Tag: preparation of cash flow statement

Questions Related to preparation of cash flow statement

Investment by owner results in ___________________.

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Increase in capital and decrease in libility

  2. Increase in capital and increase in liability

  3. Increase in capital and decrease in asset

  4. Increase in capital and increase in asset

Show answer
Correct Option: D
Explanation:

Owner investment, also called owner's investment or contributed capital, is the amount of assets that the owner puts into the company. 


In other words, this is the amount of money or other assets that the owner contributes to the business either to start it or to keep it running.

Which one of the following concepts is used as fund in the preparation of Funds Flow Statements?

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Current Assets

  2. Working Capital

  3. Cash

  4. All Financial Resources

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Correct Option: B
Explanation:

According to working capital concept, the term 'funds' refers to net working capital (current assets-current liabilities). In the funds statement, inflow and outflow of net working capital is displayed.

Which of the following is an example of capital expenditure?

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Purchased a pencil sharpener at a cost of Rs.2

  2. Installing an escalator at cost of Rs.5,600 in a three storey building which had previously been used without escalator

  3. Painted delivery truck at a cost of Rs.450 after two years of use

  4. None of the above

Show answer
Correct Option: B
Explanation:

Capital expenditure is a money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

Installing an escalator is a capital expenditure as it is a non-recurring expenditure.

In cash flow statement the item of Interest is shown in:
a. Operating activities
b. Financing activities
c. Investing activities

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

  4. All the three

Show answer
Correct Option: C
Explanation:

Interest received in cash from loans and advances is recorded under investing activities. Interest paid on loans, debentures and advances is recorded under financing activities.

In case of other enterprises cash flow arising from interest paid should be classified as cash flow from ______ while dividends and interest received should be started as cash flow from ______.

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Operating activities, Financing activities

  2. Financing activities, Investing activities

  3. Investing activities, Operating activities

  4. None of the above

Show answer
Correct Option: B
Explanation:

Interest paid and interest and dividends received are usually classified as operating cash flows for a financial enterprises. However, there is no consensus on the classification of these cash flows for other enterprises. It is more appropriate that interest paid and interest and dividends received are classified as financing cash flows and investing cash flows respectively, because they are cost of obtaining financial resources or returns on investments.

When a fixed asset is bought as hire purchase, interest element is classified under ______ and loan element is classified under ________. 

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Operating activities, Financing activities

  2. Financing activities, Investing activities

  3. Investing activities, Operating activities

  4. None of the above

Show answer
Correct Option: B
Explanation:

The fixed asset is bought as hire purchase is the cost of obtaining financial resources or returns on investments. Hence, interest element is classified under financing activities and loan element is classified under investing activities.

In a statement of cash flows, a company investing in short-term financing investments and in fixed assets results in ______________.

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Increased cash

  2. Decreased cash

  3. Increased liability

  4. Increased equity

Show answer
Correct Option: B
Explanation:

Investing activities related to purchase and sale of long-term and short-term assets or fixed assets such as machinery, furniture, land and building etc.

According to the financial accounting board (FASB), which of the following is a cash flow from a "financing" activity?

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Cash outflow to the government for taxes

  2. Cash outflow to shareholders as dividend

  3. Cash outflow to lenders as interest

  4. Cash outflow to purchase bonds issued by another company

Show answer
Correct Option: B
Explanation:

As per AS-3, financing activities are the activities that result in changes in the size and composition of the owners' capital and borrowings of the enterprises. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds to the enterprise.

A loss on sale of land is reflected on the statement of cash flows by _____________________.

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Adding the loss to the book value of the land to determine the cash flow from investing activities

  2. Deducting the loss from net income to determine the cash flow from operating activities

  3. Deducting the loss from the book value of the land to determine the cash flow from investing activities

  4. Both B and C

Show answer
Correct Option: C
Explanation:

A business reports net income under operating activities of cash flow statement. The company reports a loss from sale of a long-term business assets as part of its net income because it represents money spent that the business didn't recoup. The difference amount between loss and book value is reported under investing activities.

A company who issue bonds or stocks in result raised funds which finally ____________.

accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

  1. Increases liabilities

  2. Increases equity

  3. Increases cash

  4. Decreases cash

Show answer
Correct Option: C
Explanation:

Companies may increase cash levels through financing and investing activities. 

Financing activities include proceeds from bank loans and from issuing stocks or bonds to investors.