Q.1 Which of the following best describes a fund flow statement?
A statement showing cash inflows and outflows
A statement showing sources and uses of funds
A statement showing profit and loss
A statement showing changes in equity
Explanation - Fund flow statement explains changes in financial position by showing sources (where funds came from) and uses (where funds were applied).
Correct answer is: A statement showing sources and uses of funds
Q.2 Cash flow statement is prepared as per the requirement of which accounting standard (IAS/AS)?
AS-3
AS-2
AS-10
AS-18
Explanation - AS-3 (Revised) deals with preparation and presentation of cash flow statements.
Correct answer is: AS-3
Q.3 Which of the following is considered a non-cash expense?
Wages
Rent
Depreciation
Commission
Explanation - Depreciation does not involve actual cash outflow, hence treated as a non-cash expense.
Correct answer is: Depreciation
Q.4 Fund flow analysis is more useful for:
Short-term financial planning
Long-term financial planning
Daily cash transactions
Recording expenses
Explanation - Fund flow analysis tracks movement of funds over longer periods, useful for long-term planning.
Correct answer is: Long-term financial planning
Q.5 Cash flow statement primarily focuses on:
Sources and applications of funds
Cash receipts and payments
Working capital adjustments
Depreciation
Explanation - Cash flow statement reports actual inflows and outflows of cash and cash equivalents.
Correct answer is: Cash receipts and payments
Q.6 An increase in current assets (like debtors) leads to:
Source of funds
Use of funds
No change in funds
Increase in profits
Explanation - Increase in current assets reduces working capital funds, hence treated as use of funds.
Correct answer is: Use of funds
Q.7 Which of the following activities is not included in cash flow from operating activities?
Cash sales
Purchase of machinery
Payment to suppliers
Salary payments
Explanation - Purchase of machinery is an investing activity, not operating.
Correct answer is: Purchase of machinery
Q.8 Funds in fund flow analysis generally refer to:
Cash only
Cash equivalents only
Working capital
Fixed assets
Explanation - In fund flow analysis, ‘funds’ are taken to mean working capital (current assets - current liabilities).
Correct answer is: Working capital
Q.9 Which method is generally used to prepare the cash flow statement?
Accrual basis method
Direct or indirect method
Fund basis method
Double entry method
Explanation - Cash flow statements can be prepared using direct or indirect method as per AS-3.
Correct answer is: Direct or indirect method
Q.10 Issue of shares for cash will be shown under:
Operating activities
Investing activities
Financing activities
Non-cash activities
Explanation - Cash received from issue of shares is financing activity as it relates to raising funds from owners.
Correct answer is: Financing activities
Q.11 Which of the following is a source of funds in fund flow statement?
Repayment of loan
Payment of dividend
Issue of debentures
Purchase of assets
Explanation - Raising funds through debentures brings in long-term funds, thus a source of funds.
Correct answer is: Issue of debentures
Q.12 Cash received from sale of old machinery is classified under:
Operating activity
Investing activity
Financing activity
Non-operating income
Explanation - Sale of machinery relates to investment in fixed assets, hence investing activity.
Correct answer is: Investing activity
Q.13 Provision for taxation in fund flow analysis is treated as:
Current liability
Fixed liability
Non-current asset
Reserve
Explanation - Provision for taxation is payable in short-term, hence classified as current liability.
Correct answer is: Current liability
Q.14 Which of the following statements is true?
Cash flow and fund flow are the same
Cash flow shows liquidity, fund flow shows long-term financial position
Fund flow is more short-term
Cash flow ignores actual cash movement
Explanation - Cash flow helps assess short-term liquidity, while fund flow is for long-term analysis.
Correct answer is: Cash flow shows liquidity, fund flow shows long-term financial position
Q.15 Which accounting tool is useful to analyze changes in working capital?
Balance sheet
Profit and loss account
Fund flow statement
Cash flow statement
Explanation - Fund flow statement helps analyze sources and uses of funds with focus on changes in working capital.
Correct answer is: Fund flow statement
Q.16 Which of the following is an inflow of cash?
Purchase of investments
Redemption of debentures
Sale of investments
Payment of dividend
Explanation - Sale of investments generates cash, hence an inflow.
Correct answer is: Sale of investments
Q.17 Fund flow statement is also known as:
Statement of financial position
Statement of sources and uses of funds
Statement of profit and loss
Cash budget
Explanation - Fund flow statement is popularly called statement of sources and uses of funds.
Correct answer is: Statement of sources and uses of funds
Q.18 Which of the following is excluded from cash flow statement?
Cash received from customers
Depreciation
Interest received
Dividend paid
Explanation - Depreciation is a non-cash expense, hence excluded from cash flow statement.
Correct answer is: Depreciation
Q.19 In fund flow analysis, decrease in current liabilities leads to:
Source of funds
Use of funds
Cash inflow
No effect
Explanation - Decrease in current liabilities reduces available funds, treated as use of funds.
Correct answer is: Use of funds
Q.20 Dividend paid is shown under which activity in cash flow statement?
Operating
Investing
Financing
Non-operating
Explanation - Payment of dividend is related to financing activities as it involves distribution to shareholders.
Correct answer is: Financing
Q.21 Which of the following is a limitation of fund flow statement?
It ignores working capital
It does not analyze liquidity position
It includes only cash transactions
It is prepared on daily basis
Explanation - Fund flow statement focuses on long-term financial changes but does not measure short-term liquidity.
Correct answer is: It does not analyze liquidity position
Q.22 Which statement is mandatory as per accounting standards?
Fund flow statement
Cash flow statement
Working capital statement
Value added statement
Explanation - As per AS-3, cash flow statement is mandatory for listed companies.
Correct answer is: Cash flow statement
Q.23 Cash equivalents include:
Fixed deposits with maturity beyond 1 year
Short-term marketable securities
Plant and machinery
Inventory
Explanation - Cash equivalents are short-term, highly liquid investments readily convertible to cash.
Correct answer is: Short-term marketable securities
Q.24 Payment of interest on debentures is classified under:
Operating activity
Investing activity
Financing activity
Cash equivalent
Explanation - Interest on debentures is a financing outflow as it relates to cost of raising funds.
Correct answer is: Financing activity
Q.25 Which financial statement is most useful to lenders for assessing repayment ability?
Profit and loss account
Fund flow statement
Cash flow statement
Balance sheet
Explanation - Cash flow statement shows liquidity and cash generation, crucial for lenders assessing repayment.
Correct answer is: Cash flow statement