Test: Cash Flow Statements- Assertion & Reason Type Questions


4 Questions MCQ Test Accountancy Class 12 | Test: Cash Flow Statements- Assertion & Reason Type Questions


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Attempt Test: Cash Flow Statements- Assertion & Reason Type Questions | 4 questions in 8 minutes | Mock test for Commerce preparation | Free important questions MCQ to study Accountancy Class 12 for Commerce Exam | Download free PDF with solutions
QUESTION: 1

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): By-back of equity shares comes under financing activities.

Reason (R): Financing activities are the activities which result in change in size, composition of owner's capital and borrowing of the enterprise from other sources.

Solution: 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.
QUESTION: 2

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Proceeds from Issue of Shares and Debentures are recorded in Financing Activity.

Reason (R): Issue of shares and debentures are the cash inflow or outflow made to finance the company.

Solution:
  • The issue of Equity and preference share capital for cash only. The issue of Debentures, Bonds and long-term note for cash only.

  • A company's cash flow from financing activities refers to the cash inflows and outflows resulting from the issuance of debt, the issuance of equity, dividend payments, and the repurchase of existing stock.

QUESTION: 3

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Depreciation is added to the net profit before tax.

Reason (R): Depreciation is a non-cash item which is an expense.

Solution: 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.
QUESTION: 4

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Sale of fixed assets is written under the Investing Activities.

Reason (R): Sale of fixed assets leads to inflow of cash.

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