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

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

In this exclusive page, you will get Funds Flow Statement MCQs for various exams such B.Com, BBA, MCOM, MBA, CMA, CS, ICAI and UGC NET. These Funds Flow Statement MCQs are also very much helpful for various competitive exams for commerce stream students.

You can also go through various links given below in the article for Chapter wise Management Accounting MCQs.

Introduction to Funds Flow Statement

The financial statement of the business indicates assets, liabilities and capital on a particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. 

Financial statements are not helpful in analysing such situation. Therefore, a statement of the sources and applications of funds is prepared which indicates the utilisation of working capital during an accounting period. This statement is called Funds Flow statement.

The term flow means movement and includes both inflow and outflow of fund. The term flow of funds means the transfer of economic values from one asset of equity to another. 

Flow of funds is said to have taken place when any transaction makes changes in the amount of funds available before happening of the transaction. In effect, transaction results in increase of funds are called inflow of funds and transaction which decreases funds are called outflow of funds. 

Further if a transaction does not changes the funds, it is said to have no flow of funds. 

According to working capital concept of fund, the term flow of funds means movement of funds in the working capital. A transaction which increases the working capital is called inflow of funds and which decreases working capital is called outflow of funds.

Choose the correct answer:

1. Current assets include:

a) Trade investments.

b) Machinery.

c) Land and Building

d) Sundry Debtors

Ans: d) Sundry debtors.

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

a) Goodwill.

b) Cash balance.

c) Bills receivable.

d)  Drafts and Cheque in hand

Ans: a) Goodwill.

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

a) Mortgage loan.

b) Bank balance.

c) Outstanding Salary.

d) Accounts payables

Ans: a) Mortgage loan.

4. The term funds refers to:

a) Cash and cash equivalents

b) Working capital

c) Reserves and Surplus

d) Fixed assets

Ans: b) Working capital

5. Decrease in currents assets will be treated as:

a) Source of funds

b) Applications of funds

c) Non change in funds

d) None of the above

Ans: b) Applications of funds

6. Increase in working capital is a:

a) Source of funds

b) Applications of funds

c) Non change in funds

d) None of the above

Ans: a) Source of funds

7. In the fund flow statement depreciation of machinery is a:

a) Source of funds.

b) Application of funds.

c) None of the two.

Ans: a) Source of funds.

8. Stock in the beginning results in:

a) Application of funds.

b) Source of funds.

c) No flow of funds.

Ans: a) Application of funds.

9. 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.

Ans: d) All of the above.

Also Read Management Accounting MCQs (Chapter wise MCQs)

Management Accounting MCQs

Marginal and Absorption Costing MCQs

MCQ on Budget and Budgetary Control

Ratio Analysis MCQs

Cash Flow Statement MCQs

Funds Flow Statement MCQs

Financial Statement and Financial Statements Analysis MCQs

10. 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

Ans: d) All of the above.

11. Funds flow statement holds significance for:

a) Shareholders

b) Bankers

c) Government

d) All of the above

Ans: d) All of the above

12. 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.

Ans: a) Share Premium.

b) Profit and Loss Account.

13. 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.

Ans: b) Payment of dividend.

c) Purchase of land. 

14. Fund flow statement represents the flow of _______ in the organisation:

a) Cash

b) Current assets

c) Current liabilities

d) Working Capital

Ans: d) Working Capital

15. 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

d) All of the above

Ans: d) All of the above

16. Funds flow statement is also known as:

a) Statement of sources and applications of funds

b) Statement of flow of funds

c) Statement of changes in financial position

d) All of the above

Ans: d) All of the above

17. 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.

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

18. 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.

Ans: b) Added to net profit.

19. 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).

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

20. 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.

Ans: c) Rs. 65,000.

21. 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.

Ans: d) Net worth of the business.

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

a) Schedule of changes in working capital

b) Funds flow statement

c) Both a) and b) above

d) None of the above

Ans: c) Both a) and b) above

23. Which of the following can be shown on the sources side in fund flow statement?

a) Issue of shares

b) Securities premium reserve

c) Sale of fixed assets

d) All of the above

Ans: d) All of the above

24. Any increase or decrease in working capital when the transactions take place is called as:

a) Flow of funds

b) Flow of cash and cash equivalents

c) Flow of net worth

d) None of the above

Ans: a) Flow of funds

25. Which of the following is not application of funds?

a) Redemption of debentures

b) Repayment of loans

c) Increase in working capital

d) Decrease in working capital

Ans: d) Decrease in working capital

Funds Flow Statement MCQs (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) Funds flow statement also suffers from window dressing.   True

n) Any transaction between a current item and another current item does not affect working capital.        True

o) The statement which shows the periodical increase or decrease of funds is called Funds flow statement.

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

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

gg) 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

Funds Flow Statement MCQs (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 prepared 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.

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