Cash Flow Statement Test - 5

Refund of income tax is the part of operating activities in Cash Flow Statement. Income tax paid (net of tax refund) is shown as an Operating activity separately.

Purchase of fixed assets will be classified as investing activity for both finance and non – finance company. As fixed Assets are Non Current Investment.

Computer software is an intangible asset for a company which is shown under Non-Current Assets sub, head fixed intangible assets.

Sale of copyrights is concerned with Investing activities. It is added in Investing activities as proceeds from the sale of copyrights (Assets).

Increase in the value of copyrights means company has purchased copyrights (Non Current Assets). So Less Rs. 32,000 in investing activities.

Redemption of preference shares is concerned with financing activities. It will be deducted in financing activities as cash used in redemption of prefrence share.

Buy back of shares is concerned with financing activities. This is the situation where one company is buying its own shares form the open market as change in financial position.

Income tax is concerned with only operating activities. Tax paid is deducted at the end while calculating Cash flow from operating activities in Cash Flow statement.

The various activities in Cash Flow Statement as operating, investing and financing classified as per Accounting Standard – 3 (AS- 3 Revised).

Internal movement in cash and cash equivalents will not make any effect. Cash credit is not part of cash and cash equivalents. It is part of financing activities.

When provision for depreciation a/c is maintained separately in such a case at the time of sale of asset two accounts are prepared (i) Asset Account (ii) Provision for Depreciation Account or Accumulated Depreciation Account.

Issue of share capital is not the part of unamortized expenses. Discount on issue of debentures, Loss on issue of debentures, and Share issue expenses are unamortized expenses.

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

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.

Loose tools are shown under the heading Current assets and sub, heading Inventories in Assets side.

Operating activities are the main revenue generating activities of an enterprise. As, such, they include cash flow from those transactions and events which enter into the ascertainment of net profit or loss of the enterprise.

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.

Sale of machinery is concerned with investing activities. It will be added to investing activities as proceeds from sale of machinery as cash received.

Issue of bonus shares will not affect the preparation of cash flow statement as in this transaction no cash involve.

Dividend Received is concerned with investing activities. A firm will received dividend only if it has invested in the shares of some other company and income received on their Investment as Dividend.

Decrease in current assets (inventory) will be added while calculating cash flow from operating activities.

Amortization of patent will not create a cash flow as there is no cash transaction.

Deferred Tax liabilities are shown under the heading Non-current Liabilities. In case Accounting Income is more than the Taxable Income, it results in Deferred Tax Liability.

Goods purchase in cash is not a cash inflow as in this transaction cash is going out.

The decrease in the value of Trade Receivables (Current assets) will be added in operating activities while preparing cas flow statement.