Cash Flow Statement Test - 6

Cash credit is concerned with Financing Activities. It is given in the balance sheet under Current Liabilities short term borrowings in the liabilities side.

An investment in bond is part of investing activities as it is a long term investment and not linked with cash equivalents.

Increase in Bank overdraft is treated as source of funds and it is added in financing activities while preparing a cash flow statement as its increase in cash.

Conversions of debentures into shares will not make any effect on financing activities. Because both debentures and shares are concerned with financing activities and there is no cash flow taken place.

General Reserves are the part of profits and used to find out the operating profit during the year in Operating activities while preparing cash flow statement.

Computer software is an intangible asset. Increase in this asset will be deducted from investing activities as it is purchase of non current asset.

Balance i.e. Surplus in Statement of Profit and Loss is part of operating activities as it is used to find out the net profit of the year of a company.

Securities premium reserve is directly concerned with the share capital which is part of financing activities. It is to be added in financing activities while preparing cash flow statement.

Cash paid for purchase of investment is deducted in investing activities while preparing cash flow statement. It shown outflow of cash in investing activities.

Interest paid on long term loan is concerned with financing activities as Long term loan is Non current Liabilities.