AHSEC Class 12 Accountancy Chapter 3 : Reconstitution of a Partnership Firm - Admission of a Partner Part ii Question Answer can be very Valuable & useful for the Preparation of Assam Higher Secondary Education HS 2nd Year Examination . Assam Board AHSEC HS 2nd Year ACCOUNTANCY NOTES gives you the best information of Reconstitution of a Partnership Firm - Admission of a Partner Chapter . You can find solutions to their questions at both basic and advanced levels
CLASS 12 ACCOUNTANCY
Chapter 3
PART:2
Very Short answer Type Questions (Carrying 2 marks each)
1. What is cash flow?
Ans. Cash flow is the movement of cash and cash equivalents in and out of an organisation.
2.What is cash flow statement ?
Ans. Cash flow statement is a summarised report which presents sources of cash. inflows and uses for cash outflows of an organisation during a particular period of time, thus portraying all changes in cash and cash equivalents and serving as a tall for financial analysis.
3. What is the purpose of preparing a cash flow statement?
Ans. The purpose of preparing cash flow statement is to ascertain the cash inflows and or outflows arising from operating, investing and or financing activities separately.
4. Name two operating activities.
Ans. (a) Cash receipts from the sale of goods and rendering of services.
(b) Cash payments to suppliers for goods and services.
5. Name two investing activities.
Ans. (a) cash receipts from sale of property.
(b) Cash payments to acquire property
6. Name two financing activities.
Ans. (a) Cash proceeds from issuing shares or other equity instruments
(b) Cash payments of amount borrowed.
7. What are cash equivalents?
Ans. Cash equivalents are short term highly liquid investments, that are readily convertible into known amount of cash and which are subject to an insignificant risk of changes in value.
8. What are different activities as per As3?
Ans. Different activities as per As-3 are:
(a) Operating activities.
(b) Investing activities.
(c) Financing activities.
9. Give the limitations of cash flow statement.
Ans. (a) Misleading comparison over a period of time: Just because company's cash flow has increased in the current year, a company may not be better of than the previous year. Thus a comparison over a period of time can be misleading.
(b) Ignores non-cash Transactions: Cash flow statement ignores the non-cash transaction. In other words, it does not consider those transactions which do not affect the cash.
10. Give two uses of cash flow statement.
Ans. (a) The cash flow statement shows the liquidity position of the firm. (b) It shows variation in cash balances through the period when there exist factors either contributing positively or negatively to it.
Short Answer Type Questions (carrying 3 marks each)
1. What are the sources of cash flow ?
Ans. (i) Cash receipts from sale of goods and the rendering of services.
(ii) Cash receipts from disposal of fixed assets.
(iii) Cash proceeds from issue of equity shares.
2.What are the dirrerent applications of cash flow?
Ans. (i) Cash payments to suppliers for goods and services.
(ii) Cash payments to acquire foxed assets:
(iii) Cash repayments of amount borrowed
3. Give three activities of cash inflow and three activities of cash outflow from investment activities.
Ans. Three activities of cash inflow from investment activities are
(a) Cash receipts from disposal of fixed assets,
(b) Cash receipts from repayments of advancer or loans made to third parties. (c) Dividend received from investment in other enterprises.
Three activities of cash outflow from investment activities are
(a) Cash payments to acquire fixed assets.
(b) purchase of investments
(c) purshase of intangible assets like goodwill patents, etc.
4. Define :
(i) Operating Activities (iii) Investing Activities.(iii) Financing Activities.
Ans.: (i) Operating Activities: Operating Activities are the activities wich are related with the day to day business of the firm
(ii) Investing Activities: Investing Activities are the activities which are related with the purchase or sale of long term assets including financial assets, which are not held for resale purpose in the normal course of business.
(iii) Financing Activities: Financing Activities are the activities which relate to the acquiring of long term funds and their repayments including payment of cost of these funds.
5. Classify the following into cash flow from:
(i) Operating Activities
(ii) Investing Activities
(iii) Financing Activities.
The Items are -
(a) Purchase of Machinery
(b) Issue of debenture
(c) Payment of dividend
Long Answer Type Questions (carrying 5 marks)
A.Theory part:
1. What are the different methods of calculating Net cash flow from operating activities? Explain any one of them in details.
Ans. Net cash flow from operating activities can be ascertained by using two methods
(a) Direct Method
(b) Indirect Method.
(a) Direct Method: This method is called Direct Method because under this method cash flows are ascertained directly from the transactions given. To facilitate this, adequate information shall be supplied to ascertain activity wise cash flows In this method cash paid to suppliers and employees, cash paid for various other operating activities, lake payment for office expenses, wages, stationery, etc. are deducted from cash receipts from cash sales and customers to calculate cash generated from operation. From this amount income tax paid and payment made for extraordinary item are deducted. This gives net cash flow from operating activities.
2. State in brief the Indirect methods of calculating cash flow from operating activities.
Ans. Under this method, the net cash flow from operating activities in determinded by adjusting net profit or loss for the effect of:
(a) Non cash items such as depreciation, provisions deferred taxes and unrealised gains and losses.
(b) Changes during the period in inventories and operating receivables and payables.The indirect method is also called reconciliation method as it involves reconciliations of net profit or loss as given in the profit and loss account and the net cash flow from operating activities as shown in the cash flow statement.
3. What are the major cash inflows and outflows from investing and financing activities?
Ans. Cash inflows from investing activities:
(a) Cash receipts from disparal of fixed assets;
(b) Cash receipts from disposal of shares, warrants or debt instruments held as investments and interests in joint ventures;
(c) Cash receipts from the repayment of advances and loans made to third parties, (d) Dividend, interest receipt from shares, debentures of other companies held as investments.
Cash outflows from investing activities:
(a) Cash payments to acquire fixed assets;
(b) Cash payments to acquire financial assets like shares, warrants or debt instrument of other enterprises and interests in joint ventures.
(c) Cash paid as advances and loans to third parties.
Cash inflows from financing activities.
(a) Cash from issuing shares or other similar instruments.
(b) Cash proceeds from issuing debentures, loans bonds;
(c) Short-term or long term borrowings, bank loans etc.
Cash outflows from financing activities:
(a) Cash redemption of preference share, debentures
(b) Cash repayments of amounts borrowed. etc.
(c) payments of interest on debentures, borrowing
(d) payment of dividend to shareholders.
4.What is cash flow statement? What are its uses and limitations ?
Ans. Cash flow statement is a statement that shows flow of cash and cash equivalents during a given period of time. It shows the net increase or net decrease of cash and cash equivalents under each activities i.e. Operating, Investing, Financing Collectively.
The cash flow statement uses:
(a) Whether funds from external sources where used to meet needs;
(b) The ratio of debt and equity in see various where external funding was utilised.
Limitiations of cash flow statement:
(a) Ignores accounting concept of Accrual Basis:
As cash flow statements is based on cash basis of accounting, it ignores the basic
accounting concept of accrual basis :
(b) Ignores non-cash Transanctions: Cash flow statement ingnores the non-cash transaction. In other word, it does not consider those transactions which do not affect the cash e issue of share against the purchase of fixed assets, conversion of debentures into equity shares, etc.
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