Tag: meaning, merits and demerits of cash flow statement

Questions Related to meaning, merits and demerits of cash flow statement

Free cash flow is Rs 12000, an operating cash flow is Rs 4000, an investment outlay cash flow is Rs 5000 then salvage cash flow would be _______________.

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. -Rs 21, 000.00

  2. Rs 21, 000.00

  3. -Rs 3, 000.00

  4. Rs 3, 000.00

Show answer
Correct Option: D

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

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 Cash withdrawn from bank $Rs 71,000$.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

Show answer
Correct Option: C
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). 

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

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. 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

Show answer
Correct Option: B
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. 

Fund flow statement measures :-

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. 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

Show answer
Correct Option: B
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.

Which of the following does not effect cash flows proposal?

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. Salvage Value

  2. Depreciation Amount

  3. Tax Rate Change

  4. Method of Project Financing

Show answer
Correct Option: D

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.”