Explain construction of Fund Flow Statement with example.

A Fund Flow Statement is a financial document that tracks the movement of funds in and out of a company. It is designed to show how cash is generated and spent during a specific period, offering insights into the financial health and liquidity of a company. The Fund Flow Statement is crucial for understanding the sources and applications of funds, as it provides a more detailed view than the traditional Income Statement or Balance Sheet.

The construction of a Fund Flow Statement involves several key steps. This statement focuses on two primary sections: sources of funds and uses of funds. It differs from a cash flow statement because it deals with both cash and non-cash transactions, providing a broader perspective of the financial activities.

### Steps to Construct a Fund Flow Statement

#### 1. Identify the Changes in Working Capital
   The first step in constructing a Fund Flow Statement is to determine the changes in working capital. Working capital is defined as the difference between current assets and current liabilities. A change in working capital indicates the movement of funds during a period. If the working capital increases, it suggests that more funds have been tied up in current assets or less have been used to pay off current liabilities. Conversely, if the working capital decreases, it implies that funds have been freed up from current assets or more liabilities have been paid off.

   To calculate the change in working capital, you compare the current assets and current liabilities at the beginning and end of the period.

   \[
   \text{Change in Working Capital} = (\text{Current Assets at End of Period} - \text{Current Liabilities at End of Period}) - (\text{Current Assets at Beginning of Period} - \text{Current Liabilities at Beginning of Period})
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