Question

Opening stock is

• A. Source of fund
• B. Application of fund
• C. No flow of fund
• D. None of these

Hint:

Opening stock shows funds already utilized in previous periods — hence it is treated as an application of fund, not as a new cash flow.

Answer 1

The Correct Option is B

Step 1: Understanding opening stock.
Opening stock represents the value of goods or materials that a business holds at the beginning of an accounting period.
It is the leftover inventory from the previous year, carried forward to the new financial year.
Step 2: Accounting impact.
In the preparation of fund flow statements, opening stock is treated as an application of fund.
This is because funds have already been invested in purchasing or producing this stock in the previous period, and those funds remain tied up in inventory.
Step 3: Conceptual explanation.
Even though opening stock does not involve a new cash transaction during the current year, it represents the utilization of resources in earlier operations.
Hence, the funds locked in the opening stock are considered as applied funds.
Step 4: Example.
If a business starts the year with ₹50,000 worth of stock, that amount signifies funds already spent and invested in inventory.
Thus, it is recorded as an application of fund since the capital is used and remains blocked in stock form.
Step 5: Analysis of options.
- (1) Source of fund: Incorrect — no new cash inflow arises from opening stock.
- (2) Application of fund: Correct — it represents resources tied up in inventory.
- (3) No flow of fund: Incorrect — it shows utilization from the past.
- (4) None of these: Incorrect.
Step 6: Conclusion.
Therefore, opening stock is classified as an application of fund in financial analysis.