NCERT Class 12 Accountancy Part 2 Chapter 6 Cash Flow Statement Extra Questions and Answers
Class 12 Accountancy Part 2 Chapter 6 Extra Questions and Answers – Cash Flow Statement. Here in this Page Class XII Students can Learn Extra Questions & Answer 6th Chapter Accountancy Part 2 Part I fully Inside.
We Provided Here Cash Flow Statement Accountancy Part 2 Chapter 6 MCQ Questions, Very Short Type Questions and Short Type Questions.
Class 12 Accountancy Part 2 Chapter 6 Extra Question with Answer – Cash Flow Statement
Accountancy Part 2 Chapter 6 Cash Flow Statement Class 12 Inside 3 marks, 2 Marks & And 1 Marks Important Questions and Answers.
Board |
NCERT |
Class |
12 |
Book Title |
Accountancy Part II |
Chapter |
6 |
Chapter Name |
Cash Flow Statement |
Topic |
Extra Questions |
NCERT VSA (1 Mark) with solution
(Q1) When does a “Cash flow” arise in an organisation?
Ans: A cash flow arises when the net result of a transaction is either increase or decrease in cash or cash equivalent.
(Q2) What is the relevance of “Cash” for the purpose of preparing cash flow statement?
Ans: Incase of preparation of cash flow statement, the term “cash” implies – “cash in hand” and “Demand deposit with bank”.
(Q3) Define operating activities.
Ans: The activities that generates the main revenue for a firm are termed as operating activities.
(Q4) Give any two examples of cash inflows from operating activities other than cash receipts from rendering services.
Ans: Two examples of cash inflow from operating activities other than cash receipts from rendering services are as follows:
(i) Cash received from sale of goods
(ii) Commission received
(Q5) Give any two examples of “cash equivalent”.
Ans: Two examples of “cash equivalent” are as follows:
(i) Treasury bills
(ii) Commercial paper
(Q6) State the two methods for calculating cash flow from operating activities.
Ans: The two methods for calculating cash flow from operating activity are –
(i) Direct method
(ii) Indirect method
(Q7) How does cash inflow arises from investing activity?
Ans: Cash inflow arises from investing activity through the sale of fixed assets.
(Q8) “Payment of hours to the employees by an insurance company” is which type of activity?
Ans: It is an operating activity for the insurance company.
(Q9) What is the effect of depreciation charged by a company in the preparation of cash flow statement?
Ans: The depreciation charged by a company has a — effect — effect in the inflow or outflow of cash in preparation of a cash flow statement.
(Q10) Define investing activity while preparing cash flow statement.
Ans: Investing activity to cash inflow and outflow from the sale or purchase of a fixed asset.
(Q11) Do you think that cash flow statement is not a substitute for income statement? State reasons for you answer.
Ans: Yes, Cash flow statement is not a substitute for income statement because it shows only the inflow and outflow of cash whereas income statement shows both cash and non-items and net income during the year.
(Q12) Give any two examples of investing activity that results in inflow of cash.
Ans: Two examples of investing activity that results in inflow of cash are as follows:
(a) Sale of fixed assets
(b) Sale of investment
(Q13) Define financing activity.
Ans: The activities that result I charge in capital and borrowings of the enterprise are termed as financing activity.
(Q14) How does cash payment of trade payables effect the flow of cash in a business?
Ans: “Payment of trade payables” results in outflow of cash of an organisation.
(Q15) Give any two examples of cash inflow from financing activity.
Ans: (i) Cash received from issue of shares and debentures.
(ii) Cash proceeds from short and long term borrowings
(Q16) “Proceeds from sale of patent” comes under which activity?
Ans: “Proceeds from o patent” is an cash inflow from investing activity.
(Q17 How do you treat profit or loss on sale of fixed asset for calculating cash flow from operating activity?
Ans: Profit on sale of fixed asset is deducted from net profit and loss on sale of fixed asset is added back to profit while calculating cash from activity.
(Q18) Give any two activities that result in outflow of cash from financing activity.
Ans: Two financing activity that results into outflow of cash are as follows:-
(a) Buy-back of equity shares
(b) Interest paid on loan or borrowings.
(Q19) State the treatment of depreciation in calculating cash flow from operating activity.
Ans: Depreciation is added to net profit while calculating cash flow from operating activity.
(Q20) Why is preliminary expenses added to net profit while calculating cash flow from operating activity?
Ans: Preliminary expenses are written off as they are debited to P/h A/c and does not involve cash payment. So, they added back to net profit for calculating cash flow from operating activity.
(Q21) Does “Short term deposit with bank” result in inflow or outflow of cash?
Ans: “Short term deposit with bank” is a part of cash equivalent and result in no flow of cash.
In case you are missed :- NCERT Extra Questions for Accounting Ratios
(Q22) What does increase in the balance of “Securities premium represent in preparation of” cash flow statement”?
Ans: The increased balance of “Securities premium” represents amount of premium received on issue of shares and debentures.
(Q23) “Refund o income Tax” is categorised under which type of activity in preparation of cash flow statement?
Ans: “Refund of income Tax” is categorised as an operating activity.
(Q24) How is Bank overdraft treated in a cash flow statement?
Ans: Bank overdraft is a short-term borrowing and is treated as financing activity.
(Q25) Where is “purchase of goodwill” recorded in cash flow statement?
Ans: “Purchase of goodwill” is recorded under cash flow from investing activity.
(Q26) Give two example of Non-cash transaction.
Ans: (i) Acquiring of fixed assets by issue of shares.
(ii) Conversation of debentures into shares.
(Q27) How will you treat “Rent received” incase of a real estate company and a financial company while preparing cash flow statement?
Ans: Rent received for a real estate company is an operating activity. For a financial company “Rent received” is considered as an investing activity in preparation of cash flow statement.
(Q28) Name the activity that remains financing activity for every type of organisation in preparing of cash flow statement.
Ans: The activity that remains financing activity for every type of organisation is – issue of shares.
(Q29) “Writing off old furniture” would result inflow or outflow of cash?
Ans: When we write off old furniture, it does not involve in any inflow or outflow of cash as it is a non-cash transaction.
(Q30) Why short term investment is not considered in preparing of cash flow statement?
Ans: Short-term investment are considered as cash and cash equivalent and do not affect the cash flow of a firm. So it is not considered while preparing cash flow statement.
(Q31) How does “Discount received in payment to supplies” treated in preparation of cash flow statement?
Ans: “Discount received in payment to supplies” does not involve flow of cash as it is non-cash transaction.
(Q32) Mention any one point of difference between cash flow statement and cash budget.
Ans: A cash flow statement is prepared for a past period whereas a cash budget is prepared for a future period.
(Q33) Does divided received comes under operating activity for a Non-financing company?
Ans: No, Divided received is considered as an investing activity for a non-financing company.
(Q34) What type of activity is “Divided paid” considered for a non-financing company?
Ans: For a non-financing company, “Dividend paid” is considered as a financing activity.
(Q35) State with reason whether cash deposited in bank will result in inflow or outflow of cash.
Ans: There will be no flow of cash because cash deposited in bank represents no such movement of between items of cash and cash equivalent.
(Q36) Payment and receipt of interest and dividend is classified as which type of activity while preparing cash flow statement?
Ans: Payment of interest and dividend is a financing activity, and receipt of interest and dividend is an investing activity.
(Q37) Mention any two items of operating activity of a manufacturing unit
Ans: Two items of operating activity for a manufacturing unit are as follows: –
(a) Expenses on production
(b) Sales of the product.
(Q38) State the treatment for increase in the amount of patent while preparing cash flow statement.
Ans: Increase in the amount of patent is considered as purchase of patent i.e.-increase in asset and is shown under cash flow from investing activity.
(Q39) Mention any one limitation of cash flow statement.
Ans: A cash flow statement is prepare on cash basis of accounting and it neglects the accrual concept of accounting.
(Q40) Does “acquisition of machinery by issue of debentures” be considered for preparing cash flow statement?
Ans: The above transaction will not be considered while preparation of cash flow statement as there is no flow of cash.
Long Answer Question with solution
(3/4/5) Marks
(Q1) Mention any four importance or use of cash flow statement. (4marks)
Ans: Four importance of cash flow statement are as follows:
(i) Study of the trend of cash receipts and payment:
A cash flow statement reveals the speed at which the cash I being generated from trade receivables, inventory and other current assets and the speed at which the current liabilities are being paid.
(ii) Helpful in making dividend decision:
With the help of cash flow statement, the management of the company can determine the position of cash generated from operating activities for payment of dividend.
(iii) Useful for the stakeholders:
Cash flow statement helps the investors, debenture holders, bankers etc to analyse the financial position and can take decisions for investing.
(iv) Useful in preparing the cash budget:
A cash flow statement prepared is helpful in making of cash budget as it informs the management about the surplus or deficit period of cash.
(Q2 Mention with reason about three items that is added back to the net profit for determining the cash generated from operating activity. (3 Marks)
Ans:
(i) Depreciation:
It is shown as an expense in P/L A/c which reduces the profit but not the cash balance as it is a no-cash item. Hence, it is added back to net profit.
(ii) Transfer to reserve:
Transfer to general reserve and other reserve is added back to net profit as it is an appropriation on profit and does not involve cash outflow.
(iii) Loss on sale of fixed asset:
It is added back to net profit in order to determine operating profit.
(Q3) Mention any three limitations of cash flow statement.
Ans: Three limitations of cash flow statement are as follows:
(i) Ignores Non-cash transaction:
It ignores various non-cash transaction like conversion of shares into debentures, issue of bonus shares etc which helps in depicting true position of a business.
(ii) Not suitable for judging liquidity:
The liquidity position of an organisation does not only depend on cash availability.
(iii) Not a substitute for an income statement:
A cash flow statement is not a substitute for income statement as it does not take into consideration of non-cash items.
In case you are missed :- NCERT Extra Questions for Issue and Redemption of Debentures
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