed by the schedule of working capital changes, which is a part of fund flow statement. 3. The fund flow statement is the best and first source for judging the repaying capacity of an enterprise. 4. The management will be able to detect surplus/shortage of fund balance. 5. The fund from operation is not mentioned in the profit and loss account and balance sheet but it is separately calculated for the purpose of fund flow statement.

Uses of Fund Flow Statement


By Natasha Gilani , eHow Contributor

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1.

o
questions.

Fund flow statements allow financial managers to answer complicated fund allocation

A fund flow statement, also called a statement of changes in capital and statement of changes in financial position, is a financial statement that represents how an organization has been financed, the sources of funds and how they have been used within a specific period of time. Author Roy A. Foulke, writing in the book, "The Commercial Market Paper," defines a fund flow statement as a "statement of sources and application of funds is a technical device designed to analyze the changes in the financial condition of a business enterprise between two dates." Simply put, a fund flow statement highlights the flow of funds (sources and uses) between two dates.

2. Financial Analysis
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A fund flow statement is a financial analysis tool that helps managers make decisions. It highlights the changes in the financial position of a company. Unlike other financial statements, such as an income statement and balance sheet that provide only a static view of an organization's financial operations, a fund flow statement is dynamic and depicts the flow of funds and how they have been allocated between various business activities. It provides complete information to financial managers on the effectiveness of fund allocation and reveals an organization's fund-generating strengths and weaknesses. A fund flow statement also throws light on the financial position of a firm at a given point in time and highlights the financial consequences of major business operations, allowing managers to take corrective actions if required. Funds flow statements allow financial managers to plan on how to improve the rate of return on assets, manage the effects of insufficient funds and cash balance and plan how to pay interest to creditors and dividends to shareholders.

Effective Resource Allocation


o

A fund flow statement is a useful resource allocating tool. It helps financial managers allocate resources efficiently. It is not uncommon for managers to design projected fund flow statements as a forecasting tool. A fund flow statement, therefore, can be thought of as a control device that allows managers to make effective financial planning decisions. It helps managers plan on how to invest idle funds and secure additional capital.

Answer Complicated Financial Questions


o

A fund flow statement provides a snapshot view of the flow of funds, allowing financial managers to answer complicated questions about the creditworthiness of a company, how a company plans on repaying its loans, the total amount of funds generated through regular business operations, the liquid position of a business, how management allocated funds historically, the results of historic fund allocation and how they are going to use funds in the future

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Q4

Closing stock = 120000 Therefore opening stock =80000(as 40000 is excess in clsg. stock) Hence average inventory= (120000+80000)/2 = 100000 COGS= (Net sales - gross profit)

therefore COGS= 300000. Hence stock t/o ratio= 300000/100000=3. It means that it takes 12/3 = 4 months for the stock to turnover
Q5