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Sunday, September 27, 2020

Funds Flow Statement MCQs | Schedule of Changes in Financial Position Multiple Choice Questions and Answers

Statement of Changes in Financial Position (Funds Flow Statement) MCQs
(Multiple Choice Questions and Answers)

State whether the following statements are true or false:

a)      Fund’s is the difference between fixed assets and current assets. False

b)      In the context of funds flow analysis, the word funds are used to define cash.           False

c)       Funds flow statement helps in determining the flow of funds i.e., changes in working capital and financial position.      True

d)      Any transaction that increases working capital is a source of funds. True

e)      Funds flow statement is mandatory.                               False

f)       Funds flow statement recognizes accrual basis of accounting.             True

g)      Funds flow statement and sources and application statements are synonymous.      True

h)      Increase in current assets means increase in working capital. True

i)        Decrease in current assets means increase in working capital. False

j)        A fund flow statement is a good substitute for income statement. False

k)      Funds flow statement is based upon cash basis.                        False

l)        Flow of funds mean increase or decrease of working capital. True

m)     

n)      Funds flow statement also suffers from window dressing.   True

o)      Cash is the most important source of funds for a business. False

p)      A transaction which affects only current accounts does not affect the flow of funds and, therefore, is not shown in the funds flow statement. True

q)      A balance sheet gives the position of funds as on a given date but does not reveal the flow of funds during a given period. True

r)       The first balance sheet of a business is also in a way the statement showing the changes in financial position. True

s)       Funds flow statement is prepared so as to analyse the reasons for changes in financial position of a company between two balance sheet date.           True

t)       Payment of cash to creditors results in flow of funds. False

u)      Liabilities of a business indicate the use of funds whereas the assets indicate the sources. False

v)      The most important and regular source of funds is the funds from operations. True

w)    Machinery sold for cash is an application of fund.                      False, source

x)      Building sold on credit is a source of fund.                    False

y)      Depreciation of machinery is a source of funds.         True

z)       Depreciation is a source of funds. True

aa)   There will be a flow of funds when one of the accounts is current and other one is non-current. False

bb)  There will be a flow of funds when both the accounts in a transaction are current. False

cc)    There will be a flow of funds when both the accounts in a transaction are non-current. False

dd)  Net losses mean drain on working capital. True

ee)  If as a result of a business transaction the fund increases, then such a transaction is considered to be an application of fund. False

ff)     Purchase of goods on credit results in flow of funds. False

Fill in the blanks:

a)      In the context of funds flow analysis, the word funds are used to define working capital.

b)      The word ‘fund’ means the difference between current assets and current liabilities.

c)       Purchase of plant will mean decrease in working capital.

d)      Issue of capital will mean increase working capital.

e)      Goodwill is a non-current transaction.

f)       When one account is current and another a non-current it results in flow of funds.

g)      Any transaction that increases working capital is an application of fund.

h)      Funds flow statement must be accompanied by a schedule of changes in working capital.

i)        Repayment of borrowing causes cash Outflow.

j)        Funds flow statement is based upon accrual basis of accounting.

k)      In a Funds Flow Statement, all receipts are treated as source of funds.

l)        Purchase of plant will mean decrease in working capital.

m)    Funds flow statement is also known as a statement of Sources and Applications of funds.

n)      The term funds refer to Working capital.

o)      Collection of book debts does not result in flow of fund.

p)      An increase in the value of an asset between two balance sheets dated indicates an application of fund.

q)      A decrease in the current assets between two balance sheet dates indicates a source of fund.

r)       If particular current assets are more than what it was in the previous year, the change shows increase in the working capital.

s)       Sources are increase in liabilities plus decrease in assets and uses are increase in assets plus decrease in liabilities.

t)       To arrive at funds from operations non-cash changes must be added to net profit.

u)      A funds flow statement for a period is a condensed report of how the business got its funds and how they were spent during the period.

v)      Increase in working capital is shown as an application and decrease in the working capital as a source in the funds flow statement.

w)    Funds flow statement must be accompanied by a statement of changes in working capital.

Choose the correct answer:

1. Current assets include:

a)      Trade investments.

b)      Machinery.

c)       Sundry debtors.

2. Which of the following is a non-current asset?

a)      Goodwill.

b)      Cash balance.

c)       Bills receivable.

3. State which of the following is non-current liability?

a)      Mortgage loan.

b)      Bank balance.

c)       Outstanding Salary.

4. Depreciation of machinery is:

a)      Source of funds.

b)      Application of funds.

c)       None of the two.

5. Stock in the beginning results in:

a)      Application of funds.

b)      Source of funds.

c)       No flow of funds.

6. Which of the following are non-current items?

a)      Share Premium.

b)      Profit and Loss Account.

c)       Payment of wages.

d)      Sundry creditors.

e)      Bank Balance.

7. Which of the following will result into application of funds?

a)      Sale of plant.

b)      Payment of dividend.

c)       Purchase of land.

d)      Issue of share capital.

e)      Payment of creditors.

8. Which statement is prepared in the process of funds flow analysis?

a)      Schedule of changes in working capital

b)      Funds Flow statement

c)       Calculation of funds from operations

f)       All of the above

9. Funds flow statement is also known as:

g)      Statement of sources and applications of funds

h)      Statement of flow of funds

i)        Statement of changes in financial position

j)        All of the above

10. When an asset with original cost Rs. 19,000 and accumulated depreciation of Rs. 4,000 is sold for Rs. 9,000, the transaction should be recorded in the funds flow statement as:

a)      Rs. 9,000 unusual gain.

b)      Rs. 9,000 use of working capital.

c)       Rs. 9,000 source of working capital.

d)      Rs. 10,000 use of working capital.

11. In the funds flow statement depreciation is

a)      A source of working capital.

b)      Added to net profit.

c)       Subtracted from net profit.

d)      Ignored.

12. State which of the following will affect the flow of fund?

a)      A transaction affecting both current accounts.

b)      A transaction affecting both non-current accounts.

c)       A transaction affecting current and non-current accounts.

d)      Both (a) and (b).

13. If the net profit for a period is Rs. 50,000 after crediting a gain on sale of asset Rs. 5,000 and debiting depreciation of Rs. 20,000 on fixed assets, the fund from operations will be:

a)      Rs. 70,000.

b)      Rs. 75,000.

c)       Rs. 65,000.

d)      Rs. 55,000.

14. Profit made by a business firm will result in equal increase of

a)      Cash balance.

b)      Gross working capital.

c)       Net working capital.

d)      Net worth of the business.

15. Which of the following are applications of funds?

a)      Purchase of fixed assets

b)      Increase in working capital

c)       Payment of dividend

d)      All of the above.

16. Which of the following are sources of funds?

a)      Issue of shares and debentures

b)      Sale of assets

c)       Decrease in working capital

d)      All of the above.

17. Funds flow statement holds significance for:

a)      Shareholders

b)      Bankers

c)       Government

d)      All of the above

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