Cash Flow Activities Quiz

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Questions and Answers

How should the revaluation of Fixed Assets be treated in a Cash Flow Statement?

As part of cash flow from investing activities

As an outflow in operating activities

As an inflow in financing activities

As a non-cash transaction (correct)

In the cash flow statement, how is Cash Flow From Operating Activities primarily calculated?

By recording only cash received from customers

By calculating the total revenue minus total expenses

By adjusting net income for non-cash items and changes in working capital (correct)

By summing all cash inflows and outflows from financing activities

When recording financing activities in the cash flow statement, which of the following is included?

Issuance of new shares or debt (correct)

Operational expenses paid

Dividends paid to shareholders

Payments received from customers

How should provision for bad debts be treated in the cash flow statement?

As an adjustment to revenue in operating activities Signup and view all the answers

Which of the following statements correctly relates to depreciation in cash flow calculations?

Depreciation is added back to net income in cash flow calculations Signup and view all the answers

What effect do policyholder bonuses have on cash flow statements?

They do not affect cash flow directly. Signup and view all the answers

What is the discount rebate on a bill discounted if it is calculated at an 8% rate for a period of 5 months?

Rs.818.85 Signup and view all the answers

In cash flow statements, which activity would NOT typically fall under operating cash flows?

Issuance of shares Signup and view all the answers

If a banking company identifies a loan with secured exposure of Rs.200 lakh and unsecured exposure of Rs.300 lakh as sub-standard, what is the provision required?

Rs.80 lakhs Signup and view all the answers

Which item would reduce net income when applying the indirect method for calculating cash flows from operating activities?

A gain on the sale of land Signup and view all the answers

If a company recognizes an increase in the provision for bad debts, how is this reflected in the cash flow statement?

As a decrease in cash flows from operating activities Signup and view all the answers

Which of the following represents a cash outflow from financing activities?

A cash outflow to repurchase the firm's own common stock Signup and view all the answers

Where should cash paid for preferred stock dividends be recorded on the statement of cash flows?

Financing activities Signup and view all the answers

Which of the following would not typically be considered a cash flow from operating activities?

Cash dividends received from investments Signup and view all the answers

When calculating cash flow, how does depreciation expense affect the cash flow statement using the indirect method?

It is added to net income Signup and view all the answers

What factor primarily affects the provision for bad debts that a banking company must account for?

The nature of secured versus unsecured loans Signup and view all the answers

Which of the following activities generate cash flow from investing activities?

Purchase of machinery Signup and view all the answers

What is the primary reason depreciation is added back to profit in the cash flow from operating activities?

Depreciation is a non-cash expenditure Signup and view all the answers

Which cash flow activity requires a business to maintain a positive net cash flow for survival?

Operating activities Signup and view all the answers

Which of the following transactions would not result in a cash outflow?

Sale of equipment for cash Signup and view all the answers

Which of the following statements about cash flows is true?

Financing activities include cash transactions related to debt Signup and view all the answers

In calculating cash from operating activities, how should outstanding salary expenses be treated?

Outstanding expenses are added to salaries paid Signup and view all the answers

Which item is not typically included as an inflow or outflow in a statement of cash flows?

Inventory increase due to procurement Signup and view all the answers

If a company had a net profit of Rs.15,000 and interest received in advance increased cash from operations, what would the cash flow from operations be?

Rs.22,000 Signup and view all the answers

Study Notes

Revenue and Cash Flow Management

Rebates on bills discounted for the period ending 31.03.2022 can be calculated at a discount rate of 8%.
Relevant amounts for rebates are Rs.852.46, Rs.818.85, Rs.873.22, and Rs.825.45.

Provisions for Loans

Identify sub-standard advances: secured exposure of Rs.200 lakh and unsecured of Rs.300 lakh.
Possible provisions at applicable rates include Rs.80 lakhs, Rs.85 lakhs, Rs.90 lakhs, and Rs.95 lakhs.

Cash Flow Statement Methods

Indirect method: Subtract gains (e.g., gain on the sale of land) from net income.
Cash-flow items from financing activities include repurchasing common stock.

Cash Flow Activity Classification

Cash paid for preferred stock dividends is classified under financing activities.
Not all outflows represent cash flows; e.g., sales of assets for cash are inflows, not outflows.

Understanding Depreciation in Cash Flow

Depreciation needs to be added back when calculating cash flow from operating activities as it is a non-cash expenditure.

Operating Cash Flow Importance

Long-term business survival necessitates generating positive net cash flow, primarily from operating activities.

Net Cash from Operations

Calculate cash from operations using net profit alongside interest received in advance, totaling amounts like Rs.16,000 or Rs.22,000.

Liabilities in Financial Statements

Installments due after 12 months from the reporting date are recorded as non-current liabilities.
Proposed dividends are considered an appropriation of profit and a deferred revenue expenditure.

Security Deposits

For an electricity company, security deposit calculations include variables like load, load factor, and billing cycle duration.

Issuing Shares

"FPO" stands for Follow-on Public Offer in the context of company equity issuance.
Companies may redeem partly paid-up preference shares only after fulfilling specific conditions.

Treatment of Fixed Asset Revaluation

Revaluation of fixed assets requires careful reporting in financial statements, particularly concerning cash flow implications.

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Description

Test your knowledge on cash flow statements and the classification of various financial activities. This quiz covers operating, investing, and financing activities, including specific cash inflows and outflows. Sharpen your understanding of cash management principles.