Short Answer Questions
Question .1. For calculating ‘cash flow from operating activities’ from the given figure of ‘Net Profit’ earned during a year, how would you deal with (a) Increase in Trade Receivable, (b) Decrease in Inventory, (c) Decrease in Bills Payable, and (d) Increase in Trade Payables?
Solution . 1
(a) Increase in Trade Receivable Less
(b) Decrease in Inventory Add
(c) Decrease in Bills Payable Less
(d) Increase in Trade Payables Add
Question .2. For calculating ‘cash flow from operating activities’ from a given figure of ‘Net Profit’ earned during a year, how would you deal with (a) the redemption of debentures, (b) decrease in outstanding expenses, (c) increase in cash balance, and (d) decrease in inventory?
Solution . 2
Question .3. Explain the method of calculating ‘Cash flows from Operating Activities’ under indirect method.
Solution . 3 Operating activities are the main revenue generating activities of an enterprise. As such, they include cash flows from those transactions and events which enter into the ascertainment of net profit or loss of the enterprise. Examples of Cash flows arising from operating activities are:
(a) Cash receipts from the sale of goods and rendering of services.
(b) Cash receipts from royalties, fees, commissions and other revenue.
(c) Cash receipts from Debtors and Bills Receivables.
(d) Cash receipts for purchase of goods and services.
(e) Cash payments to Creditors and Bills Payable.
(f) Cash payment of wages, salaries and other payment to employees.
(g) Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities.
Question .4. Prepare a format of ‘Cash Flow Statement’ under indirect method.
Solution . 4
Question .5. Classify the following into Cash flows from (i) Operating Activities, (ii) Investing Activities, and (iii) Financing Activities while preparing a Cash flow statement under direct method:
(a) Purchase of Fixed Assets;
(b) Issue of Share Capital;
(c) Payment of Income Tax;
(d) Payment of Divided;
(e) Payment of Interest;
(f) Sale of Long-term Investments;
(g) Interest Received;
(h) Dividend Received;
(i) Repayment of Long-term Loans.
Solution . 5
Cash from Operating Activities : Payment of Income Tax
Cash from Investing Activities : Purchase of Fixed Assets, Sale of Long-term Investments, Interest Received, Dividend Received
Cash from Financing Activities : Issue of Share Capital, Payment of Divided, Payment of Interest, Repayment of Long-term Loans
Question .6. For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow viz., operating, investing and financing.
(a) Acquired machinery for Rs. 2,50,000 paying 20% down and executing a bond for the balance payable.
(b) Paid Rs. 2,50,000 to acquire shares in Informa Tech. and received a dividend of Rs. 50,000 after acquisition.
(c) Sold machinery of original cost Rs. 2,00,000 with an accumulated depreciation of Rs. 1,60,000 for Rs. 60,000.
Solution . 6
Cash used in Investing Activities : Rs. 50,000
Cash used in Investing Activities : Rs. 2,00,000
Cash from Investing Activities : Rs. 60,000
