All questions of Cash Flow Statements for Commerce Exam

Internal users of the organization, such as managers and executives.

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

There was cash outflow for depreciation. Companies use investing cash flow to make initial payments for fixed assets that are later depreciated. Depreciation is a type of expense that is used to reduce the carrying value of an asset. Depreciation is entered as a debit-to-expense and a credit to asset value so actual cash flows are not exchanged.

1. Cash deposited into a bank account.
2. Cash withdrawn from a bank account.
3. Cash paid for a purchase.
4. Cash received from a sale.
5. Cash transferred between different bank accounts.
6. Cash received as interest or dividends on investments.
7. Cash used to repay a loan or debt.
8. Cash received as a loan or debt repayment.
9. Cash used for payroll or employee wages.
10. Cash received from a loan or debt issuance.

Repayment of long-term loans is categorized as a financing activity. Financing activities are transactions or events that involve obtaining or repaying funds to finance the company's operations or investments. These activities primarily involve the company's owners, creditors, and investors.

Financing activities include activities such as issuing and repurchasing equity shares, borrowing and repaying long-term loans, and paying dividends to shareholders. These activities directly affect the company's capital structure and result in changes in its liabilities or equity.

Here is a detailed explanation of why the repayment of long-term loans falls under the category of financing activities:

1. Financing Activities Definition:
- Financing activities involve obtaining funds from external sources and repaying those funds.

2. Nature of Long-Term Loans:
- Long-term loans are typically borrowed from banks or financial institutions for a period exceeding one year.
- These loans are used to finance large-scale investments, such as purchasing fixed assets or funding long-term projects.

3. Repayment of Long-Term Loans:
- When a company repays its long-term loans, it is reducing its long-term debt obligations.
- The repayment may include both principal and interest payments.
- The funds used for repayment may come from cash generated from operations or from raising additional debt or equity.

4. Impact on Capital Structure:
- The repayment of long-term loans reduces the company's liabilities, specifically its long-term debt.
- As a result, the company's leverage decreases, which may improve its financial position and creditworthiness.
- This reduction in liabilities affects the company's capital structure and financial stability.

5. Presentation in Cash Flow Statement:
- The repayment of long-term loans is reported as a cash outflow under the financing activities section of the cash flow statement.
- This section summarizes the cash flows related to the company's financing activities, including borrowings and repayments.

In conclusion, the repayment of long-term loans is classified as a financing activity because it involves the reduction of long-term debt obligations and affects the company's capital structure. This activity is presented as a cash outflow in the financing activities section of the cash flow statement.

In financial accounting, a cash flow statement, also known as statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities.

Cash flow from operating activities is the main revenue generating activity of enterprises. In this activity, the cash flow is generated from the core operations of the business. It reflects the cash inflows and outflows resulting from the day-to-day operating activities of the enterprise.

Operating activities include the production, sales, and delivery of goods or services, as well as any other activities that are directly related to the main revenue-generating function of the business. These activities are essential for the growth and sustainability of the enterprise.

Below are the reasons why cash flow from operating activities is considered the main revenue generating activity:

1. Revenue Generation: Cash flow from operating activities primarily includes cash received from customers for the goods or services provided. This revenue is the main source of income for the enterprise and directly contributes to its financial performance.

2. Cost Management: Operating activities also involve cash outflows for various expenses, such as the purchase of raw materials, payment of salaries and wages, and other operating expenses. Efficient cost management is crucial for generating positive cash flow from operating activities.

3. Sustainable Operations: Cash flow from operating activities ensures that the business can sustain its day-to-day operations. It covers the costs of running the business and allows for reinvestment in the core activities to drive further growth.

4. Indicator of Profitability: Positive cash flow from operating activities is generally an indicator of the enterprise's profitability. It shows that the business is generating more cash inflows than outflows from its core operations.

5. Cash Flow Stability: Cash flow from operating activities is generally more stable and predictable compared to cash flows from other activities such as financing or investment. This stability allows the enterprise to better manage its cash flow needs and make strategic decisions.

In conclusion, cash flow from operating activities is the main revenue generating activity of enterprises as it reflects the cash inflows and outflows from the core operations of the business. It is crucial for revenue generation, cost management, sustainable operations, profitability, and cash flow stability.

C

Cash flow from Operating Activities = Cash from Operating Activities before tax – Tax paid

Net Profit before Tax = Profit after all Appropriations + Provision for Taxation + Transfer to General Reserve = ₹ 31,25,000 + ₹ 4,37,000 + ₹ 8,75,000

Financing activities are those which brings changes in composition and size of owner's capital and borrowings of an enterprise. For instance: Cash received from issuing shares or other similar securities. Cash received from issuing loans, debentures, bonds, notes, and other short-term or long-term borrowings.

₹51,000 − ₹30,000 = ₹21,000

₹78,800 − ₹52,000 = ₹26,800

The amount of machinery purchased was ₹76,000.

It is a non-cash item and should not form a part of cash flow.

It is a non-operating item. Non-operating income is the portion of an organization's income that is derived from activities not related to its core business operations. It can include items such as dividend income, profits, or losses from investments, as well as gains or losses incurred by foreign exchange and asset write-downs.

Operating profit before Working Capital changes = Net Profit before tax − Gain on sale of Fixed tangible assets + Goodwill written off