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CBSE Questions for Class 12 Commerce Accountancy Cash Flow Statement Quiz 1 - MCQExams.com
CBSE
Class 12 Commerce Accountancy
Cash Flow Statement
Quiz 1
The term 'Cash' stands for__________.
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Cash and Bank Balance
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Bank Balance
0%
Cash and Funds position
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None of the above
Explanation
Cash is a legal tender or coins that can be used to exchange goods,debt or services.
Cash
refers to money in hand,money in banking accounts, cheques
, or any other form of currency that is easily accessible and can be quickly turned into physical cash.
Cash Inflows from a project include ________.
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Tax shield of depreciation
0%
After-tax operating profits
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Raising of funds
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Both A and B
Financial decision involves ___________.
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investment, financing and dividend decisions
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investment, financing and sales decisions
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financing, dividend and cash decisions
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None of the above
Explanation
Investment decision
- It helps in determine how scarce resources are committed to projects.
Financing decision
- Acquiring finance to meet finance objectives & seeing that working capital is effectively manages.
Dividend decision
- Determination of quantum of profits to be distributed.
Tax paid is ___________.
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Source of funds
0%
Application of funds
0%
Flow of funds
0%
Flow of cash
Explanation
When taxes are paid, there is an outflow of funds, i.e. an application of funds (for the actual amount so paid).
But if there is a provision for tax, there will not be any outflow of funds. Outflow of funds will arise only when actual payment is made.
Which of the following result from and increase or decrease of working capital?
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Flow of cash
0%
Flow of funds
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Both (A) and (B)
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Either (A) or (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.
While preparing a fund flow statement, attention is to be given to _______.
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Current Asset and Current Liabilities
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Changes in Fixed assets and Fixed Liabilities
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Changes in Fluctuating Capital
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Changes in Cash Receipts and Payments
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.
Stock at the end results in the __________.
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Source of funds
0%
Application of funds
0%
No flow of funds
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Cash flow
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.
Fund flow statement measures :-
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The inflows and outflows of net assets
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The inflows and outflows of net working capital
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The inflows and outflows of working and non-working capital
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The inflows and outflows of cash
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 the total change in current assets minus the total change in current liabilities.
Hence, B is the correct option.
The Real Cashflows must be discounted to
get the present value 'M' at a rate equal to ________________.
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Money Discount Rate
0%
Inflation Rate
0%
Real Discount Rate
0%
Risk free rate of interest
Explanation
The real discount rate is used to convert between one-time costs and annualized costs. HOMER calculates the annual real discount rate (also called the real interest rate or interest rate) from the "Nominal discount rate" and "Expected inflation rate" inputs. HOMER uses the real discount rate to calculate discount factors and annualized costs from net present costs. Since, in real discount rate, it involves the affect of inflation rate present values of the cashflows will be close to the actual cash flows.
Therefore, C is the correct answer.
Cash flow statement is also termed as ___________________.
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Statement of changes in Financial Position (working capital basis)
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Statement of changes in Financial Position (cash basis)
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Appropriate statement for short range planning
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Statement showing cash receipts and payments
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
.”
New profit earned $$+$$ non working capital expense =
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Sinking fund
0%
Use of funds
0%
Funds provided by operation
0%
Cash provided by operation
Explanation
Funds from operations refers to the figure used by real estate investment trusts to define the cash flow from operations.
It is calculated as new profit earned plus non working capital expense.
Which of the following items would be specifically included in the statement of cash flows constructed in compliance with $$AS-3$$?
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Conversion of debt to equity
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Acquiring an asset through lease
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Operating and non-operating cash flow information
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Purchasing a building by given a mortgage to the seller
Explanation
Operating and non-operating cash flow
are inflows and outflows of cash that are related or not related to the day-to-day, ongoing operations of a business. These non operating cash flows are associated with cash flows from investing and cash flows from financing on a company's statement of cash flows.
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 :-
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Both (A) and (B) are true
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Both (A) and (B) are false
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(A) is true but (B) is false
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(A) is false but (B) is true
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.
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.
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both (a) and (b) are true
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both (a) and (b) are false
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(a) is true but (b) is false
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(a) is false but (b) is true
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.
In net profit is Rs. $$25,000$$/- after writing off preliminary expenses of Rs. $$5000$$/- then the funds from operation will be.
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Rs. $$25,000$$/-
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Rs. $$30,000$$/-
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Rs. $$20,000$$/-
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Rs. $$10,000$$/-
Cash flow statement reveals _______.
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The effects of transactions involving movement of cash
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A statement depicting change in cash position from one period to another
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Flow of funds
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Both (A) & (B)
Explanation
Cash flow statement is a statement showing the inflow and outflow of the cash of a company classified in 3 categories:
1. Operating cash flows
2.Investing cash flows
3.Financing cash flows
It involves movement of the cash in the company from these 3 categories of activities.
Therefore, It is a statement depicting changes in cash position from one period to another.
A cash flow statement is useful for __________.
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Short-term planning
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Long-term planning
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Medium term planning
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None of the above
Explanation
A cash flow statement is a statement which shows changes in the cash position of an organisation between two periods. As it consists of two periods it basically consists of short period. Because if prepared for long period the estimation of cash values from various activities will not give accurate outcomes leading to less effective planning and decision making. Hence, it is useful for short-term planning.
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
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$$(a)-(ii), (b)-(iii), (c)-(i), (d)-(iv)$$
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$$(a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)$$
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$$(a)-(i), (b)-(iv), (c)-(ii), (d)-(iii)$$
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$$(a)-(iv), (b)-(ii), (c)-(iii), (d)-(i)$$
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.
The term 'funds' as used in 'funds flow statement' means.
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Cash
0%
Current Assets
0%
Current Liabilities
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Current Assets minus Current Liabilities
Explanation
The term flow means movement and includes both inflows and outflows of resources. And the funds used in the flow statement is a current assets.
Therefore, B is the correct option.
Which of the following results in the flow of funds?
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Creditors issued bills payable
0%
Loss on the sale of machinery
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Transfer to general reserve
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Building sold on credit
Stock in the beginning results in __________.
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A source of funds
0%
An application of funds
0%
No flow of funds
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Change in current assets
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 statement is true?
a. Cash flow reveals only the inflow of cash.
b. Cash flow reveals only the outflow of cash.
c. Cash flow is a substitute for income statement.
d. Cash flow statement is not a replacement of funds flow statement.
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Only (a)
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Only (b)
0%
Only (b) and (c)
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Only (d)
Explanation
AS-3, issued by the ICAI in June 1981, which dealt with a statement showing 'changes in financial position' (Fund Flow Statement), has been revised and now deals with the preparations of cash flow statement. The revised AS-3 has made it mandatory for all listed companies to prepare and present a cash flow statement along with other financial statements on annual basis, Hence, it may be noted that fund flow statement is no more considered relevant in accounting and so not discussed.
Cash flow statement is based upon ______________.
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Cash basis of accounting.
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Accrual basis of accounting.
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Credit basis of accounting.
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None of the above.
Explanation
Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions resulting from transactions that occur from one period to the next. These adjustments are made because non-cash items are calculated into net income and total assets and liabilities.
So, because not all transactions involve actual cash items, many items have to be reevaluated when calculating cash flow from operations.
Cash Flow Management involves.
i) Lock-box system
ii) Marketable securities
iii) Playing the float
iv) Concentration Bank Account
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I, II and III only
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II, III and IV only
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I, III and IV only
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I, II and IV only
Explanation
A
lockbox
is a bank-operated mailing address to which a company directs its customers to send their payments. The bank opens the incoming mail, deposits all received
funds
in the company's bank account, and scans the payments and any remittance information.
In cash management, float
can be utilized to make use of cash on hand for as long as possible. Bank float is the time it takes to clear the funds, from the time they were deposited to the time they were credited to the depositing bank.
Cash Concentration is a corporate treasury management strategy involving the transfer of all funds from different accounts to a single, centralized account to increase cash management efficiency and reduce fees.
Which of the following transactions results in increase in liabilities and also decrease in liabilities ?
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Payment to creditors.
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Payment of a bank loan.
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A bill is accepted in payment of an open account obligation.
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Payment of an installment of a truck purchased on hire purchase system.
Which of the following transactions will result in increase in assets and increase in liabilities ?
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Payment made to creditiors.
0%
Goodwill account written off.
0%
Issue of bonus shares.
0%
Machinery purchased on account.
0%
None of these.
Explanation
When a machinery is purchased, it increases the value of total assets of the business. On the other hand, if it is purchased in cash, it decreases the value of cash in the business, leaving nil effect. However, if such machinery is purchased on credit, then an equal of liability arise for the business.
Match the items in List-I with items in List-II.
List-I
List-II
a) Margin of Safety
i) Earning Power
b) ROI
ii) Cash Flow statement
c) Current Ratio
iii) Break Even analysis
d) Cash Equivalents
iv) Solvency
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(a)-(ii), (b)-(iii), (c)-(i), (d)-(iv)
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(a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)
0%
(a)-(iv), (b)-(ii), (c)-(iii), (d)-(i)
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(a)-(i), (b)-(ii), (c)-(iii), (d)-(iv)
The objective of Cash Flow Statement are:
a. Analysis of cash position;
b. Short-term cash planning;
c. Evaluation of liquidity;
d. Comparison of operating performance;
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0%
Both (a) and (b)
0%
Both (a) and (c)
0%
Both (b) and (d)
0%
All of the above
Explanation
A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period.
The primary objective of cash flow statement is to provide useful information about cash flows of an enterprise during a particular period under various heads, i.e. operating, investing and financing activities.
Which of the following statement is false?
a. Cash flow statement is helpful in the formation of policies.
b. Cash flow statement is useful for external analysis.
c. Cash flow statement is helpful in estimating future cash flow.
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Both (a) and (b)
0%
Both (a) and (c)
0%
Both (b) and (c)
0%
None of the above
Explanation
Cash flow statement helps users to assess the impact of the activities on the financial position of an enterprise and so on its cash and cash equivalents.
As per AS-3, Cash flow statement is mandatory for:
a. All enterprises.
b. Companies listed on stock exchange.
c. Companies with turnover of more than Rs. 50 crores.
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Both (a) and (b)
0%
Both (a) and (c)
0%
Both (c) and (b)
0%
All of the above
Explanation
A private limited company with paid up share capital of less than 50 lakh rupees or such higher amount as may be prescribed (not exceeding 5 crore rupees) or with a turnover of less than 2 crore rupees or such higher amount as may be prescribed (not exceeding 20 crore rupees) is not required to prepare cash flow statements while preparing financial statements at the end of the financial year.
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