In Fund Flow Statement, which one of the following is not a valid statement?

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UGC NET Paper 2: Commerce 29 Sep 2022 Shift 2
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  1. It is prepared to know the total sources and their uses in a year.
  2. Dividend received is a source of funds.
  3. Its preparation is at the discretion of the management.
  4. It is useful for external financial management.

Answer (Detailed Solution Below)

Option 4 : It is useful for external financial management.
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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Detailed Solution

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Key Points

 Fund Flow Statement:

  • A fund flow statement is a document created to examine the factors that led to changes in a company's financial situation between two balance sheets.
  • It depicts the inflow and outflow of funds during a specific time period, including the sources and uses of that money.

Important Points Statement 1: It is prepared to know the total sources and their uses in a year.

A fund flow statement will give us the following two information:

  • Sources of funds - From where the funds have come in.
  • Application of funds - Where these funds have been used.

Hence, Statement 1 is true.

Statement 2: Dividend received is a source of funds.

  • Dividend received facilitates the inflow of cash in the business and hence they are regarded as sources of funds.

Hence, statement 2 is correct.

Statement 3: Its preparation is at the discretion of the management.

  • The income statement, balance sheet, and statement of cash flows are mandatory financial statements.
  • Fund flow statement is prepared at a discretion of the management.

Hence, Statement 3 in correct.

Statement 4: It is useful for external financial management.

  • It acts as a financial parameter that aids in controlling a company's finances, improving long-term financial planning strategies, and utilising both short- and long-term cash.
  • Hence, it is useful for internal financial management.

Hence, Statement 4 in incorrect.

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