Cash Flow Statement Test - 6

Decrease in the value of Patents (Intangible assets) is known as amortization. It is added to the operating activities while preparing cash flow statement.

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.

Following items will be added in operating activities:
•Decrease in stock
•Increase in creditors
•Increase in outstanding expenses.

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

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

Cash deposit with the bank with a maturity date after two months belongs to Cash and Cash Equivalents. As it is a Current Activity.

Increase in bank overdraft is shown as an addition in financing activities while preparing cash flow statement. As its increase in cash.

Dividend paid by any type of company will come under financing activities.

Dividend received by a finance company is considered as an operating activity as the company operates in financial items.

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.

Interest paid on long term borrowings is outflow of cash. It is shown as deduction in financing activities while preparing cash flow statement as long term borrowings is a financial item.

When a company receives interest on calls in arrear, it is considered as financing activity. As calls in arrear is the part of share capital.

Decrease in Current assets (except cash and cash equivalents) will be added to the operating activities. For example: decrease in trade receivables (Current Assets) and decrease in inventories etc.

Cash flow from operating activities is Rs.9,00,000 after all adjustments (salary).

Purchase of plant and machinery is part of investing activities where the amount of the same will be deducted while preparing cash flow statement. As cash will be out flow.

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

Dividend paid by a finance company comes under Operating activity. As Dividend is a operating activity for a finance company.

Issue of Equity shares is not concerned with operating activities. It is part of financing activities.

Source of cash is Rs.10,000 only i.e. Book value of asset is 15,000 and sold at a loss of Rs.5,000. Sale price = Rs. 15,000 – Rs. 5,000 = Rs. 10,000.

Loss on sale of furniture will be added to the net profit in operating activities while preparing cash flow statement.