CBSE Class 12 Accountancy Cash Flow Statement MCQs Set 07

Answer: (a) Purchase of a tangible asset

Explanation:
1. Purchase of a tangible asset is an application (outflow) of cash; the other three bring cash in.

Teacher's Note:
1. Source means inflow and application means outflow; buying any asset is always an application of cash.

Answer: (c) Sale of machinery of the book value of ₹ 74,000 at a loss of ₹ 9,000.

Explanation:
1. Sale of machinery brings in cash of ₹ 65,000 (₹ 74,000 − ₹ 9,000). Deposits and withdrawals are movements within cash and cash equivalents, and conversion of debentures into shares is a non-cash transaction.

Teacher's Note:
1. Movements between cash in hand and bank do not change total cash and cash equivalents, so they are not cash flows.

Answer: (b) Bank deposits with 100 days of maturity

Explanation:
1. Only short-term investments with a maturity of three months (90 days) or less from the date of acquisition are cash equivalents; a 100-day deposit does not qualify.

Teacher's Note:
1. Remember the 3-month (90-day) limit from the date of acquisition for a cash equivalent.

Answer: (c) Received ₹ 19,000 from debtors.

Explanation:
1. Cash received from debtors increases cash; withdrawals and deposits are within cash and cash equivalents, and issuing debentures to vendors is a non-cash transaction.

Teacher's Note:
1. A cash flow needs one side of the transaction to be outside cash and cash equivalents.

Answer: (a) Operating activity

Explanation:
1. Payment to employees is part of the principal revenue-producing activities of every enterprise, so it is an operating activity.

Teacher's Note:
1. Payments to employees and suppliers are operating activities for financial and non-financial companies alike.

Answer: (d) Sold machinery of book value of ₹ 50,000 at a gain of ₹ 10,000.

Explanation:
1. Sale of machinery brings in ₹ 60,000 (₹ 50,000 + ₹ 10,000). Marketable securities are cash equivalents, so selling them at par only changes the form of cash.

Teacher's Note:
1. Marketable securities are themselves cash equivalents, so their sale at par is not a cash flow.

Answer: (d) All of the above

Explanation:
1. Depreciation, goodwill written off and loss on issue of debentures written off are all non-cash charges, so all are added back to net profit.

Teacher's Note:
1. Non-cash charges reduce profit without any cash going out, so they are added back.

Answer: (c) Creation of general reserve

Explanation:
1. Transfer to general reserve is an appropriation of profit, so it is added back to the current year’s profit; the other three are deducted.

Teacher's Note:
1. Start from the change in surplus and add back every appropriation such as transfer to reserves and dividends paid.

Answer: (d) Both (a) and (b).

Explanation:
1. A decrease in current assets (other than cash) releases cash and an increase in current liabilities means cash has not yet been paid, so both increase cash from operations.

Teacher's Note:
1. Current assets move opposite to cash; current liabilities move in the same direction as cash.

Answer: (c) Investing Activities

Explanation:
1. For a non-financial enterprise, interest received is a return on investments, so it is an investing activity.

Teacher's Note:
1. Interest and dividend received are investing for non-financial companies but operating for financial companies.

Answer: (b) Operating Activities

Explanation:
1. Earning interest and dividends is the main business of a financial enterprise, so dividend received is an operating activity.

Teacher's Note:
1. Always check whether the company is financial or non-financial before classifying interest and dividend received.

Answer: (a) Issue of shares

Explanation:
1. Issue of shares brings cash in (financing inflow); the other options reduce cash or are non-cash.

Teacher's Note:
1. An increase in share capital (for cash) is a financing inflow; its decrease (buy-back or redemption) is an outflow.

Answer: (d) Sale of investment by non-financial enterprise

Explanation:
1. Sale of investments by a non-financial enterprise is an investing inflow; debentures and borrowings are financing, and raw material purchase is operating.

Teacher's Note:
1. Investing activities deal with long-term assets and investments not included in cash equivalents.

Answer: (d) All of the above

Explanation:
1. Cash from operating activities = operating profit before working capital changes, adjusted for decrease in current assets and increase in current liabilities (and the reverse).

Teacher's Note:
1. Remember the order: net profit before tax, non-cash and non-operating adjustments, working capital changes, then tax paid.

Answer: (c) Operating Activities

Explanation:
1. Income tax paid is shown under operating activities unless it can be specifically identified with investing or financing activities.

Teacher's Note:
1. Tax paid is deducted after ‘cash generated from operations’, not added back as a non-cash item.

Answer: (a) Sale of Goods and Services

Explanation:
1. Cash received from sale of goods and services is the principal revenue-producing activity of a business, so it is operating.

Teacher's Note:
1. Operating activities are the principal revenue-producing activities; sale of goods and services is the standard example.

Answer: (d) Dividend paid

Explanation:
1. Dividend paid is a return to the owners, so it is a financing activity for every type of enterprise.

Teacher's Note:
1. Dividend paid is always financing, while interest paid by a financial company is operating.

Answer: (c) Financing Activities

Explanation:
1. Issue of any shares changes the size of owners’ capital, so the cash received is a financing inflow.

Teacher's Note:
1. Any change in share capital or borrowings (for cash) is a financing activity.

Answer: (d) Principal revenue producing activities

Explanation:
1. As per AS-3, operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing.

Teacher's Note:
1. Learn the AS-3 definition word for word; it is often asked as a 1-mark question.

Answer: (b) Outflow under investing activity ₹ 50,000

Explanation:
1. Only the cheque of ₹ 50,000 is a cash outflow (investing). Debentures of ₹ 1,50,000 issued to the vendor are a non-cash transaction and are not shown.

Teacher's Note:
1. When an asset is bought partly by issuing securities, show only the cash part in the cash flow statement.