Question by CA (Dr.) G.S.Grewal – Series 59

  1. Deprecation is a non-cash item and this is added back to the net profit.
  2. Amount transferred to General Reserve will be affecting ______ Activity of Cash Flow Statement.
  3. Cash Flow Statement is based on

(a) Accrual basis of Accounting

(b) Cash basis of Accounting

(c) Mixed basis of Accounting

(d) Accounting Equation

Answer – Series 59

  1. True

Reason: Non-cash Transactions are those transactions in which flow (inflow or outflow) of Cash and Cash Equivalents does not take place hence are added back to the net profit. Depreciation is also a non-cash expense.

  1. Operating
  2. (b)

Reason: Cash Flow Statements is based on Cash basis of accounting since it records inflows and outflows of Cash and Cash Equivalents.

Question – Series 76

1.Payment for purchase of fixed asset is classified or shown as investing activity for both Non-Financing and Financing Company

  1. A machinery is purchased under Hire-Purchase system instalment will include interest and a part of principal. Cash paid for Principal is _________.
  2. An Example of Cash and Cash Equivalents:

(a)     Sale of Fixed Assets

(b)     Interest Received

(c)     Refund of tax

(d)     Marketable Securities

Answer – Series 76

  1. True

Reason: Because it is associated with the objective of generate earning.

  1. Investing
  2. (d)

Reason: Marketable Securities are highly liquid so it is considered as Cash and Cash Equivalents..

Question – Series 77

  1. ‘Proposed Dividend of the Current year’ will be treated as Contingent Liability.
  2. An example of non-cash expenses is ______.
  3. An example of Investing Activity both for Financing and Non-Financing Companies

(a)     Purchase of Non-Current Assets

(b)     Purchase of Stock

(c)     Transfer to General Reserve

(d)     Refund of Tax

Answer – Series 77

  1. True

Reason: Because it is passed after the Balance Sheet was prepared..

  1. Depreciation
  2. (a)

Reason: Purchase of Non-Current Assets either tangible or intangible is an Investing Activity.

Question – Series 86

  1. Payment for purchase of fixed Assets is classified or shown as investing activity for both non-finance and finance company.
  2. Share issue Expenses are shown as outflow of cash under _______ activity.
  3. Rent received by a Real Estate company is classified as which type of activity?

(a)     Operating

(b)     Investing

(c)     Financing

(d)     Financing and Investing

Answer –  Series 86

  1. True

Reason: Because it is associated with the objective of generating earning.

  1. Financing
  2. (a)

Question – Series 87

  1. F Ltd is carrying on a mutual fund business. It invested ₹ 20,00,000 in shares and ₹ 15,00,000 in debentures of various companies Dividend and Interest received is a financing Activity.
  2. Proposed Dividend of ₹ 60,000 and ₹ 50,000 as on 31st March, 2018 and 31st March, 2019 respectively. The amount of ₹ 50,000 will be _______ as shown in the notes of accounts.
  3. Example of Cash and Cash Equivalents.

(a)     Sale of fixed Assets

(b)     Interest received

(c)     Marketable securities

(d)     Refund of Tax

Answer – Series 87

  1. False

Reason: Because that is revenue producing Activity. i.e., Operating Activity

  1. Contingent Liability.
  2. (c)

Reason: Because marketable securities are highly liquid so it is considered cash and cash Equivalents.

Question – Series 90

  1. Rent received by a Trading Company is an investing activity..
  2. Buy-Back of own shares are shown in _______ activity under cash flow statement.
  3. Rent received by a Real Estate company is classified as

(a)     Operating Activity

(b)     Investing Activity

(c)     Financing Activity

(d)     Financing and Investing Activity

Answer – Series 90

  1. True

Renting of property is not the Principal Revenue Producing Activity of a Trading Company. Assets owned by a Trading Company is an investing activity for it hence Rent received by a Trading is an Investing Activity.

  1. Financing activity
  2. (a)

Reason: For a real estate company, purchase/sale of properties and their renting is its Principal Revenue Producing Activity. Hence, rent received is its Operating Activity.

Question – Series 95

1.Payment for purchase of fixed Assets is classified or shown as Investing Activity for both Non-Financing and Financing Companies.

  1. Bank overdraft, cash credit, short-term loans and debentures are examples of ________.
  2. Example of Investing activity both for ‘Financing and Non-Financing Companies’ is

(a)     Purchase of Non-Current Assets

(b)     Purchase of stock

(c)     Transfer to General Reserve

(d)     Purchase of Current Assets

Answer – Series 95

  1. True

Reason: it gives benefit of enduring nature as it increases the revenue earning expenses.

  1. Financing Activity
  2. (a)

Reason: Assets gives benefit of enduring nature increasing the earning capacity of a company. Therefore, Purchase of Non-Current Assets either tangible or intangible is an investing activity.

Question – Series 95

1.Payment for purchase of fixed Assets is classified or shown as Investing Activity for both Non-Financing and Financing Companies.

  1. Bank overdraft, cash credit, short-term loans and debentures are examples of _________.
  2. Example of Investing activity both for ‘Financing and Non-Financing Companies’ is

(a)     Purchase of Non-Current Assets

(b)     Purchase of stock

(c)     Transfer to General Reserve

(d)     Purchase of Current Assets

Answer – Series 95

  1. True

Reason: it gives benefit of enduring nature as it increases the revenue earning expenses.

  1. Financing Activity
  2. (a)

Reason: Assets gives benefit of enduring nature increasing the earning capacity of a company. Therefore, Purchase of Non-Current Assets either tangible or intangible is an investing activity.

Question Series 115

1.A Machinery is purchased under Hire-purchase system, each instalment will include interest and a part of principal. Cash paid for interest is Financing Activity.

  1. Rent received by a Real Estate Company is classified as ________.
  2. Example of Cash and Cash Equivalents

(a)     Sale of Fixed Assets

(b)     Interest Received

(c)      Marketable Securities

(d)     Refund of Tax

Answer – Series 115

  1. True

 Reason: Hire-Purchase System means payment for asset purchased is made in instalment. Interest is paid on deferred payment. In brief, it is a financing arrangement. Thus, interest part of the instalment is shown as Financing Activity.

  1. Operating Activity
  2. (c)

Reason: Because marketable securities are highly liquid and are held for resale. It is assumed that its value will not change significantly. Therefore, it is shown as Cash and Cash Equivalents.

Question Series 116

1.Income tax paid on gain on sale of fixed assets is Operating activity.

  1. Discount received on making payment to suppliers’ results in __________.
  2. Cash collection from booking of room in Hotel Industry is

(a)     Operating Activity

(b)     Investing Activity

(c)      Financing Activity

(d)     Operating and Investing Activity

Answer – Series 116

  1. False

Reason: Income-Tax paid is shown as operating activity unless it relates to investing or financing activity. Purchase and sale of fixed asset is an investing Activity. Therefore, tax paid on profit on sale of fixed assets is shown as Investing Activity.

  1. Outflow of Cash and Cash Equivalents
  2. (c)

Reason: Renting rooms is Principal Revenue Producing Activity for Hotel Industry. Hence, Rent received is shown as Operating Activity for a Hotel Industry.

Question – Series 117

1.Decrease in cash credit is a financing activity.

  1. Current Investment is ___________.
  2. Goodwill of ₹ 10,000 and ₹ 20,000 as on 31st March, 2018 and 31st March, 2019. The increase of goodwill will be

(a)     Operating Activity

(b)     Investing Activity

(c)      Financing Activity

(d)     Operating and Investing Activity

Answer – Series 117

  1. True

Reason: Cash credit means borrowing for a short period. Borrowing is shown as Financing Activity.

  1. Cash and Cash Equivalents
  2. (b)

Reason: Goodwill is an intangible Fixed Asset. Increase the amount of Goodwill means purchase of Goodwill, It is therefore shown as Investing Activity.

Question – Series 118

  1. Provision for Tax is ₹ 10,000 and ₹ 5,000 as on 31st March, 2018 and 31st March, 2019. Provision for tax made is ₹ 5,000. Amount of tax paid will be ₹ 10,000.
  2. Issue of Shares and Debentures for consideration other than cash is _________.
  3. A Machinery is purchased under Hire-Purchase System, each instalment will include interest and a part of principal. Cash Paid for interest is:-

(a)     Financing Activity

(b)     Operating Activity

(c)      Investing Activity

(d)     Financing and Investing Activity

Answer – Series 118

  1. True

Reason: When tax paid during the year is not given, it is presumed that current year’s Provision for Tax is Provision made while previous year’s Provision for Tax is tax paid. Hence ₹ 10,000 is tax paid during the year.

  1. No Flow of Cash
  2. (a)

Reason: Hire-Purchase System means payment for asset purchased is made in instalments. Interest is paid on deferred payments. In brief, it is a financing arrangement. Thus, interest part of the instalment is shown as Financing Activity.