Cash Flow Statement Test

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Cash Flow Statement Test - 13

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Weekly Quiz Competition

Question 1
1 / -0

Which of the following results in the flow of funds?

A
Creditors issued bills payable

B
Loss on the sale of machinery

C
Transfer to general reserve

D
Building sold on credit
Question 2
1 / -0

Cash flow statement is based upon ______________.

A
Cash basis of accounting.

B
Accrual basis of accounting.

C
Credit basis of accounting.

D
None of the above.

Solution

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.
Question 3
1 / -0

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.

A
Only (a)

B
Only (b)

C
Only (b) and (c)

D
Only (d)

Solution

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.
Question 4
1 / -0

Cash Flow Management involves.
i) Lock-box system
ii) Marketable securities
iii) Playing the float
iv) Concentration Bank Account

A
I, II and III only

B
II, III and IV only

C
I, III and IV only

D
I, II and IV only
Solution
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.
Question 5
1 / -0

Which of the following transactions results in increase in liabilities and also decrease in liabilities ?

A
Payment to creditors.

B
Payment of a bank loan.

C
A bill is accepted in payment of an open account obligation.

D
Payment of an installment of a truck purchased on hire purchase system.
Question 6
1 / -0

Which of the following transactions will result in increase in assets and increase in liabilities ?

A
Payment made to creditiors.

B
Goodwill account written off.

C
Issue of bonus shares.

D
Machinery purchased on account.

E
None of these.

Solution

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.
Question 7
1 / -0

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

A
(a)-(ii), (b)-(iii), (c)-(i), (d)-(iv)

B
(a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)

C
(a)-(iv), (b)-(ii), (c)-(iii), (d)-(i)

D
(a)-(i), (b)-(ii), (c)-(iii), (d)-(iv)
Question 8
1 / -0

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;

A
Both (a) and (b)

B
Both (a) and (c)

C
Both (b) and (d)

D
All of the above

Solution

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.
Question 9
1 / -0

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.

A
Both (a) and (b)

B
Both (a) and (c)

C
Both (b) and (c)

D
None of the above

Solution

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.
Question 10
1 / -0

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.

A
Both (a) and (b)

B
Both (a) and (c)

C
Both (c) and (b)

D
All of the above

Solution

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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Re-Attempt Weekly Quiz Competition

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

Cash Flow Statement Test - 13

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Cash Flow Statement Test - 13

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Question 1

Creditors issued bills payable

Loss on the sale of machinery

Transfer to general reserve

Building sold on credit

Question 2

Cash basis of accounting.

Accrual basis of accounting.

Credit basis of accounting.

None of the above.

Solution

Question 3

Only (a)

Only (b)

Only (b) and (c)

Only (d)

Solution

Question 4

I, II and III only

II, III and IV only

I, III and IV only

I, II and IV only

Solution

Question 5

Payment to creditors.

Payment of a bank loan.

A bill is accepted in payment of an open account obligation.

Payment of an installment of a truck purchased on hire purchase system.

Question 6

Payment made to creditiors.

Goodwill account written off.

Issue of bonus shares.

Machinery purchased on account.

None of these.

Solution

Question 7

(a)-(ii), (b)-(iii), (c)-(i), (d)-(iv)

(a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)

(a)-(iv), (b)-(ii), (c)-(iii), (d)-(i)

(a)-(i), (b)-(ii), (c)-(iii), (d)-(iv)

Question 8

Both (a) and (b)

Both (a) and (c)

Both (b) and (d)

All of the above

Solution

Question 9

Both (a) and (b)

Both (a) and (c)

Both (b) and (c)

None of the above

Solution

Question 10

Both (a) and (b)

Both (a) and (c)

Both (c) and (b)

All of the above

Solution

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