Tag: budgeting

Questions Related to budgeting

Under the direct method, which of the following items must be added to operating expenses reported on the income statement to determine cash payments for operating expenses?

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Increase in accrued expenses

  2. Decrease in prepaid expenses

  3. Increase in income taxes payable

  4. Increases in prepaid expenses

Show answer
Correct Option: D
Explanation:

Under direct method of statement of cash flow, major heads of cash inflows and outflows are considered. Certain items are recorded on accrual basis in profit and loss account.

Hence, certain adjustments are made to convert them into cash basis such as cash receipt from customers, cash payments to supplies, purchases, prepaid expenses etc. 

Which of the following would not be on the statement of cash flows ________________.

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Cash flows from investing activities

  2. Cash flows from financing activities

  3. Cash flows from operating activities

  4. Cash flows from contingent activities

Show answer
Correct Option: D
Explanation:

The cash flow statement is a good consolidated indicator of a business's cash inflow and outflow. It breaks down these cash flows into three distinct categories: operating activities, investing activities, and financing activities. 

Which of the following is an application of funds?

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Purchase of machinery.

  2. Profit earned during the year.

  3. Issue of share capital.

  4. Long term loan raised.

Show answer
Correct Option: A
Explanation:

Fund Flow statement is prepared to show the sources and application of funds. It is prepared by incorporating the various sources through which the funds are received and the items where the funds are utilized. 


Purchase of Machinery is an application of funds.
Profit earned during the year is a source of fund
issue of share capital is a source of fund
Long term loan raised is a source of fund.

Cash inflow from operating activities is a/an _____________.

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Source of cash

  2. Application of cash

  3. Cash and bank balance

  4. None of these

Show answer
Correct Option: A

Conversion of debenture into share capital results in _________.

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. sources of funds

  2. sources of cash

  3. application of funds

  4. no flow of fund

Show answer
Correct Option: D
Explanation:

Conversion of debenture through share capital does not involve any outflow of funds. 

Its only an accounting transaction where debentures are converted into shares. No funds are utilized in such case. 

Cash outflow on account of operating activities is a/an _______________.

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Sources of cash

  2. Application of cash

  3. Cash and bank balances

  4. None of these

Show answer
Correct Option: B

The fixed asset of a company is double of the current assets and half of capital. If the current assets are Rs. $3,00,000$ and investment Rs. $4,00,000$ calculate the current liabilities assuming that there are no other items in the balance sheet.

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Rs. $2,00,000$

  2. Rs. $1,00,000$

  3. Rs. $3,00,000$

  4. Rs. $4,00,000$

Show answer
Correct Option: B

Which of the following is added to net profit in order to arrive the amount of funds from operation?

commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

  1. Depreciation on machinery.

  2. Profit on sale of fixed assets.

  3. Profit of revaluation of land.

  4. Interest from investments.

Show answer
Correct Option: A
Explanation:

Cash flow under Indirect method is calculated by adding non cash expenses like depreciation, amortization. Therefore, among the following options, depreciation is the non cash item which is added to net profit to arrive at the amount of funds from operation.

Price earning ratio and price by cash flow ratio are classified as ________________.

commercial studies budgeting meaning, comparison, types, utility and limitations of budgets public finance, budget and fiscal policy public expenditure and public revenue

  1. Marginal ratios

  2. Equity ratios

  3. Return ratios

  4. Market value ratios

Show answer
Correct Option: D
Explanation:

The price-to-cash flow (P/CF) ratio is a stock valuation indicator or multiple that measures the value of a stock's price relative to its operating cash flow per share. The ratio uses operating cash flow which adds back non-cash expenses such as depreciation and amortization to net income.

In a normal accounting period, allocated amount of indirect cost is 2000 and actual a mount is 2000 and actual amount is 2200, then this is classified as ___________________.

commercial studies budgeting meaning, comparison, types, utility and limitations of budgets public finance, budget and fiscal policy public expenditure and public revenue

  1. Over allocated budget

  2. Under allocated budget

  3. Under allocated indirect cost

  4. Over allocated direct cost

Show answer
Correct Option: A
Explanation:

In a normal accounting period, allocated amount of indirect cost is $2000 and actual amount is $2200, then this is classified as over allocated budget because allocated amount is less than actual amount.