Which of the following activities is considered an operating activity?
a) Sale of machinery
b) Interest received on investments
c) Payment of wages
d) Issuance of shares
Answer: c) Payment of wagesCash flow statement is prepared to show:
a) financial position of the company
b) Cash inflows and outflows during a period
c) Profit or loss for a period
d) Changes in shareholders’ equity
Answer: b) Cash inflows and outflows during a periodUnder which activity is the purchase of fixed assets classified?
a) Operating activity
b) Investing activity
c) Financing activity
d) None of the above
Answer: b) Investing activityDividends paid by a company are classified under which activity?
a) Operating activity
b) Investing activity
c) Financing activity
d) None of the above
Answer: c) Financing activityWhich of the following is not included in a Cash Flow Statement?
a) Depreciation
b) Payment of dividends
c) Cash received from debtors
d) Purchase of machinery
Answer: a) Depreciation
Practical Questions
If the net profit is ₹2,00,000, depreciation is ₹50,000, and there is a decrease in accounts payable of ₹20,000, what is the cash flow from operating activities?
a) ₹2,30,000
b) ₹2,70,000
c) ₹2,10,000
d) ₹1,30,000
Answer: c) ₹2,10,000(Explanation: ₹2,00,000 + ₹50,000 (non-cash expense) - ₹20,000 (decrease in liability)
A company sold equipment with a book value of ₹40,000 for ₹50,000. In which section of the Cash Flow Statement will the profit of ₹10,000 be shown?
a) Operating activities
b) Investing activities
c) Financing activities
d) It is not shown separately
Answer: a) Operating activitiesA company issued equity shares worth ₹5,00,000 and repaid a loan of ₹2,00,000. What is the net cash flow from financing activities?
a) ₹3,00,000
b) ₹7,00,000
c) ₹2,00,000
d) ₹5,00,000
Answer: a) ₹3,00,000The purchase of land costing ₹10,00,000 is classified under:
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: b) Investing activitiesWhich of the following is added to net profit while calculating cash flows from operating activities (indirect method)?
a) Increase in prepaid expenses
b) Decrease in outstanding expenses
c) Depreciation
d) Increase in inventory
Answer: c) DepreciationAdvanced Conceptual Questions
If a company reissue forfeited shares, where will the proceeds be shown in the Cash Flow Statement?
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: c) Financing activitiesWhich of the following will decrease cash flow from operating activities under the indirect method?
a) Amortization of intangible assets
b) Increase in accounts receivable
c) Decrease in accounts payable
d) Both b and c
Answer: d) Both b and cWhich of the following is an example of a non-cash investing and financing activity?
a) Conversion of debentures into equity shares
b) Purchase of machinery in cash
c) Payment of dividend in cash
d) Sale of fixed assets for cash
Answer: a) Conversion of debentures into equity sharesWhich method of preparing the Cash Flow Statement directly shows the major classes of gross cash receipts and gross cash payments?
a) Indirect method
b) Direct method
c) Adjusted profit and loss method
d) Net assets method
Answer: b) Direct methodIf a company purchases inventory on credit, how will it impact the Cash Flow Statement?
a) Increase in cash flow from operating activities
b) Decrease in cash flow from operating activities
c) No effect on cash flow
d) Shown as a financing activity
Answer: c) No effect on cash flowAdvanced Practical Questions
A company’s net income is ₹5,00,000, depreciation is ₹1,20,000, there is a decrease in inventory of ₹60,000, and an increase in accounts payable of ₹40,000. What is the cash flow from operating activities?
a) ₹6,80,000
b) ₹7,20,000
c) ₹6,40,000
d) ₹6,00,000
Answer: a) ₹6,80,000(Explanation: ₹5,00,000 + ₹1,20,000 (depreciation) + ₹60,000 (decrease in inventory) + ₹40,000 (increase in accounts payable))
The opening balance of cash is ₹1,50,000, and the closing balance is ₹2,50,000. If the net cash flow from operating activities is ₹2,00,000 and net cash flow from financing activities is ₹50,000, what is the net cash flow from investing activities?
a) ₹1,00,000 (inflow)
b) ₹50,000 (outflow)
c) ₹1,50,000 (outflow)
d) ₹1,00,000 (outflow)
Answer: c) ₹1,50,000 (outflow)(Explanation: Net cash flow = Operating + Investing + Financing; solve for investing.)
A company sold machinery with a book value of ₹3,00,000 for ₹2,50,000. The accumulated depreciation on the machinery was ₹1,00,000. What is the cash flow from this transaction, and how is it classified?
a) ₹2,50,000; Investing Activity
b) ₹3,50,000; Operating Activity
c) ₹2,50,000; Financing Activity
d) ₹3,00,000; Investing Activity
Answer: a) ₹2,50,000; Investing Activity(Explanation: Cash inflow = Selling price; classification = Investing Activity.)
If the Cash Flow Statement shows net cash used in investing activities as ₹(-1,00,000), net cash from financing activities as ₹50,000, and net cash from operating activities as ₹2,00,000, what will be the change in the cash balance during the period?
a) ₹1,50,000
b) ₹50,000
c) ₹2,50,000
d) ₹3,00,000
Answer: a) ₹1,50,000(Explanation: Change in cash = Operating + Investing + Financing.)
A company’s interest expense for the year is ₹40,000, out of which ₹30,000 is paid in cash, and ₹10,000 is outstanding. How will the interest be shown in the Cash Flow Statement?
a) ₹40,000 under operating activities
b) ₹30,000 under operating activities
c) ₹10,000 under financing activities
d) ₹40,000 under financing activities
Answer: b) ₹30,000 under operating activities(Explanation: Only the cash portion of interest paid is shown under operating activities.)