CBSE Class 12 Accountancy HOTs Cash Flow Statement

Very short Answer Type 

Question. From the following particulars, what will be the amount of provision for tax made during the year?
Provision for Taxation
31.3.2018 - 50,000
31.3.2019 - 40,000
The Company paid taxes Rs 45,000 for the year 2018-2019.
(a) Rs 45,000
(b) Rs 35,000
(c) Rs 40,000
(d) Rs 50,000
Answer. B

Question. From the following information, the outflow of cash for the purchase of machinery will be:
Written down value of machinery as on 1.4.2018 - Rs 5,00,000
Written down value of machinery as on 31.3.2019 -Rs7,00,000
Depreciation on machinery charged during the year Rs 60,000
Machinery having book value Rs 25,000 sold for Rs 20,000
(a) Rs 2,70,000
(b) Rs 2,80,000
(c) Rs 2,75,000
(d) Rs 2,85,000
Answer. D

Question. Which of the following transactions would result inflow of cash:
(a) Cash withdrawn from Bank for office use.
(b) Purchase of machinery worth Rs 2,00,000 and issued shares in consideration thereof.
(c) Sale of furniture for Rs 3,000 to Mr. Mohan.
(d) Cash received from Debtors Rs 6,000
Answer. D

Question. Which of the following transactions would not create a cash flow?
(a) A company purchased some of its own stock from a stockholder
(b) Amortization of a patent
(c) Payment of a Cash Dividend
(d) Sale of equipment at book value
Answer. B

Question. Declaration of Final Dividend would result in ___
(a) Outflow in Financing activities.
(b) Outflow in Operating activities.
(c) Inflow in Operating activities.
(d) No Flow of cash.
Answer. D

Question. For a company manufacturing garments, procurement of raw material, incurrence of manufacturing expenses, sale of garments are classified as ………………………
(a) Financing Activity
(b)Investing Activity
(c)Operating Activity
(d) None of these
Answer. C

Question. Issue of share for consideration other than cash will result into cash
(a)Inflow
(b) Outflow
(c) No flow
(d)None of these
Answer. C

Question. Interest received in cash on loans and advances results in cash inflow from ………… activity
(a)Financing
(b)Investing
(c)Operating
(d)None of the above
Answer. B

Question. How is ‘dividend paid’ by a financial enterprise treated while preparing Cash Flow Statement?
Answer. Dividend paid is treated as Financing Activity

Question. Under which type of activity will you classify ‘Cash advances and loans made to third party’ while preparing Cash Flow Statement?
Answer. Investing Activity

Question. Give the meaning of ‘Cash’ for the purpose of preparing Cash Flow Statement.
Answer. Cash comprises of Cash in hand and demand deposits with banks

Question. What is meant by Cash Equivalents?
Answer. Cash Equivalents are short-term,highly liquid investments that are readily convertible into known amount of cash.

Question. X Ltd. Redeemed Rs.1,00,000, 9% debentures at 10% premium. What will be the amount of ‘Cash flows from financing activities?
Answer. Cash Outflow in Financing Activity will be Rs.1,10,000 where
Debenture redeemed = Rs.1,00,000
Premium on Redemption = Rs.10,000(10% of Rs.1,00,000)

Question. Which of the following statements is/are correct?
(a) Dividend paid is always shown as operating activity.
(b)Depreciation and amortization, being non-cash expenses, are deducted from net profit before tax and extraordinary items.Alternatives
(a) Only (a)
(b) Only (b)
(c) Both (a) and (b)
(d) None of these
Answer. D

Question. Why is depreciation added back to net profit while preparing Cash Flow Statement?
Answer. Depreciation is added back because it does not result in outflow of cash but decreases the profit.

Question. Why is the cash flow statement not a suitable judge of profitability ?
Answer. Cash Flow statement is prepared on cash basis of accounting but profit is calculated on accrual basis. So cash flow statement is not a judge of profitability.

Unit 6.CASH FLOW STATEMENT

LEARNING OBJECTIVES

i) To understand the meaning of cash flow statement
ii) To understand the meaning of cash, cash funds and cash equivalents.
iii) To calculate operating profit and cash flow from operating activities
iv) To understand operating and non-operating expenses and incomes.
v) To calculate cash flow from operating, investing and financing activities.
vi) To prepare cash flow statement with additional information

SALIENT POINTS :

 Classification of Activities : The cash flow from Operating, Investing and Financing are shown separately in Cash flow statement.
Non cash items : The flow of cash which affects the statement is reflected in the preparation of Cash flow statement.

 i) What do you mean by cash flow statement?
A statement which shows inflow and outflow of cash and cash equivalents from operating, investing and financing activities during a specific period.
ii) What are the various activities classified as per AS-3(revised) related to cash flow statement?
(a) cash flow from operating activities
(b) cash flow from investing activities
(c) cash flow from financing activities.
iii) State one objective of cash flow statement.
Helpful for short term planning, for preparing cash budget
iv) What do you mean by cash equivalent?
Short –term highly liquid investments which are readily convertible into known amount of cash and which are subject to an insignificant risk of change in the value.
v) State the category of the following items for a financial as well as nonfinancial company
(1) Dividend received
(2) Dividend received
(3) Interest paid
(4) Interest received