Tag: meaning, merits and demerits of cash flow statement

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

Which of the following transactions will result into flow of cash ?

  1. Cash withdrawn from bank $Rs 71,000$.

  2. Issue of $9\%$ debentures of $Rs 1,00,000$ to the vendors of machinery.

  3. Received from debtors $Rs 74,000$

  4. Redeemed $10\%$ debentures by converting the same into equity shares.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Amount received from debtors $Rs 74,000$ will be received in cash. This is the only transaction that results in flow (inflow) of cash into the business.
Why other options are incorrect? 
1. Deposit of cash into bank and withdrawal of cash from bank are merely the cash management activities of the business. They do not involve any cash flow. 
2. Conversion of debentures into equity shares is a mere change in capital structure of the company. It does not result in cash flow. 
Hence, the correct answer is option (iii). 

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

While preparing a fund flow statement, attention is to be given to _______.

  1. Current Asset and Current Liabilities

  2. Changes in Fixed assets and Fixed Liabilities

  3. Changes in Fluctuating Capital

  4. Changes in Cash Receipts and Payments
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Funds Flow Statement is a statement prepared to analyse the reasons for changes in the Financial Position of a Company between two Balance Sheets. 

It shows the inflow and outflow of funds i.e. Sources and Applications of funds for a particular period.

 It is a statement which involves no error in the amount of funds inflow and outflow as it pays attention on the changes in value of fixed assets and fixed liabilities. 

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

Fund flow statement measures :-

  1. The inflows and outflows of net assets

  2. The inflows and outflows of net working capital

  3. The inflows and outflows of working and non-working capital

  4. The inflows and outflows of cash
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Funds Flow Statement states the changes in the working capital of the business in relation to the operations in one time period. Net working capital is the total change in the business's working capital, calculated as total change in current assets minus total change in current liabilities.

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

Which of the following does not effect cash flows proposal?

  1. Salvage Value

  2. Depreciation Amount

  3. Tax Rate Change

  4. Method of Project Financing
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Salvage value, depreciation, and tax rates directly impact the cash flow calculations of a project. The method of financing (debt vs equity) is typically handled in the discount rate (WACC) rather than the cash flow proposal itself.

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

Flow of funds means ___________.

  1. Change in funds

  2. Change in working capital

  3. Either (A) or (B)

  4. Change in cash receipts (or) payments
Reveal answer Fill a bubble to check yourself
C Correct answer
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.

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

Cash Inflows from a project include ________.

  1. Tax shield of depreciation

  2. After-tax operating profits

  3. Raising of funds

  4. Both A and B
Reveal answer Fill a bubble to check yourself
D Correct answer
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.

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

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

  1. Flow of cash

  2. Flow of funds

  3. Both (A) and (B)

  4. Either (A) or (B)
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

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

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

  1. non-cash revenues

  2. non-cash charges

  3. current liabilities

  4. income expense
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Deferred tax payments are accounting adjustments that do not involve an immediate cash outflow, thus they are treated as non-cash charges when reconciling net income to cash flow from operations.

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

Cash flow statement is also termed as ___________________.

  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
Reveal answer Fill a bubble to check yourself
A Correct answer
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.”