Statement of Changes in Total Resources

This statement is comprehensive to disclose all the changes in the financial position of the firm during a period. It shows all the financing and investment activities without omitting anything, including major financial and investment activities like issue of equity shares or debentures for the purchase of building or plant and machinery, conversion of debentures into shares, issue of bonus shares, and the like and gives the result as increase / decrease in Working capital

Specimen of Statement or Report form of Funds of Flow Statements

Sources of Fund:

• Sources or funds from operations.
• Issue of shares.
• Issue of debenture.
• Raising of long term loans.
• Sale of fixed or non-current asset.
• Sale of long-term or trade investments.
• Non-trading income – dividends received.
• Decrease in working capital (as per schedule of changes in working capital)

Uses of Funds

• Sources or funds lost in operations.
• Redemption of preference shares.
• Redemption of debentures.
• Repayment of long• term loans.
• Purchase of fixed or non-current assets.
• Purchase of long-term Investments.
• Payment of dividend in cash.
• Payment of tax in cash.
• Increase in working capital (as per schedule of changes in working capital)

Under the total financial resources concept of funds, the statement is not limited to transactions affecting working capital but would also be extended to cover all significant financial transactions that would otherwise be omitted under the other concepts of funds. That is, the total financial resources concept requires that all material financial transactions be disclosed in the statement of changes in financial position.

Transactions that technically do not increase or decrease funds (regardless of the concept of funds employed) but that represent significant financing and investing activities entered into by an entity must also be disclosed within the statement. Disclosure of a significant transaction that does not increase or decrease funds is made by showing one side of the transaction as a source of funds and the other side of the transaction as a corresponding use of funds.

Transactions that affect financial position but do not increase or decrease funds include the following:

• Purchase of non-current assets, e.g., property and equipment by issuing share capital or debenture or long term debt.
• Reduction of a long-term liability by the issuance of share capital or the incurrence of another long term liability or a reduction in a non-current asset.
• The above statement would be more useful in summarizing the resources from which the funds have been obtained and the uses to which they have been put. The statement can analyse sources and uses in two categories of items.
• those which affect working capital
• those which do not affect working capital. Such a statement is, certainly, more informative and, therefore, potentially more useful in disclosing the firm’s financing and investing activities during the two balance sheet dates.

The fact that items which do not affect working capital are separately dealt with, implies that it retains all the advantages of the working capital concept and, in addition, has the additional advantage of providing a complete picture of the total financial and investment activities of the firm.

This statement includes significant transactions involving flows of non-cash resources even if cash itself is not affected. To recognise changes in all resources, these transactions are reported as both sources and uses of cash.

The following illustration explains it:

1. Purchased a Rs 5,00,000 building for Rs 1,00,000 cash and Rs 4,00,000 mortgage note.

Sources of Cash:

Issuing Mortgage note Rs 4,00,000

Use of Cash:

Purchase of Building Rs 5,00,000

2. Issued a promissory note to acquire land at a cost of Rs 50,000

Source of Cash:

Issuing promissory note Rs 50,000

Use of Cash:

Purchase of land Rs 50,000

3. Issued 10,000 shares in exchange for 1,000 convertible debentures with Rs 10,000 book value and Rs 1,00,000 face value.

Source of Cash

Issue of Shares Rs 1,00,000

Use of Cash

Retirement of debentures Rs 1,00,000

It can be noticed that each side of the transactions has a significant impact on the company’s financial position. By applying the total resources concept, the statement of changes in financial position reflect more fully these significant events.