GSEB Solutions Class 12 Accounts Part 2 Chapter 6 Cash Flow Statement

Gujarat Board GSEB Textbook Solutions Class 12 Commerce Accounts Part 2 Chapter 6 Cash Flow Statement Textbook Exercise Questions and Answers.

Gujarat Board Textbook Solutions Class 12 Accounts Part 2 Chapter 6 Cash Flow Statement

GSEB Class 12 Accounts Accounting Cash Flow Statement Text Book Questions and Answers

1. Select the correct option for each question :

Question 1.
How many activities are there in cash flow statement?
(A) Five
(B) Four
(C) Three
(D) Two
Answer:
(C) Three

Question 2.
Cash equivalent has ………………….. .
(A) higher liquidity
(B) higher solvency
(C) higher profitability
(D) all of the above
Answer:
(A) higher liquidity

Question 3.
Decrease in current assets and increase in current liabilities …………………. .
(A) are cash inflow and cash outflow respectively
(B) are cash outflow and cash inflow respectively
(C) both are cash inflows
(D) both are cash outflows
Answer:
(C) both are cash inflows

Question 4.
Increased in current assets and decrease in current liabilities ……………………. .
(A) both are cash outflows
(B) both are cash inflows
(C) are cash outflow and cash inflow respectively
(D) are cash inflow and cash outflow respectively.
Answer:
(A) both are cash outflows

Question 5.
Collection of debtors and bills receivable is …………………… .
(A) cash inflow of operating activity
(B) cash outflow of operating activity
(C) cash inflow of financing activity
(D) cash inflow of investing activity.
Answer:
(A) cash inflow of operating activity

Question 6.
Which of the following transaction is always transaction of operating activity ?
(A) Interest paid on loan
(B) Dividend received
(C) Dividend paid
(D) Salary expense
Answer:
(D) Salary expense

Question 7.
Dividend or interest received on investment is ……………………… .
(A) added to cash flow of operating activity
(B) deducted from cash flow of financing activity
(C) added to cash flow of investing activity
(D) deducted from cash flow of investing activity
Answer:
(C) added to cash flow of investing activity

Question 8.
Bank overdraft ……………………… .
(A) is current liability but considered as financing activity
(B) is current liability but considered as operating activity
(C) is current liability but considered as investing activity
(D) is not activity of cash flow statement.
Answer:
(A) is current liability but considered as financing activity

Question 9.
Rent received ……………………. .
(A) is added to operating activity and deducted from financing activity
(B) is added to operating activity and added to financing activity
(C) is added to operating activity and added to investing activity
(D) is deducted from operating activity and added to investing activity.
Answer:
(D) is deducted from operating activity and added to investing activity.

Question 10.
Reduction in goodwill in current year as compared to previous year is ……………………….. .
(A) sale of goodwill
(B) purchase of goodwill
(C) written off goodwill
(D) all of the above
Answer:
(C) written off goodwill

Question 11.
Cash deposited in bank is ……………….. .
(A) cash outflow of operating activity
(B) cash outflow of financing acitvity
(C) cash outflow of investing activity
(D) not cash flow
Answer:
(D) not cash flow

Question 12.
Which of the following is included in financial expense?
(A) Factory expenses
(B) Administrative expenses
(C) Sales expenses
(D) Interest expenses
Answer:
(D) Interest expenses

Question 13.
Payment of interim dividend is …………………….. .
(A) deducted from operating statement and added to financing activity
(B) deduced from operating statement and added to investing activity
(C) added to operating statement and deducted from financing activity
(D) none of the above.
Answer:
(C) added to operating statement and deducted from financing activity

2. Answer in two or three sentences :

Question 1.
What is cash flow?
Answer:
Cash flow means receipt-payment of cash and cash equivalent.

Question 2.
What is cash and cash equivalent?
Answer:
Cash means cash on hand, bank balance.
Cash equivalent means :

• Highly liquid short term investments,
• Such investments which can be quickly and with accurate estimated price convertible into cash,
• Investments in which the risk of changes in the price is very rare. e.g. Govt. Securities.

Question 3.
What is cash flow statement?
Answer:
Statement showing closing balance of cash and cash equivalent at the end of the year and cash inflow and cash outflow arising from different activities during the year of a business unit is known as cash flow statement.

Question 4.
What is operating activities?
Answer:
“Operating activities means main activities of business to earn income, which are neither investing activities nor financing activities.”

Question 5.
What is investing activities?
Answer:
Investing activities means purchase-sale of long-term investments and other investments, in which cash and cash equivalent are not included. Investing activities arise from transaction of assets side of balance sheet.

Question 6.
What is financing activities?
Answer:
Financing activities are such activities due to which size and/or composition of owners capital and borrowed capital of business get changed.

Question 7.
Which transactions are always operating activities?
Answer:
Salary, wages, bonus to employees, employees welfare expenses are always operating activities.

Question 8.
Which transactions are always investing activities?
Answer:
Purchase of non-current tangible and intangible assets i.e. purchase of machine, furniture and patent etc. transactions are always investing activities.

Question 9.
Which transactions are always financing activities?
Answer:
Dividend paid on share capital, interest paid on debentures etc. transactions are aways financing activities.

Question 10.
Give illustration of such transaction from where two activities are taking place.
Answer:
In a transaction of installment of hire purchase payment towards principle amount and interest amount is the example of two activities in one transaction.

Question 11.
Give illustration of such transaction which is cash transaction but not cash flow.
Answer:
Cash deposited with bank and cash withdrawn from bank is an example of cash transaction but it is not cash flow.

Question 12.
Where are the self-constructed assets recorded?
Answer:
Self-constructed assets are recorded in activities of cash outflow of investing activities.

Question 13.
To which activity increase/decrease of bank overdraft is recorded?
Answer:
In financing activities, increase/decrease of bank overdraft is recorded.

Question 14.
For which activity underwriting commission paid is considered?
Answer:
In operating activity underwriting commission paid is considered as csah outflow.

Question 15.
As which activity income tax payment and income tax refund are considered? Why?
Answer:
Income tax payment and income tax refund are considered as operating activities because it is arising from profit and loss statement, so both are included in operating activity.

Question 16.
Give illustration of any two operating incomes.
Answer:
Illustration of operating incomes :

• Sales income of goods of service
• Collection from debtors and bills receivable
• Commission-brokrage received
• Income tax refund.

Question 17.
Where addition in general reserve is recorded?
Answer:
Addition in general reserve is added in profit under the head of provision in operating statement.

Question 18.
Describe whether cash flow would increase or decrease due to following transactions :
(i) Increase in current assets
(ii) Decrease in current assets
(iii) Increase in current liabilities
(iv) Decrease in current liabilities
Answer:
(i) Increase in current assets – Cash flow decrease
(ii) Decrease in current assets – Cash flow increase
(iii) Increase in current liabilities – Cash flow increase
(iv) Decrease in current liabilities – Cash flow decrease

Question 19.
In which activity the received dividend and interest are recorded?
Answer:
In investing activities, the received dividend and interest are recorded.

Question 20.
In which activity the paid dividend and interest are recorded?
Answer:
In financing activities, the paid dividend and interest are recorded.

3. Answer the following questions in brief :

Question 1.
Describe the operating activities for the following companies :
(i) Trading companies
(ii) Insurance Companies
(iii) Bank
Answer:
(i) Trading Companies – Activities of purchase-sales of goods.
(ii) For Insurance companies – Premium income and payment of claim.
(iii) For Banks – Lending of loan and acceptance of deposits.

Question 2.
Explain cash flow from operating transactions of non-finance companies and finance companies.
Answer:
(A) Non-Finance Companies :
1. Cash Inflow:

• Receipt/Income from sale of goods or service,
• Collection from debtors and bills receivable,
• Income of royalty, commission and brokerage,
• Income tax refund (except financing activity),
• Any other income which is not arising from investing activities.

2. Cash Outflow :

• Payment on purchase of goods or service,
• Payment to creditors and bills payable,
• Factory expenses,
• Administrative and selling-distribution expenses,
• wages, salary, rent, bonus,
• Employees welfare expenses,
• Income tax paid (except financing activity).

(B) Finance Companies :
1. Cash Inflow :

• Sale of securities,
• Interest received on securities,
• Interest received on lended loan,
• Income tax refund (except financing activity).

2. Cash Outflow :

• Purchase of securities,
• Interest paid on deposit/loan,
• salary or amount paid to employees e.g. bonus,
• Income tax paid (except financing activity).

Question 3.
From the following transactions, identify transactions of operating activities :
(i) Wages paid
(ii) Purchase of building
(iii) Sale of furniture
(iv) Payment to creditors
(v) Dividend paid
(vi) Rent paid
(vii) Office expenses paid
(viii) Sales-distribution expenses paid
(ix) Carriage inward
(x) Carriage outward
(xi) Royalty paid
(xii) Income tax
Answer:

Transaction	Explanation
(i) Wages paid	Operating activity. Transaction of profit and loss statement.
(ii) Purchase of building	Net operating activity (outflow of investments is a cash flow activity).
(iii) Sale of furniture	Not operating activity (inflow of investment is a cash flow activity)
(iv) Payment to creditors	Operating activity. Creditors arise from purchase and purchase is an operating activity.
(v) Dividend paid	Not operating activity, (dividend paid on equity share capital, so it is financing cash outflow activity).
(vi) Rent paid	Operating activity. Transaction of profit and loss statement.
(vii) Office expenses paid	Operating activity. Transaction of profit and loss statement.
(viii) Sales- distribution expenses paid	Operating activity. Transaction of profit and loss statement.
(ix) Carriage inward	Operating activity. Transaction of profit and loss statement.
(x) Carriage outward	Operating activity. Transaction of profit and loss statement.
(xi) Royalty paid	Operating activity. Transaction of profit and loss statement.
(xii) Income tax paid	Operating activity.

Question 4.
Explain cash flow transactions of investing activities.
Answer:
Transactions of investing activities are dividend into two section :
1. Cash inflow activities
2. Cash out flow activities.

1. Cash inflow activities :

• Sale of fixed tangible and intangible assets and long-term investments. (Non-current) e.g. Share, debentures bonds etc.
• Return of long-term lending,
• Interest- dividend received on investment,
• Rent income on Assets.

2. Cash outflow activities:

• Purchase of fixed tangible and intangible assets,
• Capitalized expenses – Self-constructed assets,
• Purchase of long term investments (non-current) e.g. Share, debentures, bonds etc.
• Long term lending.

Question 5.
From the following transactions, identify transactions of investing activities :
(i) Salary paid
(ii) Rent paid
(iii) Purchase of investments
(iv) Sales of land
(v) Purchase of building
(vi) Interest received on investments
(vii) Sale of furniture
(viii) Collection from debtors
(ix) Payment to creditors
(x) Issue of equity shares
(xi) Redemption of debentures
(xii) Dividend received on investments
Answer:

Transaction	Explanation
(i) Salary paid	Not investing activity. (It is cash flow of operating activity).
(ii) Rent paid	Not investing activity. (It is cash outflow of operating activity).
(iii) Purchase of investments	It is cash outflow of investing activity. Investment increases in assets.
(iv) Sales of land	It is cash inflow of investing activity. Investment decreases in assets.
(v) Purchase of building	It is cash outflow of investing activity. Investment increases in assets.
(vi) Interest received on investments	It is inflow of investing activity. Interest earned on investment is part of investment.
(vii) Sale of furniture	It is cash inflow of investing activity. Investment decreases in assets.
(viii) Collection from debtors	Not investing activity. (Cash inflow of operating activity).
(ix) Payment to creditors	Not investing activity. (Cash outflow of operating activity).
(x) Issue of equity shares	Not investing activity. (Cash inflow of operating activity).
(xi) Redemption of debentures	Not investing activity. (Cash outflow of operating activity).
(xii) Dividend received on investments	It is cash inflow of investing activity. Dividend received on investment is a part of investment.

Question 6.
Explain- cash flow transactions of financing activities.
Answer:
Transaction of financing activities are dividend into two parts :
1. Cash inflow activites
2. Cash outflow activities.

1. Cash inflow of financing activities :

• Issue of equity shares, preference shares and debentures,
• Procurement of loan and creation of long term liabilities,
• Increase in bank overdraft.

2. Cash outflow of financing activities :

• Buy back of equity shares- Redemption of preference shares, debentures and loan or any other long term liabilities,
• Dividend payment on equity share capital and preference share capital,
• Reduction in bank overdraft – Interest paid on debt.

Question 7.
From the following transactions, identify transactions of financing activities :
(i) Sale of machine
(ii) Redemption of preference Share capital
(iii) Dividend paid
(iv) Interest paid
(v) Dividend received
(vi) Borrowed bank overdraft
(vii) Purchase of investments
(viii) Issue of new equity shares
(ix) Interim dividend paid
(x) Interest received
(xi) Borrowed bank loan
(xii) Commission received
Answer:

Transaction	Explanation
(i) Sale of machine	Not financing activity. (Cash inflow of investing activity).
(ii) Redemption of preference Share capital	Cash outflow of financing activity. Decrease in capital.
(iii) Dividend paid	Cash outflow of financing activity. Dividend paid on share capital, so it is financing activity.
(iv) Interest paid	Cash outflow of financing activity. Payment of interest is a return of debts.
(v) Dividend received	Not financing activity. Cash inflow of investing activity.
(vi) Borrowed bank overdraft	Cash inflow financing activity. Increase in debt.
(vii) Purchase of investments	Not financing activity. (Cash outflow of investing activity).
(viii) Issue of new equity shares	Cash inflow of financing activity. Increase in capital.
(ix) Interim dividend paid	Cash outflow of financing activity. Interim dividend paid on share capital, so it financing activity.
(x) Interest received	Not financing activity. (Cash inflow of investing activity).
(xi) Borrowed bank loan	Cash inflow of financing activity. Increase in debt.
(xii) Commission received	Not financing activity. (Cash inflow of operating activity).

Question 8.
What are non-cash transaction? Give two illustrations.
Answer:
Many business transactions do not generate cash therefore like these transactions are ignored while preparing cash flow statement which are known as non-cash transactions. E.g. Depreciation charged on tangible assets, amount amortized on tangible assets, issue of equity shares, and debenture without cash consideration, conversion of debenture into equity etc.

Question 9.
What are non-operating incomes? Give two illustrations.
Answer:
Incomes which do not arise from the business in which company deals are known as non-operating incomes. They are not a part of operating income and they are not considered for computation of cash flow. e.g. Profit on sale of investments, profit on sale of assets, interest on investments, dividend received on investments etc.

Question 10.
Where interim dividend is recorded in cash flow statement.
Answer:
Interim dividend provision will be added in the profit and will be shown as cash outflow in financing activities.

Question 11.
Where accounting treatments of taxation provision and tax payment are given in cash flow statements?
Answer:
Taxation provision will be shown in operating activities statement under current liabilities head and will be added to profit.
Tax payment will be shown as changes in the working capital and will be deducted from profit-loss statement.

Question 12.
Explain effect of bonus share in cash flow statement.
Answer:
Due to issue of bonus share, equity share capital increases. This type of transaction gives increase in equity without cash. It also shows capitalization of profit or reserve.

Question 13.
Where conversion of debentures into shares in recorded in cash flow statement?
Answer:
Conversion of debentures into shares in recorded as non-cash transactions and will not be considered as cash flow.

Question 14.
Which kind of activity is the payment of underwriting commission? Why?
Answer:
Payment of underwriting .commission is considered as financing activities of cash outflow. Because company paid underwriting commission to underwrites while issuing share or debentures.

Question 15.
From the following transactions calculate cash flow from operating activities :

Particulars	(₹)	Particulars	(₹)
Profit before taxes	99,000	Interest received	20,000
Income tax provision	29,000	Interest paid	28,000
Proposed dividend	39,000	Goodwill written off	15,000
Depreciation	22,000	Profit on sale of asset	12,000
Dividend received	21,000

Answer:

Question 16.
From the following information, calculate cash flow from operating activities :
Particulars 31-3-2017 31-3-2016

	(₹)	(₹)
Profit and Loss A/c	45,000	30,000
Depreciation	90,000	70,000
Goodwill	40,000	55,000
Stock	60,000	45,000
Debtors	50,000	90,000
Creditors	40,000	60,000
Bills payables	70,000	20,000
Prepaid expenses	10,000	15,000

(i) Dividend received ₹ 2,000
(ii) Interest paid ₹ 3,000
(iii) Rent received ₹ 10,000
Answer:

Question 17.
From the following information calculate cash flow from operating activities :

Particulars	31-3-2017 (₹)	31-3-2016 (₹)
Profit and Loss A/c	60,000	25,000
General reserve	45,000	35,000
Taxation provision	38,000	48,000
Depreciation fund	42,000	32,000
Goodwill	27,000	38,000
Debtors	49,000	39,000
Creditors	39,000	29,000
Outstanding expenses	12,000	17,000
Prepaid expenses	14,000	10,000

(i) Profit on sale of assets ₹ 15,000
(ii) Loss on sale of furniture ₹ 8,000
(iii) Income of rent ₹ 48,000
(iv) Interest paid on debenture ₹ 32,000
(v) Dividend payment ₹ 10,000
Answer:
Cash flow from Operating Activities for the year ending on 31-3-2017 :

Question 18.
From the following given information calculate cash flow from investing activities :

Particulars	(₹)
Sale of non-current investments	88,000
Purchase of land	1,48,000
Purchase of machine	98,000
Sale of furniture	45,000
Dividend received on investments	40,000
Paid for goodwill	32,000
Issue of shares	1,20,000
Redemption of debentures	45,000
Loan borrowed	28,000

Answer:
Statement of cash flow from Investing Activities

Particulars	(₹)
Sale of non-current investments	88,000
Purchase of land	(1,48,000)
Purchase of machine	(98,000)
Sale of furniture	45,000
Paid for goodwill	32,000
Dividend received on investments	40,000
Cash flow from Investing Activities (cash outflow)	1,05,000

Note:
(1) Amount other than brackets are cash inflow amounts shown in brackets are cash outflow.
(2) Transactions of investing activities means changes in details of assets side of balance sheet and changes in assets related items.

Question 19.
From the following given details calculate cash flow from investing activities :

Particulars	31-3-2017 (₹)	31-3-2016 (₹)
Profit and Loss A/c	60,000	25,000
Plant and machines	9,20,000	7,20,000
Depreciation fund on plant and machines	1,50,000	1,20,000
Goodwill	90,000	95,000
Patent	70,000	1,30,000
10% Investments	95,000	2,70,000
General reserve	45,000	30,000
Profit and loss A/c	60,000	40,000
Equity share capital	6,00,000	4,50,000
Bank loan	1,00,000	1,50,000
Current liabilities	90,000	60,000

Interest received on investments ₹ 18,000.
Some of the patents were sold during the year.
Answer:
To find out investing activity, we have to prepare plant and machines A/c. patent A/c and 10% investment A/c as under :

Statement of cash flow from Investing Activities

Particulars	(₹)
Plant and machines	(2,00,000)
Sale of patents	60,000
Sale of 10% investments	1,75,000
Interest received on investments	18,000
Cash Inflow from Investing Activities	53,000

Note :
1. The difference amount on debit side of Plant and machines A/c ? 2,00,000 will be considered as purchase of plant and machines.

2. The difference amounts on credit side of Patent A/c and 10% investment A/c ₹ 60,000 and ₹ 1,75,000 will be considered as sales of patent and investments which will shown as cash inflow of investing activity.

3. Interest received on investment ₹ 18,000 will be shown as cash inflow from investing activity.

4. Increase in depreciation fund of plant and machines ₹ 30,000. It is non-cash transaction, which will be added to operating profit.

5. Written off amount of goodwill ₹ 5,000 will be added to operating profit.

Question 20.
From the following information calculate cash flow from financing activities :

Particulars	(₹)
Purchase of land	1,88,000
Equity shares issued	1,45,000
Redemption of preference shares	60,000
Redemption of debentures	70,000
Borowed bank loan	90,000
Debenture interest paid	6,000
Dividend paid	8,000
Dividend-interest received	9,000
Sale of furniture	32,000
Purchase of machine	68,000
Interest received on investments	13,000
Paid for patents	19,000

Answer:
Statement of cash flow from Financing Activities

Particulars	(₹)
Equity shares issued	1,45,000
Redemption of preference shares	(60,000)
Redemption of debentures	(70,000)
Borrowed bank loan	90,000
Debenture interest paid	(6,000)
Dividend paid	(8,000)
Cash Inflow from Financing Activities	91,000

Question 21.
From the following information calculate cash flow from financing activities :

Particulars	31-3-2017 (₹)	31-3-2016 (₹)
Profit and Loss A/c	60,000	25,000
10% Debentures	2,45,000	1,95,000
Equity share capital	3,45,000	2,50,000
12% Debentures	1,00,000	1,50,000
Preference share capital	80,000	1,00,000
Bank overdraft	45,000	68,000

Additional information:
(1) Debenture interest paid ₹ 12,000.
(2) Paid ₹ 22,000 for equity share dividend and preference share dividend.
(3) Paid bank overdraft ₹ 4,000.
Answer:
Statement of cash flow from Financing Activities