Questions for Chapter-Cash flow statements 

  • Board
    CBSE
  • Textbook
    NCERT
  • Class
    Class 12
  • Subject
    Accountancy
  • Chapter
    Questions for Chapter-Cash flow statements 
  • Chapter Name
    Cash flow statements
  • Category
    CUET (Common University Entrance Test) UG

MCQ-Based Questions for CUET Accountancy chapter-Cash flow statements 

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Practice Questions for CUET Accountancy chapter-Cash flow statements SET-1

Accounts - MCQ on Cash flow statements

Class XII

Q.1. Accounting standard -3 (As-3) deals with:

a) Goodwill

b) Depreciation

c) Fund flow statement

d) Inventory valuation

Answer:

C) Fund flow statement

Explanation:- According to ICAI (institute of charted accountants of India) AS(3) deals with changes in financial position.

Q.2. Cash flow statement provides information about:

a) Revaluation of assets

b) Historical changers in cash & equivalents

c) P&L Appropriation

d) Increase in liabilities

Answer:

B) Historical changes in cash & Equivalents

Explanation:- Cash flow statement provides information about Historical changes in cash & Equivalents of an enterprises by classifying cash flow into operating, investing and financial activities.

Q.3) Operating, Investing and Financial activities are related to

a) depreciation

b) Production

c) Cash flow statement

d) Balance sheet

Answer:

C) Cash flow statement

Explanation:- Cash flow statement provides information about Historical changes in cash & Equivalents of an enterprises by classifying cash flow into operating, investing and financial activities.

Q.4. A cash flow statement shows :-

a) Inflow and outflow of cash

b) Profit and Loss

c) Reserve and surplus

d) Appreciation

Answer:

A) Inflow and outflow of cash

Explanation:- Shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period.

Q.5. Primary objective of Cash flow:-

a) To provide information about profit & loss

b) to provide information about financial position of firm

c) to provide information about creditors and debtors

d) to provide information about inflows or outflows of cash in a firm

Answer:

D) To provide information about inflows or outflows of cash in a firm

Explanation:- Primary objective of Cash flow statement is to provide useful information about cash flows of an enterprise during a particular period under various head.

Q.6. What is the use of Cash flow for decision makers?

A) Shows the profit and loss

B) Shows the future of firm

C) Fro policy making

D) To assess the ability of the firm to generate cash and equivalents

Answer:

D) To assess the ability of the firm to generate cash and equivalents

Explanation:- The information from cash flow statement provides useful information to decision makers on the basis to assess the ability of the firm to generate cash and equivalents and the needs of the enterprise to utilize those cash flows

Q.7. which one is not the Benefits of cash flow;-

a) evaluate changes in net assets

b) assign the ability to generate cash and cash equivalents

c) Enhance the comparability of the reporting of operating performance.

d) Shows the actual financial position of the firm

Answer:

D) Shows the actual financial position of the firm

Explanation: - Balance sheet and P&L account Shows the actual financial position of the firm

Q.8. Cash flow statements enhance the comparability of the reporting of operating performance by different enterprises because:-

a) of double entry system

b) Historical cost principal

c) It eliminate the effects of using different accounting treatments for same transaction and event

d) To assess the ability of the firm to generate cash and equivalents

Answer:

C) It eliminate the effects of using different accounting treatments for same transaction and event

Explanation:- It eliminate the effects of using different accounting treatments for same transaction and event.

Q.9. Short term highly liquid investments that are readily convertible into known amounts of ash and which are subject to a significant risk to changes in value.

a) Cash equivalent

b) Fixed assets

c) Loans and advances

d) Liabilities

Answer:

9 A) Cash equivalents

Explanation: - Short term highly liquid investments that are readily convertible into known amounts of ash and which are subject to a significant risk to changes in value.

Q.10.As per AS.3 cash flow excludes movements between items that constitute cash or cash equivalents because:-

a) These components are part of the cash management of an enterprise rather than part of its operating, investing, financing activities.

b) These components are part of the balance sheet of an enterprise rather than part of its operating, investing, financing activities

c) These components are part of the Trading A/c of an enterprise rather than part of its operating, investing, financing activities

d) These components are part of the Share capital of an enterprise rather than part of its operating, investing, financing activities

Answer:

a)

Explanation:- These components are part of the cash management of an enterprise rather than part of its operating, investing, financing activities

Q.11.Which is the cash Inflow operating activity:-

a) Cash receipt from sale of goods

b) Cash received from sale of assets

c) Cash received from creditors

d) Cash received from interest on debentures

Answer:

Cash receipt from sale of goods

Explanation:- Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities.

Q.12. Which is the Cash outflow from operating activity:-

a) Cash payment to suppliers of Machinery

b) Cash payment to supplier for goods and services.

c) Cash payment to debenture holders.

Answer:

Cash payment to supplier for goods and services.

Explanation:- Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities.

Q.13. Cash advances and loan by financial enterprises are usually classified as:-

a) Operating activity

b) Investing activity

c) Financing activity

d) All of the above

Answer:

Operating activity

Explanation:- They are related to main activity of that enterprise.

Q.14.Which one is the cash outflows from investing activities:

a) Cash payment to supplier

b) Cash payment for purchasing fixed assets

c) Cash payment to repairs of machine

d) All of the above

Answer:

B) Cash payment for purchasing fixed assets

Explanation:- they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.

Easy

Q.15.Which one is the cash inflows from investing activities

a) cash receipt from disposal of fixed assets

b) Cash receipt from the repayment of advances of loans

c) Cash receipt from disposal of shares

d) All of the above

Answer:

D) All of the above

Explanation:- they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.

Q.16. identify cash inflows from financing activities

a) Cash proceeds from issuing shares

b) Cash proceeds from issuing debentures

c) Neither A nor B

d) Both A and B

Answer:

D) Both A and B

Explanation: Financing activities are activities that result in changes in the size and composition of the owner’s capital.

Q.17. Which one is not an item of cash flow from financing activities:

a) cash repayments of amounts borrowed

b) Interest paid on loans

c) Dividend paid on equity shares.

d) All of the above

Answer:

D) All of the above

Explanation: Financing activities are activities that result in changes in the size and composition of the owner’s capital.

Q.18. Purchases =

a) Cost of Goods sold – operating stock + closing stock

b) Cost of Goods sold + operating stock + closing stock

c) Cost of Goods sold – operating stock - closing stock

d) None of the above

Answer:

A) Cost of Goods sold – operating stock + closing stock

Explanation: Cost of Goods sold – operating stock + closing stock

Q.19. Which one of the following is/are considered under direct method:-

a) Cash receipt from customer

b) Cash payment to suppliers

c) Purchases

d) All of the above

Answer:

D) all of the above

Explanation:- all are directly relater to operating activity of the firm.

Q.20.Which one is not consider under direct method of cash flow statement

a) Depreciation

b) Interest received

c) Either A or B

d) Both A and B

Answer:

D) Both A and B

Explanation:- these are not direct related to operating activities of firm

Q.21.Under indirect method income statement is prepared on:-

A) accrual base

B) cash based

C) Either A and B

D) Only A

Answer:

D) Only A

Explanation:- Base on accrual bases

Q.22. Acc to AS. 3Investing activities are the acquisition and disposal of long term assets and other investments not included in:-

a) Cash

b) Cash equivalent

c) Both in A and B

d) None of the above

Answer:

B) Cash equivalent

Explanation:- Acc to AS. 3Investing activities are the acquisition and disposal of long term assets and other investments not included in cash equivalent

Q.23.Interest received in cash from loan and advances:-

a) Cash from investing activities

b) Cash from operating activities

c) Cash from financing activities

d) All of the above

Answer:

A) Cash from investing activities

Explanation :- they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.

Q.24. Cash payment or refund of income taxes unless they can be specifically identified with financing and investing activities

a) Cash from investing activities

b) Cash from operating activities

c) Cash from financing activities

d) All of the above

Answer:

B)Operating activities

Explanation:- Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities.

Q.25. Cash repayment of amounts borrowed comes under:-

a) Cash from investing activities

b) Cash from operating activities

c) Cash from financing activities

d) All of the above

Answer:

C) Cash form financing activities

Explanation:- Financing activities are activities that result in changes in the size and composition of the owner’s capital.

Practice Questions for CUET Accountancy chapter-Cash flow statements SET-2

Q.26. Classification of cash inflows and outflows activities

a) operating

b) Investing

c) Financing

d) All of the above

Answer:

D) all of the above

Explanation:- As per AS-3 cash flow activities are to be classified in to three categories Operating, investing, financing,

Q.27. Cash receipt from sale of goods and the rendering services comes under:

a) operating

b) Investing

c) Financing

d) All of the above

Answer:

A) Operating activity

Explanation:- Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities

Q.28. Cash proceeds from issuing debentures, loans, bonds and other short or lomg term borrowings comes under:-

a) operating

b) Investing

c) Financing

d) All of the above

Answer:

C) Financing activity

Explanation:- Financing activities are activities that result in changes in the size and composition of the owner’s capital

Accounts - MCQ on Cash Flow Statement

Class XII

Q.1. Short-term high liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value are called

a. cash flows.

b. cash inflows.

c. cash equivalents.

d. investments.

Answer:

c

Explanation: Short-term high liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value are called cash equivalents.

Q.2. Example of cash inflow from investing activities include

a. purchase of furniture.

b. sale of old machinery.

c. sale of goods.

d. issue of debentures.

Answer:

(b)

Explanation: Investing activities include sale and purchase of fixed assets like sale of old machinery.

Q.3. Dividend paid on equity and preference capital is shown under

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(c)

Explanation: Equity and preference shares are shown under financing activity, so divided paid on it is also a financing activity.

Q.4. Cash equivalents include

a. short-term marketable securities.

b. current assets.

c. current liabilities.

d. provisions.

Answer:

(a)

Explanation: Cash equivalents include short-term marketable securities.

Q.5. Issue of equity shares is included under

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(c)

Explanation: Issue of equity shares is included under financing activities.

Q.6. The principal revenue generating activities of an enterprise are classified under

a. operating activities.

b. investing activities.

financing activities.

extraordinary items.

Answer:

(a)

Explanation: The principle revenue generating activities are shown under operating activities.

Q.7. Taxes paid on income should be shown separately as the cash flows from

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(a)

Explanation:Income from main activity of the business is shown under operating activities and tax is deducted from it and shown separately in cash flow statement.

Q.8. Cash comprises cash in hand and

a. demand deposits with banks.

b. stock.

c. debtors.

d. prepaid expenses.

Answer:

(a)

Explanation: Cash comprises cash in hand and demand deposits with banks.

Q.9. Investing activities are related to

a. main revenue generating activities.

b. purchase and sale of fixed assets.

c. issue of shares.

d. redemption of debentures.

Answer:

(b)

Explanation: Investing activities relate to purchase and sale of long term assets or fixed assets such as machinery, furniture etc.

Q.10. The example of items shown on the debit side of profit and loss account, which result in outflow of cash, is

a. depreciation.

b. discount on issue of shares written off.

c. creation of reserves.

d. salaries.

Answer:

(d)

Explanation: Salaries result in outflow of cash.

Q.11. “Dividend received from investments in other enterprises” are shown under the head

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(b)

Explanation: As investments are shown under investing activities, any dividend received on it is also an investing activity.

Q.12. Financing activities are related to

a. main revenue generating activities.

b. purchase and sale of fixed assets.

c. issue of shares.

d. dividend received.

Answer:

(c)

Explanation: Financing activities are related to long-term funds or capital of an enterprise.

Q.13. In case of non-financial enterprises, receipt of interest and dividend are classified as

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(b)

Explanation: Interest and dividend are received on investments, which comes under investing activities. Hence it will also appear under investing activities.

Q.14. Activities that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise is called

a. operating activities.

investing activities.

financing activities.

d. extraordinary items.

Answer:

(c)

Explanation: Activities that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise are called financing activities.

Q.15. The item, which is deducted from the figure of operating profit, is

a. decrease in stock.

b. increase in outstanding.

c. increase in prepaid expenses.

d. increase in creditors.

Answer:

(c)

Explanation: Increase in current assets is deducted from the figure of operating profit.

Q.16. In case of enterprises, whose main business is lending and borrowing (financial enterprises), interest paid, interest received and dividend received are classified as

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(a)

Explanation: In case of financial enterprises, interest paid, interest received and dividends received are principal revenue generating activities.

Q.17. In case of non-financial enterprises, payment of interest and dividend are classified as

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items

Answer:

(c)

Explanation: Interest and dividend are paid on debentures and shares, which come under financing activities. Hence it will also appear under financing activities.

Q.18. Example of cash inflow from operating activity is

a. payment to suppliers.

b. sale of fixed assets.

c. sale of goods.

d. issue of shares.

Answer:

(c)

Explanation: Cash received from sale of goods and rendering of services is shown under operating activity.

Q.19. Sale of machines is a/an

a. investing activity.

b. operating activity.

c. financing activity.

d. cash equivalent.

Answer:

(a)

Explanation: Sale of machines is an investing activity.

Q.20. The example of the items shown on the debit side of profit and loss account, which do not result in outflow of cash, is

a. salaries.

b. depreciation.

c. sundry expenses.

d. rent.

Answer:

(b)

Explanation: Depreciation does not result in outflow of cash.

Q.21. The cash flow statement is based upon

a. cash basis of accounting.

b. accrual basis of accounting.

c. accounting equation.

d. trial balance.

Answer:

a

Explanation: Only cash transactions are recorded in the cash flow statement hence it is prepared on cash basis.

Q.22. Direct method can be applied in case of

a. operating activities.

b. investing activities.

c. financing activities.

d. extraordinary items.

Answer:

(a)

Explanation: Direct method can be used only while calculating cash flow from operating activities.

Q.23. The main objective of cash flow statement is to

a. show financial position.

b. ascertain movement of funds.

c. ascertain income.

d. ascertain net change in cash and cash equivalents.

Answer:

(d)

Explanation: The main objective of cash flow statement is to ascertain net change in cash and cash equivalents.

Q.24. Cash flow statement is highly useful in

a. determining profits.

b. long-term planning.

c. short-term financial planning.

d. depicting financial position.

Answer:

(c)

Explanation: Cash flow statement is highly useful in short term financial planning.

Q.25. Sometimes a lower cash balance is found in spite of higher profits or a higher cash balance is found in spite of lower profits. Reasons for such situation can be analysed with the help of

a. ratios.

b. cash flow statement.

c. analysis of financial statements.

d. profit and loss account.

Answer:

(b)

Explanation: Cash flow is calculated with the help of cash flow statement.

Q.26. One of the disadvantages of cash flow statement is that

a. it is not useful in short term planning.

b. cash management is not possible.

c. management decision is not tested.

d. non-cash transactions are ignored.

Answer:

d

Explanation: The cash flow statement shows only inflows and outflows of cash. Non -cash transactions are ignored in cash flow statement.

Q.27. Example of transaction of movement between item of cash or cash equivalents is

a. sale of short-term marketable securities.

b. receipt from sale of goods.

c. purchase of goods.

d. sale of old asset.

Answer:

(a)

Explanation: Sale of short-term marketable securities is an example of movement between item of cash or cash equivalents.

Q.28. Cash outflow includes

a. cash received from debtors.

b. cash purchases.

c. royalties received.

d. commission received.

Answer:

(b)

Explanation: Cash outflow includes cash purchases.

Q.29. Transaction that is classified, as an investing activity in case of all kinds of enterprise is

a. payment of dividend.

b. receipts of interest.

c. payment made for fixed assets.

d. payment of salaries to employees.

Answer:

(c)

Explanation:Transaction that is classified, as an investing activity in case of all kinds of enterprise is the payments towards purchase of fixed assets that is not purchased for the purpose of re-sale such as building, furniture etc.

Q.30. Extraordinary items exclude

a. taxes paid.

b. bad debts recovered.

c. claims received from insurance companies.

d. winning of a lottery.

Answer:

(a)

Explanation: Extraordinary items are receipts/ payments beyond the normal course of business.

Practice Questions for CUET Accountancy chapter-Cash flow statements SET-3

Q.31. The statement, which analyses the reasons for changes in balance of cash between two balance sheet dates, is called

a. comparative statement.

b. common size statement.

c. funds flow statement.

d. cash flow statement.

Answer:

d

Explanation: The statement, which analyses the reasons for changes in balance of cash between two balance sheet dates, is cash flow statement.

Q.32. Conversion of debentures into share capital is not recorded into cash flow statement because

a. this activity involves cash flows.

b this activity does not involve cash flow.

c. this is a financing activity.

d. this relates to debentures.

Answer:

(b)

Explanation: Conversion of debentures into share capital is not recorded into cash flow statement because this activity does not involve cash flow.

Q.33. Example of the items shown on the debit side of profit and loss account, which do not result in outflow of cash, is

a. salaries.

b. amortisation of intangible assets.

c. sundry expenses.

d. rent.

Answer:

(b)

Explanation: Amortisation of intangible assets like preliminary expenses written off does not result in outflow of cash.

Q.34. Example of operating activity for Radha Furniture Mart, is

a. purchase of building.

b. purchase of furniture.

c. purchase of shares.

d. raise of loan.

Answer:

b

Explanation: As Radha Furniture Mart is dealing in furniture, purchase and sale of furniture is operating activity.

Q.35. It is made mandatory for all listed companies to prepare and present a cash flow statement along with other financial statements as per

a. AS –10.

b. AS- 13.

c. AS- 33.

d. AS-3

Answer:

d

Explanation: Cash flow statement is mandatory for all listed companies as per accounting standard 3 (AS-3) issued by Institute of Chartered Accountants of India.

Q.36. Changes in current assets and current liabilities affect

a. net profit.

b. operating profit.

c. cash generated from operating activities.

d. non-trading income.

Answer:

(c)

Explanation: Affect of changes in current assets and current liabilities is treated at the time of calculating cash generated from operating activities.

Q.37. The item, which is added to the figure of operating profit, is

a. decrease in outstanding.

b. increase in cash.

c. decrease in prepaid expenses.

d. decrease in cash.

Answer:

(c)

Explanation: Decrease in current assets (cash and cash equivalents are excluded) is added to the figure of operating profit.

Q.38. Rent received by a real estate company is a/an

a. operating activity.

b. financing activity.

c. cash equivalent.

d. investing activity.

Answer:

(a)

Explanation: Rent received by a real estate company is an operating activity.

Q.39. Sale of investments by a Non-finance company is a/an

a. operating activity.

b. cash Equivalent.

c. financing Activity.

d. investing Activity.

Answer:

(d)

Explanation: Sale of investments by a non-finance company is an investing activity.

Q.40. X Ltd. made a profit of Rs. 5,00,000 after considering the following items

- Preliminary expenses written off Rs. 10,000.

- Depreciation on fixed assets Rs. 50,000.

- Gain on sale of land Rs. 7,500.

Cash flow from operating activities will be

a. Rs. 5,00,000.

b. Rs. 5,47,500.

c. Rs. 5,52,500.

d. Rs. 5,60,000.

Answer:

(c)

Explanation:

Cash flow from operating activities = 5,00,000 + 10,000 + 50,000 - 7,500.

= Rs. 5,52,500.

Q.41. Following information is given.

Share Capital: Previous year = Rs. 3,00,000.

Current year = Rs. 5,00,000.

This means that

a. Rs. 1,00,000 shares have been issued in current year.

b. Rs. 2,00,000 share have been issued in current year.

c. Rs. 1,00,000 shares have been redeemed in current year.

d. Rs. 2,00,000 shares have been redeemed in current year.

Answer:

(b)

Explanation: Share capital has increased in the current year means that new shares must have been issued in current year.

Q.42. Issue of share and debentures for consideration other than cash are not taken into account while preparing cash flow statement because

a. this activity involves cash flows.

b. this activity does not involve cash flow.

c. this relates to debentures.

d. this is a financing activity.

Answer:

(b)

Explanation: Issue of share and debentures for consideration other than cash are not taken into account while preparing cash flow statement because this activity does not involve cash flow.

Q.43. Cash flow from operating activities include

a. cash payments to acquire fixed assets.

b. cash receipts from issue of debentures.

c. cash payment for interest.

d. cash payments to supplier of goods.

Answer:

(d)

Explanation: Cash payments to supplier of goods are included under operating activities.

Q.44. Cash inflow includes

a. cash purchases.

b. payment of wages.

c. income tax.

d. cash sales.

Answer:

(d)

Explanation: Cash inflow includes cash sales.

Q.45. Transaction that is classified as an operating activity in case of all kinds of enterprise is

a. payment of dividend.

b. receipts of interest.

c. sale of furniture.

d. payment of salaries to employees.

Answer:

(d)

Explanation: Payment of salaries, provident fund, bonus etc. is an operating activity in case of all kinds of enterprise.

Q.46. Issue of debentures is a/an

a. investing activity.

b. operating activity.

c. financing activity.

d. cash Equivalent.

Answer:

(c)

Explanation: Issue of debentures is a financing activity.

Q.47. The cash flows are inflows and outflows of cash and

a. bank.

b. cash equivalents.

c. operating activities.

d. other items.

Answer:

(b)

Explanation:Cash flows are inflows and outflows of cash andcash equivalents.

Q.48. Short-term deposit in banks is a/an

a. financing activity.

b. investing activity.

c. operating activity.

d. cash equivalent.

Answer:

(d)

Explanation: Short-term deposit in banks is cash equivalent.

Q.49. Purchase of goodwill is a/an

a. investing activity.

b. operating activity.

c. financing activity

d. cash equivalent.

Answer:

(a)

Explanation: Purchase of goodwill is an investing activity.

Q.50. Repayment of long-term loan is a/an

a. cash equivalent.

b. operating activity.

c. investing activity.

d. financing activity.

Answer:

(d)

Explanation: Repayment of long-term loan is a financing activity.

Q.51. Sale of investments by a finance company is a/an

a. cash equivalent.

b. operating activity.

c. investing activity.

d. financing activity.

Answer:

(b)

Explanation: Sale of investments by a finance company is an operating activity.

Q.52. “Bank overdraft” in cash flow statement will be

a. added to operating profits.

b. included in cash and cash equivalents.

c. deducted from operating profits.

d. shown under financing activities.

Answer:

(b)

Explanation: “Bank overdraft” is included in cash and cash equivalents.

Q.53. If, machinery (having book value of Rs. 15,000) is sold at a loss of Rs. 5,000, then it will be recorded in cash from investing activities with the amount of

a. Rs. 15,000.

b. Rs. 5,000.

c. Rs. 20,000.

d. Rs. 10,000.

Answer:

(d)

Explanation: The cash inflow from the sale of machinery will be 15,000 – 5,000 = Rs. 10,000.

Q.54. Rent received by a manufacturing company is a/an

a. operating activity.

b. cash equivalent.

c. investing activity.

d. financing activity.

Answer:

(c)

Explanation: Rent received by a manufacturing company is an investing activity.

Q.55. The example of cash inflow from investing activity is

a. receipt of interest on investment.

b. issue of shares.

c. repayment of long term debts.

d. payment of dividend.

Answer:

(a)

Explanation: Receipt of interest on investment is the cash inflow from investing activity.

Q.56. Decrease in current liabilities results in

a. decrease in working capital.

b. no change in working capital.

c. increases capital.

d. increases working capital.

Answer:

(d)

Explanation: Decrease in current liabilities results in increase in working capital.

Q.57.Cash paid to creditors is a/an

a. cash equivalent.

b. operating activity.

c. investing activity.

d. financing activity.

Answer:

(b)

Explanation: Cash paid to creditors is an operating activity.

Q.58. As per the following information is given to you,

 

Amount (Rs)

Opening cash and cash equivalents

1,00,000

Net cash from operating activities

5,00,000

Net cash from financing activities

8,00,000

Net cash used in financing activities

6,00,000

The closing cash and cash equivalents will be

a. Rs. 20,00,000.

b. Rs. 19,00,000.

c. Rs. 8,00,000.

d. Rs. 6,00,000.

Answer:

(c)

Explanation:

Closing cash and cash equivalents will be

1,00,000 + 5,00,000 + 8,00,000 - 6,00,000.

= Rs. 8,00,000.

Q.59. Cash deposited into bank will result in

a. no-flow of cash.

b. inflow of cash.

c. outflow of cash.

d. outflow of bank.

Answer:

(a)

Explanation: Cash deposited into bank will result in no-flow of cash. It is a movement between cash and cash equivalents.

Q.60. Furniture purchased to place books will be classified under

a. operating activity.

b. cash equivalent.

c. investing activity.

d. financing activity.

Answer:

(c)

Explanation: Purchase of furniture is a purchase of fixed assets so it will be shown under investing activities.

Q.61. Cash flow from operating activities will be decreased by

a. decrease in stock.

b. decrease in cash.

increase in bank overdraft.

increase in prepaid expenses.

Answer:

(d)

Explanation: Increase in current assets is deducted from the operating profit. Current assets exclude cash and cash equivalents here.

Q.62. Fixed assets having book value Rs. 50,000 are sold for at Rs. 41,000.

Rs. 9,000 being loss on sale of asset would be

a. shown in investing activity.

b. shown in financing activity.

c. added to net profit in operating activity.

d. deducted from net profit in operating activity.

Answer:

(c)

Explanation: Loss on sale of fixed assets is added to net profit in operating activity.

Q.63. Decrease in current assets results in

a. decrease in working capital.

b. no change in working capital.

c. increases capital.

d. increases working capital.

Answer:

(a)

Explanation: Decrease in current assets results in decrease in working capital.

Q.64. Buy-back of equity shares is a/an

a. operating activity.

b. investing activity.

c. cash equivalent.

d. financing activity.

Answer:

(d)

Explanation: Buy-back of equity shares is a financing activity.

Q.65. Capital in the beginning – Drawings + Profits =

a. cash flow.

b. capital introduced.

c. capital at the end.

d. additional drawings.

Answer:

(c)

Explanation: Capital in the beginning – Drawings + Profits = Capital in the end.

Q.66. If, an item of “Provision for Depreciation A/c” or “Accumulated Depreciation A/c” appears in balance sheet of current and previous year, then fixed assets are shown

a. at market price.

b. at net realizable value.

c. at original cost.

d. at value less depreciation (written down value).

Answer:

(c)

Explanation: Fixed assets are shown at their original cost when Provision for depreciation A/c or accumulated depreciation A/c is shown in current and previous year’s balance sheet.

Q.67. Cash flow statement shows

a. liabilities.

b. operating profit.

c. flow of cash and cash equivalents during a period.

d. assets purchased.

Answer:

(c)

Explanation: Cash flow statement shows the flow of cash and cash equivalents during a period.

Q.68 Following information is given

8% Debentures: Previous year = Rs. 7,00,000.

Current year = Rs. 4,00,000.

This means that

a. Rs. 1,00,000 8% debentures have been issued in current year.

b. Rs. 2,00,000 8% debentures have been issued in current year.

c. Rs. 3,00,000 8% debentures have been redeemed in current year.

d. Rs. 4,00,000 8% debentures have been redeemed in current year.

Answer:

(c)

Explanation: 8% debentures have reduced in the current year so they have been redeemed.

Q.69.Reliance Ltd. has following balances

Investments on 31-12-1994 = Rs. 50,000

Investments on 31-12-1995 = Rs. 40,000

During the year company sold 30% of its original investments at a profit of Rs. 5,000.

The cost of investments sold and purchased is

a. Rs. 25,000 and Rs. 15,000 respectively.

b. Rs. 10,000 and Rs. 2,000 respectively.

c. Rs. 15,000 and Rs. 5,000 respectively.

d. Rs. 50,000 and Rs. 40,000 respectively.

Answer:

(c)

Explanation: Prepare investment A/c and debit it with Rs. 50,000 (opening balance), 5,000 (profit on sale of investment) and 5,000 (purchase of investments as balancing figure) and credit it with Rs. 20,000 (investments sold) & 40,000 (closing balance).

Q.70. Following information is given:

 

31-12-1995

31-12-1996

Goodwill

Rs. 80,000

Rs. 50,000

This means that during the current year

a. goodwill has been purchased to the extent of Rs. 80,000.

b. goodwill has been purchased to the extent of Rs. 40,000.

c. goodwill has been written off to the extent of Rs. 50,000.

d. goodwill has been written off to the extent of Rs. 30,000.

Answer:

(d)

Explanation: Value of goodwill has reduced, which means that this has been written off.

Q.71. Profit on sale of fixed assets is

a. shown in investing activities

b. deducted from net profit to arrive at cash flow from operating activity.

c. added to net profit to arrive at cash flow from investing activity.

d. added to net profit to arrive at cash flow from operating activity.

Answer:

(b)

Explanation: Profit on sale of fixed assets is deducted from net profit to arrive at cash flow from operating activity.

Q.72. Credit sales: Rs 2,80,000, Rs Debtors (opening): Rs 40,000, Debtors (closing): Rs 60,000, Sales Returns: Rs 10,000. Cash inflow from debtors will be

a. Rs. 10,000.

b. Rs. 2,10,000.

c. Rs. 2,50,000.

d. Rs. 3,20,000.

Answer:

(c)

Explanation: Cash received from debtors= Debtors (opening) + credit sales – Sales Returns – Debtors (closing). Prepare Total Debtors A/c.