Fund Flow and Cash Flow Statements Questions and Answers

Q: ABC Ltd. has profit after tax ₹ 80,000, Depreciation ₹ 15,000 and decrease in debtors ₹ 25,000. What is the cash flow from operating activities ?

Cash flow from operating activities is ₹ 1,20,000.Under the indirect method, start from profit, add back non-cash charges and adjust for changes in working capital. A decrease in debtors means cash was collected, so it is added.\[ \begin{aligned} \text{CFO} &= 80{,}000 + 15{,}000 + 25{,}000 \\ &= 1{,}20{,}000 \end{aligned} \]₹ 55,000 and ₹ 40,000 come from treating the decrease in debtors (and depreciation) as deductions; ₹ 65,000 deducts depreciation instead of adding it back.

Q: A cash flow statement does not show :

A cash flow statement does not show Whether credit limit is breached.The statement records the actual inflows and outflows of cash in the period, classified into operating, investing and financing activities. The purchase of a machine appears under investing activities, a new loan under financing activities, and the change in working capital is part of the adjustments in the operating section.Whether a firm has exceeded the credit limit sanctioned by its bank, or allowed customers to exceed theirs, is a matter of comparing a balance with an agreed limit. That limit is not a cash flow, so nothing in the statement reveals a breach.

In relation to cash flow statement, which of the following is not regarded as a financing activity

A.Redemption of debentures
B.Cash proceeds from issuing debentures
C.Cash proceeds from issuing shares
D.Cash payments to and on behalf of employees

Exam Year(s)

DSSSB - 2023,

Answer: D

Cash payments to and on behalf of employees are not a financing activity. In a cash flow statement they are part of operating activities, because they arise from running the business. Financing activities are those that change the size and make-up of owners' capital and borrowings: redemption of debentures, cash proceeds from issuing debentures and cash proceeds from issuing shares all fall under them. So the fourth option is the one that is not financing.

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Which of the following is a source of fund in fund flow statement

A.Decrease in working capital
B.Redemption of debentures
C.Payment of dividends and tax
D.Funds lost through business operations

Exam Year(s)

DSSSB - 2023,

Answer: A

A decrease in working capital is a source of funds in a fund flow statement. When the schedule of changes in working capital shows that working capital has fallen, funds have been released from it and are treated as a source, while an increase in working capital is an application of funds. Redemption of debentures, payment of dividends and tax, and funds lost through business operations are uses or applications of funds, since they take funds out of the business.

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ABC Ltd. has profit after tax ₹ 80,000, Depreciation ₹ 15,000 and decrease in debtors ₹ 25,000. What is the cash flow from operating activities ?

A.₹ 55,000
B.₹ 40,000
C.₹ 1,20,000
D.₹ 65,000

Exam Year(s)

MH SET - 2019, SET Exam - 2019,

Answer: C

Cash flow from operating activities is ₹ 1,20,000.

Under the indirect method, start from profit, add back non-cash charges and adjust for changes in working capital. A decrease in debtors means cash was collected, so it is added.

\[ \begin{aligned} \text{CFO} &= 80{,}000 + 15{,}000 + 25{,}000 \\ &= 1{,}20{,}000 \end{aligned} \]

₹ 55,000 and ₹ 40,000 come from treating the decrease in debtors (and depreciation) as deductions; ₹ 65,000 deducts depreciation instead of adding it back.

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A cash flow statement does not show :

A.Increase in working capital
B.Purchase of machine
C.Whether credit limit is breached
D.Whether a new loan is availed

Exam Year(s)

MH SET - 2021, SET Exam - 2021,

Answer: C

A cash flow statement does not show Whether credit limit is breached.

The statement records the actual inflows and outflows of cash in the period, classified into operating, investing and financing activities. The purchase of a machine appears under investing activities, a new loan under financing activities, and the change in working capital is part of the adjustments in the operating section.

Whether a firm has exceeded the credit limit sanctioned by its bank, or allowed customers to exceed theirs, is a matter of comparing a balance with an agreed limit. That limit is not a cash flow, so nothing in the statement reveals a breach.

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Which of the following will result into sources of funds ?

(i) Increase in current assets
(ii) Decrease in current assets
(iii) Increase in current liabilities
(iv) Decrease in current liabilities
Codes :

A.(i) and (iv)
B.(ii) and (iii)
C.(i) and (iii)
D.(ii) and (iv)

Exam Year(s)

UGC NET - 2012,

Answer: B

A source of funds comes from a decrease in current assets and an increase in current liabilities, so the pair (ii) and (iii) is correct. When a current asset such as stock or debtors falls, cash is released for use elsewhere. When a current liability such as creditors rises, the firm has financed itself from suppliers, which also provides funds.

An increase in current assets and a decrease in current liabilities are the reverse: they are uses of funds because cash is tied up in stock and debtors or paid out to settle creditors. Hence (i) and (iv), (i) and (iii) and (ii) and (iv) each include at least one use of funds.

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Fund Flow and Cash Flow Statements Questions and Answers

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