STATEMENT OF CHANGES IN FINANCIAL POSITION Homework Help

STATEMENT OF CHANGES IN FINANCIAL POSITION

INTRODUCTION

The balance sheet and income statement/profit and loss account (described in Appendix 6-A) are the traditional basic financial statements of a business enterprises, While they do furnish useful financial data regarding its operations, a serious limitation of these statements is that they do not provide information regarding changes in the firm's financial position during a particular period of time, In operational terms, they fail to answer questions such as:

• What have been the factors responsible for the difference in owner's equity, liabilities of the firm at two dares of consecutive balance sheets.

• What have been the 'premier financing and investment activities or the firm during this period?

• Have long-term sources been adequate to finance fixed assets purchases?

• Does the firm possess adequate working capital and cash?

• Why did the firm not pay dividends in spite of adequate profits?

• How much funds have been generated from operations/operating activities?

• How much funds have been generated (or spent) from (or on) investment and financing activities?

• Has the liquidity position of the firm improved?

The statement of changes in financial position (SCFP) overcomes these limitations of basic financial statements, In other words, the SCFP throws light on the above aspects which are of considerable interest to the financial managers and outside investors, The present chapter illustrates the presentation and use of sew. The first Section of the chapter outlines the meaning and objectives of the SCFP. The preparation of the SCFP in terms of working capital and cash is respectively covered in Sections 2 and 3, The Accounting Standard: AS3 (Revised), Cash Flow Statement issued by the Institute of Chartered Accountants of India is explained in Section 4. The SCFP based on total resources is examined in Section 5. Section 6 examines the usefulness of such statements. Finally, the main points are summarized in the last Section of the chapter,

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