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The **Fund Flow Statement** is a classic yet significant topic in **UGC NET Commerce**, often tested in both conceptual and numerical formats. It is a vital part of financial analysis and accounting that helps in understanding the **movement of financial resources** within a business over a period.

What is a Fund Flow Statement?

A **Fund Flow Statement** is a financial report that explains **changes in the financial position** of a company between two balance sheet dates. It shows **inflows and outflows of funds** and highlights how the working capital has changed during a specific period.

Key Concept:

> In fund flow, **‘funds’ refer to working capital** (i.e., Current Assets - Current Liabilities).

Objectives of Fund Flow Statement

1. **To identify the sources and uses of funds**  

   Shows where the funds came from and how they were used.

2. **To analyze changes in working capital**  

   Tracks increases or decreases in current assets and liabilities.

3. **To understand financial policies**  

   Helps assess financing and investing decisions over time.

Components of Fund Flow Statement

The statement is usually prepared in **two parts**:

1. Statement of Changes in Working Capital

| Particulars | Current Year | Previous Year | Change |

|-------------|--------------|----------------|--------|

| Current Assets | ₹XXXX | ₹XXXX | ↑/↓ |

| Current Liabilities | ₹XXXX | ₹XXXX | ↑/↓ |

Key Rules

- Increase in Current Assets → Increase in Working Capital

- Increase in Current Liabilities → Decrease in Working Capital

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2. Fund Flow Statement (Sources and Uses of Funds)

| Sources of Funds | ₹ | Applications (Uses) of Funds | ₹ |

|------------------|----|-----------------------------|----|

| Funds from Operations | XXXX | Purchase of Fixed Assets | XXXX |

| Issue of Shares or Debentures | XXXX | Redemption of Debentures | XXXX |

| Sale of Fixed Assets | XXXX | Payment of Dividends/Taxes | XXXX |

| Non-Operating Income | XXXX | Increase in Working Capital | XXXX |

Common Adjustments to Know for UGC NET

- **Depreciation**: Non-cash expense; added back to Net Profit to calculate funds from operations.

- **Provision for Taxation**: Treated as an appropriation, not a current liability.

- **Proposed Dividend**: Treated as a non-current liability (use of funds).

- **Profit/Loss on Sale of Assets**: Adjusted from operating results.

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Difference Between Fund Flow and Cash Flow Statement

| Basis | Fund Flow | Cash Flow |

|-------|-----------|-----------|

| Basis of Analysis | Working Capital | Cash & Cash Equivalents |

| Time Focus | Medium/Long-term | Short-term |

| Objective | Understand financial changes | Analyze liquidity position |

| Preparation Basis | Accrual basis | Cash basis |

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UGC NET Commerce – Quick Tips

1. **Learn Format & Rules**: Memorize the format for both working capital and fund flow statements.

2. **Conceptual Clarity**: Know the treatment of each item—Is it a source, application, or working capital change?

3. **Solve PYQs**: Many past UGC NET questions involve numericals or identifying correct fund flow logic.

4. **Make Tables**: While solving, use neat tabular formats for clarity and speed.

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Example UGC NET Type Question

> **Q:** If a company purchases machinery worth ₹2,00,000 and issues shares worth ₹3,00,000, what is the net impact on fund flow?

> 

> **A:**  

> **Source**: Issue of Shares = ₹3,00,000  

> **Application**: Purchase of Machinery = ₹2,00,000  

> **Net Increase in Working Capital** = ₹1,00,000

Final Words

The **Fund Flow Statement** may seem traditional compared to the Cash Flow Statement, but it remains a strong analytical tool for understanding a company’s **financial management and strategy**. For UGC NET aspirants, mastering this concept can score you easy marks in both theory and numerical sections.

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