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Ques 1
Classify the following into (i) Operating Activities, (ii) Investing Activities, (iii) Financing Activities and (iv) Cash and Cash
Equivalents while preparing a Cash Flow Statement:
1. Cash Sales 2. Purchase of Building
3. Dividend paid 4. Cash paid to Trade Payables
5. Redemption of Debentures 6. Purchase of Investments
7. Short – term Deposits in Bank 8. Cash received from Trade Receivables
9. Issue of Share Capital or Debentures 10. Bank Balance
11. Income Tax Paid 12. Selling and Distribution Expenses
13. Sale of Building 14. Interest paid on Debentures
15. Sale of Non – Current Investments 16. Repayment of Long – term Loan
Solution:
Operating Activities 1,4, 8,11,12
Investing Activities 2,6,13,15
Financing Activities 3,5, 9,14,16
Cash and Cash Equivalents 7,10

Ques 2
Identify the following transactions belonging to: (i) Operating Activities, (ii) Investing Activities, (iii) Financing Activities and
(iv) Cash and Cash Equivalents.
1. Buy – back of Equity Shares 2. Cash Purchase
3. Office Expenses 4. Purchase of Machinery
5. Commission received 6. Investment in Short – term Marketable Securities
7. Rent Paid 8. Income Tax Refund received
9. Sale of Building 10. Cash in hand
11. Sale of Patents 12. Purchase of Goodwill
Solution:
Operating Activities : 2, 3, 5,7,8
Investing Activities : 4,9,11,12
Financing Activities : 1
Cash and Cash Equivalents : 6,10

Ques 3
Classify the following transactions as Operating, Investing and Financing Activities for (i) Financial Enterprise, and (ii) N on –
Financial Enterprise.
1. Interest paid on Debentures 2. Interest received on Investments
3. Sale of Investments 4. Dividend received on Shares
5. Dividend Paid 6. Purchase of Securities
7. Receipt of Loans and Advances made 8. Commission paid on purchase of securities
9. Sale of Securities 10. Loans and Advances made
Solution:
No. Transactions Financial Enterprise Non – Financial Enterprise
1. Interest paid on Debentures Operating Financing
2. Interest received on Investments Operating Investing
3. Sale of Investments Operating Investing
4. Dividend received on Shares Operating Investing
5. Dividend paid Financing Financing
6. Purchase of Securities Operating Investing
7. Receipt of Loans and Advances made Operating Investing
8. Commission paid on purchase of securities Operating Investing
9. Sale of Securities Operating Investing
10. Loans and Advances made Operating Investing

Ques 4
Illustration 4. Identify the following transactions belonging to: (i) Operating Activities, (ii) Investing Activities and (ii i)
Financing Activities.
Page 2

Ques 4
Illustration 4. Identify the following transactions belonging to: (i) Operating Activities, (ii) Investing Activities and (ii i)
Financing Activities.

1. Dividend paid by a finance company.
2. Issuing 9% Debentures.
3. Furniture Purchased for Cash.
4. Cash received from Debtors.
5. Payment of cash to acquire Debentures by an Investment company.
6. Dividend received by a finance company.
7. Proceeds from sale of investment.
8. Redemption of Preference Shares.
9. Purchase of Fixed Assets.
10. Payment of Dividend.
11. Interest Received.
Solution:
Operating Activities : 4,5,6
Investing Activities : 3,7,9,11
Financing Activities : 1,2,8,10

Ques 5
State which of the following would result in inflow /outflow of Cash and Cash Equivalents:
1. Conversion of debentures into equity shares by a financing company. {CBSE, Delhi 2008 (I)}
2. Declaration of final dividend. {CBSE, Delhi 2010(I)}
3. Sale of Marketable Securities at par. {CBSE, Delhi 2010 (II)}
4. Interest paid on Debentures. {CBSE, Delhi 2010 (III)}
5. Deposit of cash into Bank. {CBSE, Delhi 2011(I)}
6. Purchased machinery for cash Rs. 80,000. {CBSE, Delhi 2005}
7. Paid to creditors Rs. 40,000. {CBSE, Delhi 2005}
8. Converted Rs. 10,000 equity shares into 9% debentures. {CBSE, Delhi 2005}
9. Received cash of Rs. 30,000 from Trade Receivables.
10 Issued equity shares Rs. 10,00,000 for cash. {CBSE, Delhi 2005}
11 Building Purchased by issue of shares.
12 Furniture costing Rs. 25,000 sold for Rs. 30,000.
13 Providing Depreciation on Fixed Assets.
14 Issue of Bonus Shares.
Solution:
No. Effect on Cash Flaw Reason
1. No Flow Both items are related to non – current items.
2. No Flow Declaration of Dividend does not mean that it has been paid also.
3. No Flow Movement between items of cash or cash equivalents.
4. Outflow It involves payment of cash to debentureholders.
5. No Row Movement between items of cash or cash equivalents.
6. Outflow Cash and Cash Equivalents decreased by Rs. 80,000.
7. Outflow Cash and Cash Equivalents decreased by Rs. 40,000.
8. No Flow Both items are related to non – current items.
9. Inflow Cash and Cash Equivalents increased by Rs. 30,000.
10. Inflow Cash and Cash Equivalents increased by Rs. 10,00,000.
11. No Flow Both items are related to non – current items.
12. Inflow Cash and Cash Equivalents increased by Rs. 30,000.
13. No Flow No involvement of Cash and Cash Equivalents.
14. No Flow No involvement of Cash and Cash Equivalents.

Ques 6
The profit of Pokemon Ltd. after appropriations was Rs. 2,56,000. This profit was arrived at after taking into consideration
the following items:
S. No. Particulars . Amt. (Rs.)
1. Depreciation on Fixed Tangible Assets (Machinery) 20,000
2. Loss on sale of Fixed Tangible Assets (Furniture) 2,000
Page 3

Ques 4
Illustration 4. Identify the following transactions belonging to: (i) Operating Activities, (ii) Investing Activities and (ii i)
Financing Activities.

3. Goodwill written off 9,000
4. Provision for Taxation 35,000
5. Transfer to General Reserve 22,500
6. Income Tax Paid 42,000
7. Gain on sale of Fixed Tangible Assets (Machinery) 8,000
8. Income Tax Refund 6,000
9. Insurance Claim Received 5,000

Particulars 31.03.2011 (Rs.) 31.03.2012(Rs.)
Trade Receivables (All Good) 50,000 62,000
Trade payables 45,000 55,000
Inventory 12,000 8,000
Income received in Advance 8,000 —
Outstanding Expenses 6,000 3,000
Prepaid Expenses — 5,000
You are required to calculate Cash from Operating Activities:
Solution:
CASH FLOW FROM OPERATING ACTIVITIES
Particulars Amt. (Rs.) Amt.(Rs.)
Net Profit before Tax and Extraordinary Items
(WN:1)
3,02,500
Add: Depreciation on Machinery 20,000
Loss on sale of Furniture 2,000
Goodwill written off 9,000
Less: Gain on sale of Machinery (8,000)
Operating Profit before Working Capital Changes 3,25,500
Add: Decrease in Current Assets and Increase in Current Liabilities:
Decrease in Inventories 4,000
Increase in Trade Payables 10,000
Less: Increase in Current Assets and Decrease in Current Liabilities:
Increase in Trade Receivables (12,000)
Increase in Prepaid Expenses (5,000)
Decrease in Outstanding Expenses (3,000)
Decrease in Income received in advance (8,000)
Cash Generated from Operating Activities 3,11,500
Less: Income Tax Paid (Net of Income Tax Refund) (36,000)
Cash Flow before Extraordinary Items 2,75,500
Add: Insurance Claim Received 5,000
Cash Flow from Operating Activities 2,80,500
Working Notes:
1. Calculation of Net Profit before Tax and Extraordinary Items:
Net Profit after appropriations 2,56,000
Add: Transfer to General Reserve 22,500
Add: Provision for Tax (After adjusting Income Tax Refund) 29,000
Less: Insurance Claim Received (Extraordinary Item) (5,000)
Net Profit before Tax and Extraordinary Items 3,02,500

Ques 7
From the following Statement of Profit and Loss of Mars Ltd for the year ended 31
st
March, 2015, calculate Cash Flow from
Operating Activities:

Particulars Note No. Amt. (Rs.)
I. Revenue from Operation 11,96,000
II. Other Income 1 39,000
III. Total Revenue (I + II) 12,35,000
IV. Expenses:
Cost of Materials Consumed 8,00,000
Page 4

Ques 4
Illustration 4. Identify the following transactions belonging to: (i) Operating Activities, (ii) Investing Activities and (ii i)
Financing Activities.

Ques 7
From the following Statement of Profit and Loss of Mars Ltd for the year ended 31
st
March, 2015, calculate Cash Flow from
Operating Activities:

Particulars Note No. Amt. (Rs.)
I. Revenue from Operation 11,96,000
II. Other Income 1 39,000
III. Total Revenue (I + II) 12,35,000
IV. Expenses:
Cost of Materials Consumed 8,00,000

Changes in Inventories of Finished Goods and Work – in – Progress 30,000
Employees Benefit Expenses 2,10,000
Depreciation and Amortisation 30,000
Other Expenses 2 40,000
Total Expenses 11,10,000
V. Profit before Tax (III – IV) 1,25,000
Notes to Accounts:
Particulars Amt.(Rs.)
1. Other Income
Rent 30,000
Profit on sale of Machinery 5,000
Interest on Debentures held as Investments 4,000
39,000
2. Other Expenses
Manufacturing Expenses 25,000
Selling and Distribution Expenses 12,000
Loss on sale of Furniture 3,000
40,000
Additional Information:
Particulars 31.03.2014(Rs.) 31.03.2015(Rs.)
Trade Receivables 40,000 50,000
Trade Payables 70,000 65,000
Inventories 50,000 35,000
Outstanding Expenses 10,000 16,000
Prepaid Expenses 7,000 10,000
Solution:
CASH FLOW FROM OPERATING ACTIVITIES
Particulars Amt (Rs.) Amt. (Rs.)
Profit before Tax 1,25,000
Add: Depreciation and Amortisation 30,000
Add: Loss on sale of Furniture 3,000
Less: Rent (Non – Operating Income) (30,000)
Less: Profit on sale of Machinery (5,000)
Less: Interest on Debentures held as Investments (Non – Operating Income) (4,000)
Operating Profit before Working Capital Changes 1,19,000
Add: Decrease in Current Assets and Increase in Current Liabilities:
Decrease in Inventories 15,000
Increase in Outstanding Expenses 6,000
Less: Increase in Current Assets and Decrease in Current Liabilities:
Increase in Trade Receivables (10,000)
Increase in Prepaid Expenses (3,000)
Decrease in Trade Payables (5,000)
Cash Flow from Operating Activities 1,22,000

Ques 8
From the following Balance Sheets of Enclotek Ltd., as at 31
st
March, 2006 and 31
st
March, 2005, calculate Cash Flow from
Operating Activities:
Particulars Note No. 31.3.2006
(Rs.)
31.3.2005
(Rs.)
I. EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital 1 6,50,000 7,50,000
(b) Reserves and Surplus 2 3,50,000 20,000
2. Non – Current Liabilities
Long – term Borrowings 3 3,00,000 2,00,000
Page 5

Ques 4
Illustration 4. Identify the following transactions belonging to: (i) Operating Activities, (ii) Investing Activities and (ii i)
Financing Activities.

Ques 7
From the following Statement of Profit and Loss of Mars Ltd for the year ended 31
st
March, 2015, calculate Cash Flow from
Operating Activities:

Particulars Note No. Amt. (Rs.)
I. Revenue from Operation 11,96,000
II. Other Income 1 39,000
III. Total Revenue (I + II) 12,35,000
IV. Expenses:
Cost of Materials Consumed 8,00,000

3. Current Liabilities
Trade Payables 1,20,000 85,000
Total 14,20,000 10,55,000
II. ASSETS
1. Non – Current Assets
(a) Fixed Assets
(i) Tangible Assets 8,60,000 6,20,000
(ii) Intangible Assets (Goodwill) 10,000 15,000
(b) Non – Current Investments 1,25,000 80,000
2. Current Assets
Inventories 3,25,000 3,00,000
Trade Receivables 1,00,000 40,000
Total 14,20,000 10,55,000
Notes to Accounts:
Particulars 31.3.2006 (Rs.) 31.3.2005 (Rs.)
1. Share Capital
Equity Share Capital 4,50,000 4,50,000
5% Preference Share Capital 2,00,000 3,00,000
6,50,000 7,50,000
2. Reserves and Surplus
General Reserve 1,50,000 1,20,000
Surplus i.e. Balance in the Statement of Profit and Loss 2,00,000 (1,00,000)
3,50,000 20,000
3. Long – Term Borrowings
8% Debentures 3,00,000 2,00,000
Additional Information:
(i) Depreciation provided on Fixed Assets Rs. 60,000.
(ii) Preference Share were redeemed at a premium of 5% on 31
st
March, 2006.
(iii) Additional debentures were issued on 1
st
October, 2005.
(iv) The company declared and paid dividend on Equity Shares @ 8%.
Note: Balance Sheets given in the question have been modified as per Schedule III.
Solution:
CASH FLOW FROM OPERATING ACTIVITIES______________________
Particulars Amt. (Rs.) Amt. (Rs.)
Net Profit before Tax
(wN:1)
3,81,000
Add: Depreciation on Fixed Assets 60,000
Add: Premium on redemption of Preference Shares (5% x Rs. 1,00,000)
(wn;2)
5,000
Add: Interest on Debentures {(8% x Rs.2,00,000x 6/12) +
(8%xRs.3,00,000x6/12)
20,000
Add: Goodwill Written off (Rs. 15,000 – Rs. 10,000) 5,000
Operating Profit before Working Capital Changes 4,71,000
Add: Decrease in Current Assets and Increase in Current Liabilities:
Increase in Trade Payables 35,000

Less: Increase in Current Assets and Decrease in Current Liabilities:
Increase in Inventories (Stock) (25,000)
Increase in Trade Receivables (Debtors) (60,000)
Cash Flow from Operating Activities 4,21,000
Working Notes:
1. Calculation of Net Profit before Tax and Extraordinary Items:
Profit for the Year (2,00,000 – ( – 1,700,000)) 3,00,000
Add: Dividend on Preference Shares (5% of Rs.3,00,000)
(wn:3)
15,000
Add: Dividend on Equity Shares (8% of Rs. 4,50,000) 36,000
Add: Transfer to General Reserve (Rs. 1,50,000 – Rs. 1,20,000) 30,000
Net Profit before Tax and Extraordinary Items 3,81,000

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FAQs on Important Questions - Cash Flow Statement - Crash Course of Accountancy - Class 12 - Commerce

1. What is a cash flow statement?

Ans. A cash flow statement is a financial statement that provides information about the cash inflows and outflows of a company during a specific period. It highlights the sources and uses of cash, allowing stakeholders to assess the company's liquidity and ability to generate cash.

2. Why is the cash flow statement important in commerce?

Ans. The cash flow statement is crucial in commerce as it helps businesses and investors understand the cash position and cash-generating ability of a company. It provides insights into the company's ability to meet its financial obligations, pay dividends, invest in growth, and cover day-to-day expenses.

3. How is the cash flow statement different from the income statement?

Ans. While both the cash flow statement and income statement are important financial statements, they focus on different aspects of a company's financial performance. The income statement shows the company's revenues, expenses, and net income or loss over a period, while the cash flow statement focuses on the actual cash inflows and outflows during that period.

4. What are the three categories in which cash flows are classified in a cash flow statement?

Ans. Cash flows are classified into three categories in a cash flow statement: operating activities, investing activities, and financing activities. Operating activities include cash flows from the company's core operations, such as sales and purchases. Investing activities involve cash flows related to the acquisition or sale of long-term assets. Financing activities include cash flows from borrowing, repaying debt, issuing or buying back shares, and paying dividends.

5. How can a cash flow statement help in evaluating the financial health of a company?

Ans. A cash flow statement provides valuable information for evaluating the financial health of a company. By analyzing the cash flows from operating activities, investors can assess the company's ability to generate cash from its core operations. Cash flows from investing activities indicate the company's investment decisions and potential for future growth. Finally, cash flows from financing activities show how the company is financed and whether it has sufficient liquidity to meet its obligations and pursue growth opportunities.

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