Tag: budgeting

Questions Related to budgeting

Flow of funds means ___________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Change in funds

  2. Change in working capital

  3. Either (A) or (B)

  4. Change in cash receipts (or) payments

Show answer
Correct Option: C
Explanation:

Flow of funds are used to track the the flow of money to and from various sectors of a national economy. It is used to track the changes in the assets and liabilities of the company. It depicts the changes in funds as well as working capital.

Cash Inflows from a project include ________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Tax shield of depreciation

  2. After-tax operating profits

  3. Raising of funds

  4. Both A and B

Show answer
Correct Option: D
Explanation:

Depreciation is a non cash item but to know the profitability of the organization, it is charged to profit & loss account. Due to charge of depreciation, organization gets the tax benefit. 

While making cash inflow, tax shield to be included. Profits from operations is also included.

Which of the following result from and increase or decrease of working capital?

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Flow of cash

  2. Flow of funds

  3. Both (A) and (B)

  4. Either (A) or (B)

Show answer
Correct Option: B
Explanation:

Flow of funds are used to track the the flow of money to and from various sectors of a national economy. It is used to track the changes in the assets and liabilities of the company. It depicts the changes in funds as well as changes in working capital.

In calculation of net cash flow, deferred tax payments are classified as _______________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. non-cash revenues

  2. non-cash charges

  3. current liabilities

  4. income expense

Show answer
Correct Option: B

Cash flow statement is also termed as ___________________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Statement of changes in Financial Position (working capital basis)

  2. Statement of changes in Financial Position (cash basis)

  3. Appropriate statement for short range planning

  4. Statement showing cash receipts and payments

Show answer
Correct Option: A
Explanation:

The statement of changes in financial position (sometimes called a “cash flow statement”) shows a company's net cash flow in a given period of time. Because it also indicates where the cash flowed from or to, it is often referred to as the “sources and uses of cash statement.”

Stock at the end results in the __________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Source of funds

  2. Application of funds

  3. No flow of funds

  4. Cash flow

Show answer
Correct Option: A
Explanation:

Source of funds results in the generation of cash for the company. Stock at the end has two aspects in the financial statements. One effect is credited to trading account and other one is shown as asset in the balance sheet. Assets are nothing but the sources of funds. Hence stock at the end results in source of funds.

a) Funds flow statement and cash flow statement are one and the same.
b) A cash flow statement can very well be equated with an 'Income statement'
Of these statements :- 

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Both (A) and (B) are true

  2. Both (A) and (B) are false

  3. (A) is true but (B) is false

  4. (A) is false but (B) is true

Show answer
Correct Option: B
Explanation:

(a) A cash flow statement is different from a cash budget. A cash flow statement shows the cash inflows and outflows which have already taken place during a past time period.

Funds Flow Statement states the changes in the working capital of the business in relation to the operations in one time period.

(b) A cash flow statement shows the exact amount of a company's cash inflows and outflows over a one-month period. 
The income statement is the most common financial statement, and shows a company's revenue and total expenses, including non-cash accounting such as depreciation, over a one-month period.
Both are different.

Stock in the beginning results in __________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. A source of funds

  2. An application of funds

  3. No flow of funds

  4. Change in current assets

Show answer
Correct Option: B
Explanation:

Application of funds is a fund statement which shows sources and uses of the working capital and other liquid funds Hence, stock in the beginning results in an application of funds.

Which of the following are true or false?
a) Purchase of fixed assets is a use of funds.
b) For funds flow statement, provision for taxation will be treated as an item of internal source.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. both (a) and (b) are true

  2. both (a) and (b) are false

  3. (a) is true but (b) is false

  4. (a) is false but (b) is true

Show answer
Correct Option: A
Explanation:

Use of funds refers to investing funds in purchase of assets which gives return after some period of time. Hence, purchase of fixed assets is a use of funds. 


Provision for taxation is treated as an item of internal source because it is made internally.

Match the items of the following two lists and suggest the correct code:

List-I List-II
(a) Pay-back Rate of Return (i) Discounted Cash Flow Technique
(b) Internal Rate of Return (ii) Compounded values of investments and returns
(c) Benefit Cost Ratio (iii) Crude method for project evaluation
(d) Net Terminal Value Method (iv) Varying sized projects evaluation
commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. $(a)-(ii), (b)-(iii), (c)-(i), (d)-(iv)$

  2. $(a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)$

  3. $(a)-(i), (b)-(iv), (c)-(ii), (d)-(iii)$

  4. $(a)-(iv), (b)-(ii), (c)-(iii), (d)-(i)$

Show answer
Correct Option: B
Explanation:
  • The payback reciprocal is a crude estimate of the rate of return for a project or investment. 
  • The internal rate of return (IRR) is a discounting cash flow technique which gives a rate of return earned by a project.
  • A benefit-cost ratio (BCR) is a ratio used in a cost-benefit analysis to summarize the overall relationship between the relative costs and benefits of a proposed project.
  • The terminal value method is an improvement over the net present value method of making capital investment decisions.