CBSE Class 12 Accountancy Cash Flow Statement Worksheet Set 01

Question. What is highly liquid investment?
a) Cash convertible investment
b) Short-term investment
c) Cash equivalents
d) None of the above

Answer : C

Question. Provision for tax is ……… to net profit in operating activities.
a) added
b) deducted
c) No treatment
d) None of these

Answer : A

Question. Cash f low is known as
a) variation in cash
b) change in cash
c) cash at bank
d) Both (a) and (b)

Answer : D

Question. Which kind of accounting transaction is recorded into cash f low statement?
a) Accrual
b) Cash
c) Accrual and cash
d) None of these

Answer : B

Question. Shri Niwas Ltd. has the opening balance of furniture Rs 4,00,000 and closing balance Rs 4,20,000 and depreciation opening and closing balance Rs 1,00,000 and Rs 1,10,000. During the year, a furniture costing Rs 40,000 with its accumulated depreciation of Rs 24,000 was sold for Rs 20,000. Calculate purchase value of furniture.
a) Rs 40,000
b) Rs 50,000
c) Rs (60,000)
d) Rs 76,000

Answer : C

Question. Following is the extract from the balance sheet of ABC Ltd.

Calculate net profit before tax and extraordinary items.
a) Rs 3,00,000
b) Rs 1,25,000
c) Rs 3,25,000
d) Rs 1,75,000

Answer : C

Question. ABC Ltd. is a financial company which provides loan and invest into shares. At the year end, company received Rs 50,000 interest on loan. Where will be the amount of interest presented?
a) Activity arising from interest will be shown in investing activity
b) Activity arising from interest will be shown in financing activity
c) Activity arising from interest will be shown in operating activity
d) None of the above

Answer : C

Question. Non-cash transactions are ignored while preparing a cash f low statement because
a) it shows flow of cash and cash equivalents
b) cash is not involved in non-cash transactions
c) Both (a) and (b)
d) None of the above

Answer : C

Question. Where will you show the ‘winning from a lottery’ in cash f low statement?
a) Operating activity
b) Investing activity
c) Financing activity
d) None of these

Answer : A

Question. City Pulse Ltd. took a loan from financing company in the year 2021 for Rs 25,00,000 and balance at the starting of 2022 financial year, i.e. on 1st April, 2022 was Rs 15,00,000. What kind of activity and amount has been transacted?
a) Rs (10,00,000) has been inflown, i.e. amount is paid to financing company
b) Rs (10,00,000) has been outflown, i.e. amount is paid to financing company
c) Rs (10,00,000) has been outflow, i.e. amount is received from financing company
d) None of the above

Answer : B

Question. Cash f low from operating activity means cash f low from business operation because
a) cash flow from operating activity is outside the business
b) cash flow from operating activity is taken from investment
c) cash flow from cash inflow and outflow from operating activity are the core activity
d) Both (a) and (c)

Answer : C

Question. Which of the following is a non-operating income?
a) Dividend received by an investment company
b) Premium received by an insurance company
c) Revenue from sale in a trading concern
d) Profit on the sale of used plant in manufacturing company

Answer : D

Question. Which of the following statement(s) is/are true?
(i) Cash f low statement is not a replacement of fund f low statement
(ii) Cash f low statement is a substitute of income statement
(iii) Cash f low statement records only cash items
(iv) Cash f low statement records only cash equivalents items
Select the correct option from the below options.
a) Only (i) is correct
b) Both (i) and (ii) are correct
c) Only (ii) is correct
d) All of these

Answer : A

Question. Balance Sheet (Extract)

Additional Information
Interest on debentures is paid on half yearly basis on 30th September and 31st March each year. Debentures were redeemed on 30th September, 2019. How much amount (related to above information) will be shown in financing activity for cash f low statement prepared on 31st March, 2020?
a) Outflow Rs 40,000
b) Inflow Rs 42,600
c) Outflow Rs 61,600
d) Outflow Rs 64,000

Answer : C

Question. Cash f low statement activities consists of
a) operating Profit
b) decrease/increase in current assets
c) decrease/increase in current assets
d) All of the above

Answer : D

Question. An investment normally qualifies as a cash equivalent only when it has a maturity of …… month(s) or less from the date of acquisition.
a) one
b) two
c) three
d) four

Answer : C

Question. Match the following.

Codes
      A   B  C
a) (iii) (i) (ii)
b) (ii) (i) (iii)
c) (iii) (ii) (i)
d) (ii) (iii) (i)

Answer : B

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

Answer : A

Question. Issue of shares for consideration other than cash will result into cash ……… .
a) inflow
b) outflow
c) no flow
d) None of these

Answer : C

Question. Rakshak Ltd. made an operating profit of Rs 1,85,500 after charging depreciation of Rs 31,200. During that year, trade payables increased by Rs 26,600 and inventory increased by Rs 40,300. There was no change to trade receivables. Assuming that no other factors affected it, what would be the cash generated from operations?
a) Rs 2,03,000
b) Rs 2,30,400
c) Rs 2,25,800
d) Rs 2,43,300

Answer : A

Question. Provision for depreciation on plant
Opening balance = Rs 60,000;
Closing balance = Rs 65,000
An item of plant costing Rs 20,000 having book value of Rs 14,000 was sold for Rs 18,000 during the year.
Calculate the amount of depreciation to be added back to net profit before tax and extraordinary items.
a) Rs 6,000
b) Rs 9,000
c) Rs 5,000
d) Rs 11,000

Answer : D

Question. How will you treat payment of dividend in a cash f low statement?
a) Cash Flow from Operating Activities
b) Cash Flow from Investing Activities
c) Cash Flow from Financing Activities
d) Cash Equivalent

Answer : C

Question. Mention the net amount of source or use of cash when a fixed asset (having book value Rs 1,20,000) is sold at a loss of Rs 40,000 in term of cash f low.
a) Rs 1,20,000
b) Rs 40,000
c) Rs 80,000
d) Rs 1,60,000

Answer : C

Question. Balance Sheet (Extract)

Additional Information
Half of the investments held in the beginning of the year were sold @ 10% profit. Interest and dividend received on investments Rs 70,000 and Rs 50,000 respectively. How much amount as per above information, will be shown in investing activity for cashf low statement prepared on 31st March, 2020?
a) Outflow Rs 3,55,000
b) Outflow Rs 3,25,000
c) Inflow Rs 3,55,000
d) Inflow Rs 1,20,000

Answer : A

Question. For a company manufacturing garments, procurement of raw material , incurrence of manufacturing expenses , sale of garments are classified as ……... activity.
a) financing
b) investing
c) operating
d) None of the above

Answer : C

Question. Which of the following is not an operating cash flow?
a) Decrease in Inventories by Rs 1,500
b) Decrease in Trade Payables by Rs 66,000
c) Purchase of Tangible Assets for Rs 47,000
d) All of the above

Answer : C

Question. Which of the following is not application of cash?
a) Increase in Debtors
b) Increase in Inventory
c) Increase in Bills Payable
d) Increase in Prepaid Expenses

Answer : C

Question. While preparing cash f low statement, cash comprises ……… and ……… with bank.
a) cash, cash in hand
b) cash in hand, cash
c) bank, cash in hand
d) cash in hand, bank

Answer : D

Question. Cash f low statement is prepared for financial planning of ………… .
a) long range
b) medium range
c) short range
d) very long range

Answer : C

Question. Where will you how purchase of goodwill in a cash f low statement?
a) Cash Flow from Operating Activities
b) Cash Flow from investing Activities
c) Cash Flow from Financing Activities
d) Cash Equivalent

Answer : B

VERY SHORT ANSWER QUESTIONS

1. What do you mean by Cash Flow statement?

2. What are the various activities classified as per AS-3(revised) related to Cash flow statement?

3. State one objective of Cash flow Statement.

4. What do you mean by cash equivalents?

Ans. 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.

Important Notes for NCERT Class 12 Accountancy Cash Flow Statement

Meaning:

• A cash-flow statement is a statement showing inflows (receipts) and outflows (payments) of cash during a particular period.

• In other words, it is a summary of sources and applications of cash during a  particular span of time.

• It analyses the reasons for changes in balance of cash between the two  balance sheet dates.

• The term ‘cash’ here stands for cash and cash equivalents.

• A cash-flow statement includes only those items which affect cash.

• A cash-flow statement can be for the past or can be projected for a future period.

• There are two methods for preparing the Cash Flow Statement.

o Direct Method

o Indirect Method

In our syllabus only Indirect Method is there. Even though there is only difference between Direct and Indirect Method is of Operating Activities.

• As per Accounting Standard-3 (Revised) the changes resulting in the flow of cash & cash equivalent arises on account of three types of activities i.e.,

(1) Cash flow from Operating Activities.

(2) Cash flow from Investing Activities.

(3) Cash flow from Financing Activities.

Objectives of Cash Flow Statement

• To ascertain the sources (receipts) and the applications (payments) of Cash and Cash Equivalents from/to operating, investing and financing activities of the enterprise.

• To ascertain the net change in Cash and Cash Equivalents i.e. the difference between sources and applications (Change in CCE = Cash Flow from/to Operating Activities + Investing Activities + Financing Activities)

• To highlight the major activities that have provided cash and that have used cash during a particular period and to show their effect on the overall cash balance.

Importance or Uses of Cash Flow Statement

•Useful for Short-Term Financial Planning:

o A cash-flow statement provides information for planning the shortterm financial needs of the firm.

o It becomes easier for the management to assess whether it will have adequate cash to meet day-to-day expenses and pay the trade payables in time.

• Useful in Preparing the Cash Budget

o A cash flow statement prepared for the future period is helpful inpreparing a cash budget.

o It informs the management about the surplus or deficit periods of cash, i.e., in which months the receipts of cash will be in excess of payments and in which months the payments will be in excess of receipts.

o It helps in planning the investment of surplus cash in short-term investments and to plan short-term credit in advance for deficit periods.

• Comparison with the Cash Budget :

o A cash budget is prepared at the commencement of the year, whereas a cash flow statement is prepared at the end of the year.

o A comparison between the two helps in ascertaining the extent to which the financial resources of the firm have been generated and used according to the plan.

o Causes of variances between the figures of two statements can be analysed and proper corrective measures may be taken.

• Study of the Trend of Cash Receipts and Payments :

o A cash-flow statement reveals the speed at which the cash is being generated from trade receivables, inventory and other current assets and the speed at which the current liabilities are being paid.

o It enables the management to assess the true position of the cash in future.

• It Explains the Deviations of Cash from Earnings:

o A firm may earn huge profits yet it may have paucity of cash or when it suffered a loss it may still have plenty of cash. A Cash flow statement explains the reasons for it.

• Helpful in Ascertaining Cash Flow from Various Activities Separately :

o A Cash flow statement aims at highlighting the Cash flow from operating, investing and financing activities separately.

o It indicates how much cash has been generated or used in these activities.

• Helpful in Malting Dividend Decisions :

o The amount of dividend must be deposited in a separate ‘Dividend Bank A/c’ within 5 days of the declaration of such dividend. Hence the management takes the help of cash flow statement to ascertain the position of cash generated from operating activities which can be used for payment of dividend.

• Test for the Managerial Decisions :

o It is a general rule that fixed assets should be purchased from funds raised from long-term sources like issue of shares, debentures, long-term loans etc. and these should be repaid out of cash generated from operating activities. The cash flow statement shows whether this policy has been properly followed by the management or not.

• Useful to Outsiders Cash flow statement helps

o the investors,

o debenture holders,

o bankers,

o lenders,

o supplier’s of credit etc.

To analyse the financial position of the enterprise and they can take proper decisions on the basis of such analysis.

Limitations of Cash-Flow Statement

• Not suitable for judging the Liquidity :—It does not present true picture of the liquidity of a firm because the liquidity does not depend upon cash alone. Liquidity also depends upon those assets which can be converted into cash easily. Exclusion of these assets obstructs the true reporting of the ability of the firm to meet its liabilities when they become due for payment.

• Possibility of Window-dressing :— The possibility of window-dressing is higher in case of cash position in comparison to the working capital position of a firm. The cash balance can be easily manoeuvred (skill fully manipulate) by postponing purchases and other payments and by rapidly collecting cash from trade receivables before the balance sheet date. Hence, a fund-flow statement presents a more realistic picture than a cash-flow statement.

• It ignores non-cash transactions :— Cash-flow statement ignores noncash transactions like purchase of fixed assets by issuing shares or debentures, conversion of debentures into shares, issue of bonus shares etc. Hence, the true position of an enterprise cannot be judged by cash-flow statement.

• It ignores the accrual concept of accounting :—It is prepared on cash basis and hence ignores one of the basic concepts of accounting, namely accrual concept.

• No substitute for an Income Statement:—A Cash Flow Statement is not a substitute of Income Statement which takes into account both cash and non-cash items. Therefore, net cash flow does not mean net income of the business.

• Historical in Nature :—A cash flow statement is prepared on the basis of two comparative Balance Sheets of the past years. Hence, information revealed by it is historical in nature.

What are the differences between Cash-Flow Statement and Cash Budget?

• The only difference is that a cash-flow statement is prepared for a past period whereas a cash budget is prepared for a future period.

• Cash-flow statement usually portrays how cash was received and spent in the past period. A cash budget is therefore prepared showing how much cash is likely to be received and what will be the disbursements during a future period of time?

Procedure of Preparing Cash-Flow Statement

The Institute of Chartered Accountants of India has issued Accounting Standard (AS)-3 Revised, for preparing a cash flow' statement. This Accounting Standard has been made mandatory in respect of accounting periods commencing on or after 1st April 2001, for certain enterprises. These enterprises are :

1) Enterprises whose equity or debt securities are listed on a recognised inventory exchange in India, and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised inventory exchange in India.

2) All other commercial, industrial and business enterprises, whose turnover for the accounting period exceeds Rs.50 Crores.

The following terms are used for preparing a cash flow statement:

• Cash: Cash comprises cash in hand and demand deposits with bank.

• Cash equivalents: Cash equivalents are short-term, highly liquid investment that are readily convertible into known amount of cash and which are subject to an insignificant risk of change in the value e.g. shortterminvestment. Generally these investments have a maturity period of less than three months.

Some examples of cash equivalent:

•Short-term deposits,

• Marketable securities.

•Treasury bills,

• Commercial papers,

• Money market funds,

• Investment in preference shares if redeemable within three months provided that there is no risk of the failure of the company. Cash flow exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of an enterprise rather than part of its operating, investing and financing activities.

Some types of transaction which are considered movement between cash and cash equivalents are given below:

•Cash deposited into bank.

• Cash withdrawn from bank.

• Sale of cash equivalent securities (e.g. Sale of short-term investment, sale of commercial papers)

•Purchases of cash equivalent securities (e.g. Purchase of short-term investment Purchases of Treasury bills).

The above types of transaction are part of cash and equivalents, so these are included in opening and closing cash and cash equivalent only. So these types of transaction not to be included in cash flow from different activities likeoperating investing, financing activities.

Note: Bank Overdraft and Cash Credit will be considered as financing activity as they are short term borrowings. Henceforth, they will not be considered as cash and cash equivalents.

VERY SHORT ANSWER QUESTIONS

Question. What do you mean by Cash Flow statement?
Answer: A Cash Flow Statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company during a specified period from operating, investing, and financing activities.

Question. What are the various activities classified as per AS-3(revised) related to Cash flow statement?
Answer: As per AS-3 (Revised), cash flows are classified into three activities:
1. Operating Activities
2. Investing Activities
3. Financing Activities

Question. State one objective of Cash flow Statement.
Answer: The primary objective of a Cash Flow Statement is to provide useful information about the historical inflows and outflows of cash and cash equivalents of an enterprise during a given period.

Question. What do you mean by cash equivalents?
Answer: 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.

Question. State the category of the following items for a financial as well as non-financial company:
(a) Dividend received
(b) Interest received
(c) Interest paid
(d) Dividend paid
Answer:

Question. Calculate the net amount of cash flow if a fixed asset costing Rs. \(32,000\) (having a book value of Rs. \(24,000\)) is sold at a loss of Rs. \(8,000\).
Answer: Cash Inflow from Investing activities = Rs. \(16,000\)
\[ \text{Amount received from sale} = \text{Book value} - \text{loss} \]
\[ \text{Rs. } 24,000 - \text{Rs. } 8,000 = \text{Rs. } 16,000 \]

Question. Calculate Cash Flow from Operating Activities from the following information:

Additional Information:

Answer:
Calculation of Cash Flow from Operating Activities:

Question. Following balances appeared in the Machinery Account and Accumulated Depreciation Account in the books of JB Ltd.:

Additional Information:
Machinery costing \(2,65,000\) on which accumulated depreciation was Rs. \(1,00,000\) was sold for Rs. \(75,000\). You are required to:
1. Compute the amount of Machinery purchased, depreciation charged for the year and loss on sale of Machinery.
2. How shall each of the items related to Machinery be shown in Cash Flow Statement.

Answer:
Machinery Account

Accumulated Depreciation Account

Summary of Cash Flow Presentation:

• Purchase of Machinery (Outflow from Investing Activities): Rs. \(11,41,465\)
• Sale of Machinery (Inflow from Investing Activities): Rs. \(75,000\)
• Depreciation Provided (Non-cash item, Added to Net Profit under Operating Activities): Rs. \(2,34,895\)
• Loss on sale of machinery (Non-operating item, Added to Net Profit under Operating Activities): Rs. \(90,000\)

Question. From the following information, prepare a Cash Flow Statement:
Balance Sheet as at:

Note 1. SHARE CAPITAL

Note 2. RESERVES AND SURPLUS

Additional Information: During the year Depreciation charged on fixed assets was Rs. \(20,000\) and Income Tax Rs. \(5,000\) was paid in advance.

Answer:
- Purchase of fixed Asset = Rs. \(16,600\) (adjusted based on recomputed balancing figures; given text mentions \(92,600\) under different ledger adjustments).

Question. From the following information prepare Cash Flow statement:

Additional Information:
(i) A piece of Machinery costing Rs. \(5,000\) on which depreciation of Rs. \(2,000\) had been charged was sold for Rs. \(1,000\). Depreciation charged during the year was Rs. \(17,000\).
(ii) During the Current year New Debentures have been issued on 1st Aug.

Answer:
- Net Cash from Operating Activities = Rs. \(23,400\)
- Net Cash used in Investing Activities = Rs. \((49,000)\)
- Net Cash from Financing Activities = Rs. \(15,600\)

Question. From the following information prepare a Cash flow Statement:
BALANCE SHEET as at

Note No. 1: Share Capital
Equity shares of Rs. 10 each: Rs. \(1,00,000\) (Current Year) | Rs. \(1,00,000\) (Previous Year)

Note NO. 2: Reserves and Surplus

Additional Information: Depreciation charges Rs. \(8,000\). Provision for taxation of Rs. \(19,000\) made during the year.

Answer:
- Net Cash from Operating Activities = Rs. \(11,600\)
- Net Cash used in Investing Activities = Rs. \((3,000)\)

Question. From the following information, prepare a Cash Flow Statement:
Balance Sheets as at

Note No. 1: Equity shares of Rs. 10 each: Rs. \(50,000\) (Current Year) | Rs. \(45,000\) (Previous Year)

Note No. 2:
Sinking fund: Rs. \(16,000\) (Current Year) | Rs. \(12,000\) (Previous Year)
Retained Earnings: Rs. \(13,950\) (Current Year) | Rs. \(16,275\) (Previous Year)

Additional Information: Dividend amounting to Rs. \(5,000\) was paid during the year.

Answer:
- Net Cash from Operating Activities = Rs. \(10,500\)
- Net Cash used in Investing Activities = Rs. \((3,800)\)
- Net Cash used in Financing Activities = Rs. \((4,000)\)