Chapter cash-flow-statement: Cash Flow Statement Short Questions | accountancy Class 12 CBSE

ByteNotes

Chapter cash-flow-statement: Cash Flow Statement Short Questions | accountancy Class 12 CBSE | ByteNotes.in

Short Answer

Easy difficulty • Direct answer format

Easy

Question 1

Quick Recall

State the meaning of a Cash Flow Statement as per AS-3.

A Cash Flow Statement shows the inflows and outflows of cash and cash equivalents from various activities of an enterprise during a specific period.
It classifies cash flows into three categories: operating activities, investing activities, and financing activities.
It is prepared in accordance with AS-3 notified under the Companies Act, 2013, and is mandatory for Indian companies.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 2

Quick Recall

Distinguish between 'Cash' and 'Cash Equivalents' as per AS-3.

Cash comprises cash in hand and demand deposits with banks, while cash equivalents are short-term highly liquid investments readily convertible into known amounts of cash.
Cash equivalents must have an insignificant risk of changes in value and typically have a maturity of three months or less from the date of acquisition.
Investments in shares are generally excluded from cash equivalents unless they are in substantial cash equivalents, such as preference shares acquired shortly before their specific redemption date.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 3

Quick Recall

What is meant by 'Cash Flows' and give two examples of cash inflows and outflows.

Cash flows imply movement of cash in and out due to some non-cash items; receipt of cash from a non-cash item is cash inflow while payment in respect of such items is cash outflow.
Examples of cash inflows: collection of cash from trade receivables and sale proceeds received from sale of machinery.
Examples of cash outflows: purchase of machinery by paying cash and payment to trade payables or employees.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 4

Quick Recall

State any three benefits of preparing a Cash Flow Statement.

It enables users to evaluate changes in net assets, financial structure, liquidity, and solvency of an enterprise when used along with other financial statements.
It enhances comparability of operating performance across enterprises by eliminating the effects of using different accounting treatments for the same transactions.
It helps in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 5

Quick Recall

Define 'Operating Activities' and state what the amount of cash from operations indicates.

Operating activities are the activities that constitute the primary or main revenue-generating activities of an enterprise that are neither investing nor financing activities.
The amount of cash from operations indicates the internal solvency level of the company and is a key indicator of how well operations generate sufficient cash flows.
Sufficient operating cash flows allow an enterprise to maintain operating capability, pay dividends, make new investments, and repay loans without recourse to external financing.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 6

Quick Recall

Define 'Investing Activities' as per AS-3 and state why their separate disclosure is important.

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents, relating to purchase and sale of fixed assets and long-term investments.
Separate disclosure of investing cash flows is important because they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.
This helps users assess the enterprise's capital expenditure policy and its potential for future growth.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 7

Quick Recall

Define 'Financing Activities' as per AS-3 and state why their separate disclosure is important.

Financing activities are activities that result in changes in the size and composition of the owners' capital (including preference share capital) and borrowings of the enterprise.
Separate disclosure of financing cash flows is important because it is useful in predicting claims on future cash flows by providers of funds — both capital and borrowings.
Examples include proceeds from issue of shares, proceeds from debentures, repayment of borrowings, interest paid, and dividends paid.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 8

Quick Recall

State two cash inflows and two cash outflows from investing activities.

Cash inflows from investing activities include: cash receipt from disposal of fixed assets (including intangibles), and interest received in cash from loans and advances.
Cash inflows also include dividend received from investments in other enterprises and cash receipt from repayment of advances or loans made to third parties.
Cash outflows from investing activities include: cash payments to acquire fixed assets (including intangibles and capitalised R&D), and cash advances and loans made to third parties.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 9

Quick Recall

State two cash inflows and two cash outflows from financing activities.

Cash inflows from financing activities include: cash proceeds from issuing shares (equity or preference), and cash proceeds from issuing debentures, loans, bonds, and other borrowings.
Cash outflows from financing activities include: cash repayments of amounts borrowed, and interest paid on debentures and long-term loans and advances.
Dividends paid on equity and preference capital are also a cash outflow under financing activities.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 10

Quick Recall

How is depreciation treated in the indirect method of calculating cash flows from operating activities?

Depreciation is a non-cash item; it is charged to the profit and loss account but does not involve any actual cash payment.
Therefore, depreciation is added back to the net profit while calculating cash flows from operating activities under the indirect method.
Other non-cash items added back similarly include goodwill written-off, amortisation, provisions, and deferred taxes.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 11

Quick Recall

How is 'finance cost' (interest paid) treated under the indirect method for a non-financial enterprise?

Finance cost (interest paid) is a cash outflow on account of financing activity for a non-financial enterprise as per AS-3.
Therefore, the amount of finance cost already deducted in the Statement of Profit and Loss is added back to net profit while calculating cash flows from operating activities.
This amount of finance cost is then shown as a cash outflow under the head of financing activities in the cash flow statement.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 12

Quick Recall

How is 'profit on sale of fixed assets' treated under the indirect method?

Profit on sale of fixed assets is a non-operating income item that is credited to the Statement of Profit and Loss, inflating the net profit figure.
Since the actual sale proceeds are classified as a cash inflow under investing activities, the profit on sale must be deducted from net profit to avoid double counting while calculating cash flows from operating activities.
Similarly, loss on sale of fixed assets is a non-operating item added back to net profit under the indirect method.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 13

Quick Recall

How are changes in current assets and current liabilities adjusted in the indirect method?

An increase in current assets (other than cash and cash equivalents) represents cash that has been tied up and is therefore deducted from operating profit; a decrease in current assets is added back.
An increase in current liabilities means the enterprise has effectively received more credit (cash saved) and is therefore added to operating profit; a decrease in current liabilities is deducted.
These adjustments convert the accrual-basis net profit into actual cash flows from operating activities.

ByteNotes

Premium Access

Unlock all Short Questions

You are viewing 13 free short questions from this chapter. Upgrade to Premium to unlock the remaining 12 questions.

Upgrade to Premium12 questions locked

Chapter sections

Chapter cash-flow-statement: Cash Flow Statement | Short Questions

State the meaning of a Cash Flow Statement as per AS-3.

Distinguish between 'Cash' and 'Cash Equivalents' as per AS-3.

What is meant by 'Cash Flows' and give two examples of cash inflows and outflows.

State any three benefits of preparing a Cash Flow Statement.

Define 'Operating Activities' and state what the amount of cash from operations indicates.

Define 'Investing Activities' as per AS-3 and state why their separate disclosure is important.

Define 'Financing Activities' as per AS-3 and state why their separate disclosure is important.

State two cash inflows and two cash outflows from investing activities.

State two cash inflows and two cash outflows from financing activities.

How is depreciation treated in the indirect method of calculating cash flows from operating activities?

How is 'finance cost' (interest paid) treated under the indirect method for a non-financial enterprise?

How is 'profit on sale of fixed assets' treated under the indirect method?

How are changes in current assets and current liabilities adjusted in the indirect method?

Unlock all Short Questions