Keshav Memorial Institute of Commerce and Sciences Narayanguda, Hyderabad

Subject: Cost Control and Management Accounting III year VI Semester

(B.com Computer Applications, General, Honours )

Unit-1 Introduction to Management Accounting& Marginal Costing and Decision Making

1. If the total cost of 100 units is Rs.6,000 and that of 1001 units is Rs.6,040, then the increase of Rs.40 in the
total cost is .
a) Prime cost b)All variable overheads c)Marginal cost d)None of the above

2. Which of the following statements are true about marginal costing?

a) In marginal costing, fixed costs are treated as product costs b)Marginal costing is not an independent
system of costing c)The elements of cost in marginal costing are divided into fixed and variable
components
d) Both b and c

3. The costing method where fixed factory overheads are added to inventory is called_________
a) Activity-based costing b)Absorption costing c)Marginal costing d)All of the above

4. While computing profit in marginal costing, .

a) The fixed cost gets added to the contribution b)The total marginal cost gets deducted from total
sales revenue c)The total marginal cost gets added to total sales revenue d) None of the above

5. Which of the following assumptions are made while calculating marginal cost?
a) Total fixed cost is constant at all levels of output b)Total variable cost varies according to the
volume of output c)All elements of cost can be divided into fixed and variable components d)All
of the above

6. Contribution margin in marginal costing is also known as .

a) Net income b)Gross profit c)Marginal income d) None of the above

7. The term ‘Contribution’ refers to the .

a) Excess of selling price over variable cost per unit
b) Difference between the selling price and total cost
c) Subscription towards raising capital
d) None of the above

8. Which of the following techniques of costing differentiates between fixed and variable costs?
a) Marginal costing b) Standard costing c)ABC costing d)None of the above
9. Historic cost is also known as ______ cost.
a) Total cost b)Sunk cost c)Period cost d) None of the above
10. Example for Variable cost________________.
a) Raw Material Cost b) Depreciation c) Rent d) None
11. The margin of safety, which is the difference between actual sales and break-even point, can be improved
by .
a) Lowering variable costs b) Lowering fixed costs c)Increasing sales volumes d)All of the above

12. An increase in the variable cost .

a) Decreases the break-even point b)Improves margin of safety c)Improves the profit/volume ratio
d)All of the above
13. The profit/volume ratio in marginal costing can be improved by .
a) Lowering fixed cost b)Increasing the selling price c)Increasing variable cost d)None of the above
Answer: b
14. Under marginal costing, the stock is valued at .
a) Total Cost b)Fixed Cost c)Variable Cost d)None of the above
15. The profit at which total revenue is equal to the total cost is known as _________
a) Margin of safety b)Break-even point c)Both a and b are incorrect d)Both a and b are correct
16.The cost that does not fluctuate based on the volume of the production is known as .
a) Variable cost b)Fixed cost c)Semi-variable cost d)None of the above

17. How is the break-even point affected by the fixed cost?

a) If the fixed cost decreases, the break-even point decreases
b) If the fixed cost increases, the break-even point decreases
c) If the fixed cost remains constant, the break-even point decreases
d) None of the above

18. Fixed cost includes .

a) Property taxes b)Rent c)Insurance premium d)All of the above

19.Variable cost includes .

a) Cost of raw materials b)Salaries and wages c)Electricity bills d)All of the above

20.Marginal cost is equal to .

a) Variable overheads b)Prime cost plus variable overheads c)Prime cost minus variable overheads
d) None of the above

II Fill in the blanks with answers

1. The Selling Price- Variable cost = Contribution p.u

2. Contribution is equal to Sales – cost of sales

3. Fixed factory overhead is not deducted from sales in computation of contribution .

4. When fixed cost increases, the breakeven point Increases

5. Marginal costs is taken as Prime Cost plus all variable overheads

6. If total cost of 100 units is Rs 5,000 and those of 101 units is Rs 5,030 then Increase of Rs 30 in total
cost is Marginal cost

7. P V Ratio= Contribution/Sales

8. Marginal Costing helps management in profit planning by studying the relationship between cost,
volume and profits.
9. Direct costs consist of all such expenditure that is directly incurred when a product is being produced.

10. Telephone expenses are a good example of Semi Variable costs

11. Contribution is the difference between sales and variable costs.

 12. A business is said to Break even when its total sales are equal to its total costs.

13. Decision making is about choosing among alternative courses of action, based on quantitative as well
as qualitative factors.
14. Margin of Safety sales is the sales over and above the ‘break even’ sales.

15. Quantitative outcomes can be measured in numerical terms.

16. Shut-down costs are costs that will continue to be incurred even if there is a
temporary closure or shut-down of the production facilities.
17. Opportunity cost is the value of the best alternative you give up when making a decision.
18. Margin of Safety = Profit/PV Ratio
19. CVP analysis = Cost Volume Profit Analysis
20. Prime cost = Direct Material+Direct Labour+ Direct expenses

Short Answers

1. Marginal Costing
Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units
of cost, while the fixed cost for the period is completely written off against the contribution.

2. Break Even Point

The breakeven point (break-even price) for a trade or investment is determined by comparing the
market price of an asset to the original cost; the breakeven point is reached when the two prices are
equal.

3. P/V Ratio
The Profit Volume (P/V) Ratio is the measurement of the rate of change of profit due to change in
volume of sales

4. Fixed Cost
Fixed costs are costs that do not change when sales or production volumes increase or decrease

5. Margin Of Safety
The term margin of safety indicates the amount of sales that are above the break-even point. In other
words, the margin of safety indicates the amount by which a company's sales could decrease before the
company will have no profit.

6. Make Or Buy Decision

Make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it
from an external supplier.

7. Variable Costs:
Variable costs in cost accounting are expenses that change based on a company's production and sales
levels.

8. Opportunity Cost:
Opportunity cost is the potential forgone profit from a missed opportunity.

9. Cost-Volume-Profit (CVP) analysis:

 It is a financial tool that helps businesses understand how costs, sales volume, and profitability are
related.

10. Absorption Costing:

In absorption costing, variable and fixed costs are treated as product costs. Abortion costs include
direct manufacturing costs, such as direct labor and materials, and fixed overhead costs incurred during the
production process.
 Unit-II
Budgetary control and standard costing
1) The process of budgeting helps in the control of
a) Cost of production b) Liquidity c) Expenditure d)All of the above

2) A budgeting process which demands each manager to justify his entire budget in detail from beginning is
a) Functional budget b) Master budget c) Zero base budgeting d)None of the above
3) While preparing sales budget, which of the following factors are considered?

a) Non-operational factors b) Environmental factors c) Both a and b d)None of the above

4) ___ provides an estimate of the capital amount that may be required for buying fixed assets
needed for meeting production requirements.

a) Production budget b) Cash budget C) Capital expenditure budget d) None of the above
5) ____ is designed after assessment of the volume of output to be produced during the Budget period
a) Cost budget b) Sales budget c) Production budget d)None of the above
6) Plant utilization budget and Manufacturing overhead budgets are types of
a) Production budget b) Sales budget c) Cost budget d)None of the above
7) R&D budget and Capital expenditure budget are examples of
a) Short-term budget b) Current budget c) Long-term budget d) None of the above
8) __________is designed after assessment of the volume of output to be produced during the
Budget period
a) Cost budget b) Sales budget c) Production budget d) None of the above
9) ___ is the first step of budgetary system and all other budgets depends on it.
a) Cost budget b) Sales budget c) Production budget d) None of the above
10) contains the picture of total plans during the budget period and it comprises information
relating to sales, profit, cost, production etc.
a) Master budget b)Functional budget c) Cost budget d) None of the above
11) ____ is stated as a budget which is made to change as per the levels of activity attained.
a) Fixed budget b) Flexible budget c) Both a and b d) None of the above
12) ______ is prepared for single level of activity and single set of business conditions.
a) Fixed budget b) Flexible budget c)Both a and b d)None of the above
13) Which of the following statements are not true about budget, budgeting & budgetary control?
a) Budgetary control works on the basis of best option
b) Budget is one of the important mediums of communication
c) Budgeting develops the quality of objectivity in planning
d) None of the above
14) Which of the following statements are true about budget, budgeting & budgetary control?
a) Budgetary control is a wider concept whereas Budget and budgeting are narrower concepts
b) If there is budgeting or budget, it is not necessary that there should be budgetary control also
c) If there is budgetary control, budgeting and budget are must
d) All of the above
15) Which of the following statements are true for forcast and budget?
a) Forecast and budget are one and same thing
b) Budget is prepared after the forecast
c) Forecast and budget both can be expressed in financial form
d) All of the above

16) Which of the following is true about Standard Costing?

a) It is a technique of implementing cost control within the organization b) It helps in planning out
business activities within the organization c) Both a and b are incorrect d)Both a and b are correct

17) Which of the following is not a demerit of the Standard Costing System?

a) The traditional cost variances are not tied to any specific product lines

b) Standard Costing System is much more expensive than other systems

c) It is usually less expensive than normal or actual costing

d) All of the above

18) Which of the following industries is Standard Costing most suited for?

a) It is suitable for industries that produce standard products

b) It is suitable for enterprises that are engaged in service activities

c) It is suitable for industries that produce non-standard products

d) None of the above

19) Which of the following is an advantage of the Standard Costing System?

a) It helps in promoting and measuring efficiencies within an organisation

b) It helps to control and reduce the overall costing within an organisation
c) It helps to fix the selling price for the products manufactured within an organisation
d) All above
20) Which of the following activities is the Standard Costing System used for?

a) It is a basis for implementing cost control and fixing the price of products through variance
analysis

b) It helps to ascertain the cost-volume relationship between products manufactured by the business
c) It helps to establish the breakeven point for the products manufactured by the company
d) None

II Fill in the Blanks

1) A plan expressed in financial terms may also be known as a budget.

2) The fixed-variable cost classification has a special significance in the preparation of

Flexible budget.

3) The difference between fixed cost and variable cost has significance in
preparation of Flexible budget
4) Budgetary control helps the management in Planning and control.

5) The budget designed to furnish budgeted cost any level of activity actual attained is called Flexible
budget
6) Budget reports should be prepared As frequently as needed.

7) Another name for the static budget is Master

budget.

8) Sales budget is a Functional budget.

9) The budget that is prepared first of all is Capital expenditure budget

10) The Production budget is concerned with estimating the probable

output of each product in the forthcoming budget period.
11) Budgetary control system acts as a friend, philosopher and guide to the
Management
12) Budgetary control helps the management in obtaining bank credit.
13) Budgetary control provides a basis for remuneration plans.
14) R&D budget and Capital expenditure budget are examples of long-term budget
15) Purchases budget is prepared using the information from Materials budget
16) Purchase department is responsible for setting up of materials price standard.
17) If standard cost ˃ actual, then it is favourable.
18) Standard costing is a tool, which replaces the bottleneck of the historical costing.
19) There are two types of standard used in the process of establishment of standard costing
system.
20) A budget that gives a summary’ of all the functional budgets and projected Profit and
Loss Account is known as Master budget.

Short Questions

1. Budgetary Control
A) Budgetary control is financial jargon for managing income and expenditure. In practice it
means regularly comparing actual income or expenditure to planned income or expenditure
to identify whether or not corrective action is required.

2. Types of Budget
3. Flexible Budget
A) flexible budget adjusts to changes in actual revenue levels. Actual revenues or other
activity measures are entered into the flexible budget once an accounting period has
been completed, and it generates a budget that is specific to the inputs.

4. Fixed Budget
A) A fixed budget is a financial plan that is not modified for variations in actual activity.

5. Long Term Budget

A) A budget with a term usually longer than one year. A long-range budget involves more
uncertainty than a short-term budget.

6. Standard Costing
A) Standard costing is the practice of estimating the expense of a production process. It's a
branch of cost accounting that's used by a manufacturer, for example, to plan their costs for
the coming year on various expenses such as direct material, direct labor or overhead.

7. Material Variance
A) The difference between the standard cost of direct materials specified for production and
the actual cost of direct materials used in production is known as Direct Material Cost
Variance. Material Cost Variance gives an idea of how much more or less cost has been
incurred when compared with the standard cost.

8. Labour Variances
A) A labor variance arises when the actual cost associated with a labor activity varies
(either better or worse) from the expected amount.

9. Overhead Variances
A) Overhead variance refers to the difference between actual overhead and applied
overhead.

10. Idle Capacity

A) Idle capacity refers to the time spent in the manufacturing plant where no production
occurs. This is the difference between theoretical capacity and actual production. During
periods of idle capacity, the company gains no benefit from owning the equipment or hiring
the employees.
 Unit III
Techniques of Financial Statement Analysis and Ratio Analysis
MCQS
1) Interpretation of Financial Statements includes:
a) Criticisms and Analysis b) Comparison and Trend Study c) Drawing Conclusion d) All the above
2) Comparative Statements are also known as :
a) Dynamic Analysis b) Horizontal Analysis c) Vertical Analysis d)External Analysis
3) Common-size Statement are also known as:
a) Dynamic Analysis b) Horizontal Analysis c)Vertical Analysis d)External Analysis
4) The most commonly used tools for financial analysis are:
a) Comparative Statements b) Common-size Statement c)Accounting Ratios d) All the above

5) The analysis of financial statement by a shareholder is an example of:

a) External Analysis b) Internal Analysis c)Vertical Analysis d)Horizontal Analysis
6) Which report gives a review on the profitability of a business?
a) Statement of changes in equity b) Cash flow statement c) Balance sheet d) Income statement
7) When assets are subtracted from liabilities it will be equal to?
a) Capital b) Net income c) Working capital d) Goodwill Answer

8) P&L statement is also known as?

a) Statement of earnings b) Statement of balance sheet c) Statement of operations d)Statement of
income

9) Which of the following options is not recorded in the Balance sheet?

a) Cash b) Rent expenses c) Building d) Goodwill

10) Current assets are also known as:

a) Cash b) Assets c) Invested capital d) Working capital

11) The cash expenses of a business are termed as:

a) Operating expenses b)Non-administration expense c) Selling expenses d)Administration

12) Cash receipt received from the sales fixed assets are recorded under the head of:
a) Other activities b) Investing activities c) Financing activities d) Operating activities

13) A current asset that can be transferred into cash within three months is known as:
a) Cash equivalent b) Intangible asset c)Operating asset d) Cash asset
14) A method used in a comparative analysis of financial statement is:
a) Returning analysis b) Common size analysis c) Preference analysis d) Graphical analysis

15) Which statement shows the flow of cash and cash equivalents during the financial period?
a) Statement of changes in equity b) Cash flow statement c) Balance sheet d) Income statement

16) Working Capital is the .

a) Capital borrowed from the Banks. B) Difference between Current Assets and Current Liabilities.
c)Difference between Current Assets and Fixed Assets. D) Cash and Bank Balance.
17) Liquid Ratio is equal to liquid assets divided by .
a) Current Liabilities B) Total Liabilities C)Contingent Liabilities D)Non-Current Liabilities.
18) Which of the following transactions will improve the Current Ratio?
a) Purchase of Goods for Cash b) Payment to Trade Payables c) Credit purchase of Goods
d) Cash collected from Trade Receivables.
19) In Liquid ratio _______ is deducted/ignored from current asset?
a) Accounts receivable. B) Land c) Stock D) Creditors
20) Ideal Current ratio =

a) 2:1 b) 0:1 c)5:1 d)1:1

II Fill in the blanks

1.The Income Statement reports activity over a period of time.
Answer: Income Statement
2. The Balance sheet reports activity on a specific point in time.

3. Capital =. Assets- Liabilities

4. Working Capital = Current Assets- Current Liabilities

5. Creditor is reported as a Current Liability on the balance sheet.

6. Average inventory= (Opening Stock+Closing Stock)/2
7. COGS= Sales- Gross Profit

8. The Income Statement is the first financial statement prepared during the accounting cycle.
9. Example for Employee Benefit Expenses- Salaries, Wages, Bonus, EPF etc

10. Shareholder’s funds= Share capital+ Reserves & Surplus

11. Current Ratio= CurrentAssets/ Current Liabilities

12. Current Asset = 1,00,000, Current Liability = 50,000. Current ratio= 2:1
13. Liquid Assets/Current Libialities =Liquid Ratio
14. Debt Equity Ratio=Long term Debt/Equity

15. Interest coverage ratio is obtained by dividing EBIT by Interest

16. Net Profit Ratio= Net Profit/Net sales

17. Cash Sales =Total Sales- Credit sales

18. Fixed Assets= Tangible+ Intangible Assets

19. Capital Gearing Ratio is categorized as Long-term Solvency Ratio

20. Liquid Ratio is also known as Acid-Test ratio or Quick ratio

Short Questions
1. Financial Statement Analysis
A) Financial statement analysis evaluates a company's performance or value through a
company's balance sheet, income statement, or statement of cash flows.

2. Comparative Statement Analysis

A) A comparative statement is a document that compares a particular financial statement
with prior period statements.
3. Trend analysis
A) Trend analysis is a strategy used in making future predictions based on historical data. It
allows to compare data points over a given period of time and identify uptrends,
downtrends, and stagnation.

4.Common Size Statement

A) A common size income statement is an income statement in which each line item is
expressed as a percentage of the value of revenue or sales.

5. Ratio Analysis
A) Ratio analysis is a quantitative method of gaining insight into a company's liquidity,
operational efficiency, and profitability by studying its financial statements such as the
balance sheet and income statement.

6. Liquidity Ratio
A) Liquidity ratios measure a company's ability to pay off its short-term debts as they
become due, using the company's current or quick assets. Liquidity ratios include the
current ratio, quick ratio, and working capital ratio.

7. Asset Turnover Ratio

A) The asset turnover ratio measures the efficiency of a company's assets in generating
revenue or sales.

8. EPS
A) EPS is a financial ratio, which divides net earnings available to common shareholders by
the average outstanding shares over a certain period of time.

9. ROA

A) DPS = Total dividends paid out in a year/outstanding shares of the company. This ratio
can tell how much dividend was earned by owning the stocks of that particular company
over a period of time.

10. Net profit Ratio

A) The net profit percentage is the ratio of after-tax profits to net sales. It
reveals the remaining profit after all costs of production, administration, and
financing have been deducted from sales, and income taxes recognized.
 Unit IV

Ch-7 Funds Flow Analysis

MCQs with answers

1) Funds flow statement is prepared on the basis of .
a) Profit and loss account of the current year b) The balance sheet of the previous and current year c)Both
a and b d) None of the above
2) Which of the following are sources of funds for an organisation?
a) Redemption of debentures b) Repayment of loans c)Issue of shares d) None of the above
3) Funds flow statement is also known as .
a) Statement of sources and uses of funds b) Statement of sources and application of funds c)Statement of
funds flow d) All of the above
4) The statements prepared while conducting funds flow analysis is called .
a) Funds flow statement b) Schedule of changes in working capital c)Both a and b d)None of the above
5) Funds flow statement is prepared to .
a) Ascertain the item-wise outflow of funds in a given period b)Identify changes in working capital
c) Identify reasons behind changes in working capital d)All of the above
6) Which of the following statements is not true?
a) Funds flow statement is prepared on an accrual basis b)There is an inverse relationship between
current assets and working capital c)Funds flow statement is also known as cash flow statement
d)All the above statements are true
7) Funds flow statement is based on the concept of .
a) Going concern b) Business entity c)Single entry d)None of the above
8) The term ‘flow of funds’ means .
a) Inflow and Outflow of funds b) Decrease in funds c) Both a and b are incorrect d) Both a and b are
correct
9) Funds flow analysis is important for .
a) Financial management b) HR management c) Local management d) All of the above
10) Funds flow statement is a tool for .
a) Risk Management b) Cost control c) Financial analysis d) None of the above
11) A statement that shows periodic increase or decrease of funds is called
.
a) Working capital statement b) Cash flow statement c) Funds flow statement d)None of the above
12) Which of the following are current assets?
a) Furniture b) Accounts receivable c) Fixed investments d) None of the above

13) Which of the following would be included in a fund flow statement?

a) Depreciation charges b) Dividends c)Goodwill written off d)Patent amortization Answer:

14) An examination of the sources and uses of funds statement is part of:
a) A forecasting technique b) A funds flow analysis c) A ratio analysis
d) Calculations for preparing the balance sheet

15) Which of the following is NOT a fund outflow for the firm?
a) Depreciation b) Dividends c)Interest payments d) Taxes
16) Which of the following would be considered a use of funds?
a) A decrease in accounts receivable b)A decrease in cash c)An increase in account payable
d) An increase in cash Answer:
17) For a profitable firm, total sources of funds will always total uses of funds.
a) be equal to b) be greater than c) be less than d)have no consistent relationship to
18)Statement of changes of Working Capital is prepared in____
a) Balance Sheet b) Funds Flow Statement c) Trading A/c d) None
19)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 d)None of the above
20)Uses of funds include a (an):
a) Decrease in cash b) Increase in any liability c) Increase in fixed assets d)Tax refund

II Fill in the Blanks

1) Increase in the amount of bills payable results in Increase in funds.

2) Cash or credit sales increases the working capital when sales are made on profit.
3) Cash or credit sales decreases the working capital when sales are made on loss.
4) Increase in current liabilities decreases the working capital.
5) Net profit+Non cash expenditure = Funds from operation
6) Working capital is defined as:- Current assets less current liabilities
7) Fund flow statement is based on the concept of Going Concern
8) A company has to prepare its balance sheet once in a year
9) Profit on sale of fixed assets is a non-trading income.
10) In fund flow statement, issue of shares is sources of funds.
11) Funds means any form of Financial Resources
12) The funds flow analysis is of primary importance to Financial Management
13) Operating costs include the cost of goods sold and other operating expenses.
14) In funds flow statement, funds from operations is sources of funds.
15) In funds flow statement, increase in working capital is applications of funds.
16) Redemption of debenture is an application of funds.
17) Repayment of loan is an application of funds.
18) Proposed dividend is proposed by the BoD.
19) Increase in amount of debtors results in increase of Working Capital.
20) The sources of side of funds flow statement shows the internal and external sources of funds of a
firm.

Short Questions

1. What is Fund Flow Statement?

A) A fund flow statement reveals the reasons for changes or anomalies in the financial
position of a company between two balance sheets.

2. What is working capital?

A.Working capital is the money used and available for a company’s day to day expenses on
business operations. It shows the fluid financial liquidity of the enterprise and is crucial to
the continuity and growth of the business. Hence, working capital is required to be used
judiciously and managed well.

3. What are current assets

 Bank balances
 Cash in hand
 Inventories
 Short-term receivables
 Accounts receivable or to be paid from goods sold.
4. What are current Liabilities?

 Accounts to be paid or payable to suppliers

 Short-term owed debts/loans.

5. What is meant by fixed assets?

A.Fixed Assets of a company are bought for long-term use—for example, buildings,
machinery, land etc., which cannot easily be liquidated.

6. What is meant by working capital ratio?

A.Working Capital Ratio = Current Assets/ the Current Liabilities.

When the working capital ratio is greater than 1, it is positive, and the company has
sufficient cash to pay its short term debts. When it is less than 1 or negative, the company
has issues paying its debts in the short term and needs additional working capital.

7. Who uses the Funds flow Statement?

A.Of course, the lenders of funds want to know the company's health before investing in it.
The funds flow statement would be of a significant area of interest since they assess the
utilisation of funds rather than focusing on the operational losses or profits declared in a
company's financial statements.

8. Increase in working capital

A.When the long-term source of funds is more than the application or use of funds, it is
referred to as an increase in working capital. Since a company can use these funds for their
working capital needs.

9. Decrease in working capital

A. A company may require more funds but has only a limited long term source of funds. In such
scenarios, the company will use the funds available for working capital. As a result, funds
available for working capital are reduced.

10. What is Capital expenditures ?

A.Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and
maintain physical assets such as property, plants, buildings, technology, or equipment
 UNIT-V Cash Flow Statement
MCQs
1) Cash deposit with the bank with a maturity date after two months belongs to which of the following in
the cash flow statement?
a) Financing Activities b) Cash and Cash Equivalent c)Operating Activities d)Investing Activities.
2) Interest paid by an investment company will come under which kind of activity while preparing a cash
flow statement?
a) Cash Flow from Investing Activities b) Cash Flow from Financing Activities c)No Cash Flow d)Cash
Flow from Operating Activities
3) Dividend paid by a manufacturing company is classified under which kind of activity while preparing
cash flow statements?
a) Cash Flow from Investing Activities b) Cash Flow from Financing Activities c)No Cash Flow
d)Cash Flow from Operating Activities. Answer B) Cash Flow from Financing Activities.

4) Cash deposit with the bank with a maturity date after two months belongs to which of the following in
the cash flow statement?
a) Financing Activities b)Cash and Cash Equivalent c)Operating Activities d)Investing Activities
5) How will you deal with an increase in the balance of ‘Securities Premium Reserve’ while preparing a
cash flow statement?
a) Cash Flow from Investing Activities b) Cash Flow from Financing Activities c)Cash Equivalent.
d)Cash Flow from Operating Activities.
6) Financing activities bring changes in .
a) Size and composition in owners’ equities b) Borrowings of the enterprise c)Size and composition of
owners’ equities and borrowings of the enterprise d)None of the options are correct.
7) According to Accounting standard 3 cash flows are classified into .
a) Operating Activities and Investing Activities b) Investing Activities and Financing Activities
c)Operating Activities and Financing Activities d)Financing Activities, Operating Activities, and Investing
Activities
8)Cash Flow Statements is based upon , while Fund Flow Statements recognises
.
a) Accrual Basis of Accounting, and Cash Basis of Accounting b) Both are based on the Cash Basis of
Accounting c) Cash Basis of Accounting, and Accrual Basis of Accounting d)All of the options are
correct.
9) When fixed assets are bought on hire purchase, the interest element is classified under
, and the loan element is classified under .
a) Operating Activities, and Financing Activities b) Financing Activities, and Operating Activities c)
Financing Activities, and Investing Activities d) All of the options are correct.
10) A financial statement that portrays the cash inflows and outflows of cash during a particular period of
time is called .
a) An Income Statement b) Statement of Retained Earnings c)Balance Sheet d)Statement of Cash Flow
11) Statement of cash flows includes
a) Financing Activities b) Operating Activities c)Investing Activities d)All of the Above
12) In cash flows, when a company invests in fixed assets and short-term financial investments results in
a) Increased Equity b)Increased Liabilities c)Decreased Cash d)Increased Cash
13)A company that issues stocks and bonds to raise funds results in
a) Decrease in Cash b)Increase in Cash c)Increase in Equity d)Increase in Liabilities
14) The purchase value of assets over its serviceable life is categorised as
a) Appreciated Liabilities b)Appreciated Assets c)Depreciation d)Appreciation
15) Cash Flow Statement is based upon
a) Cash basis of accounting b)Accrual basis of accounting c) Credit basis of accounting d) None of the
above
 16) Which Accounting Standard explains about Cash Flow Statement?
a) AS-3 b) AS-32 c) AS-1 d) AS-29
17) Which item comes under financial activities in cash flow?
A) Redemption of Preference Share B) Issue of Preference Share C) Repayment of loans
D) All the above
18) The statement of cash flow clarifies cash flows according to
a) Operating and Non-operating Flows b) Inflow and Outflow c) Investing and Non-operating Flows
d) Operating, Investing, and Financing Activities
19) The basic financial statements include
a) Statement of Cash Flows b) Statement of Changes in Equity c)Balance Sheet and Income Statement &
Notes d)All of the Above
20)Cash flow example from an operating activity is
a) Purchase of Own Debenture b) Sale of Fixed Assets c)Interest Paid on Term-deposits by a Bank
d) Issue of Equity Share Capital

II Fill in the Blanks

1) Example for investing activities: Purchase/sale of fixed assets,investments etc.

2) To know from where cash comes from in a business, a statement is prepared called a cash flow
statement.

3) The AS-3 is concerned with the preparation of cash flow statement

4) The main objective of AS-3 is to provide information about the generation of and cash equivalents
Cash

5) As per AS-3, cash is a short-term and is highly liquid.

6) The operating activities of an enterprise are its Principalrevenue activity.
7) Proposed dividends are not shown in a cash flow statement.
8) Operating, financing, and investing activities are included in a cash flow statement.
9) AS-7 means Accounting Standard-3
10) Increases in current asset is Outflow of cash
11) Increases in current liability is Inflow of cash
12) Increases in amount of debtors results in decreases in cash
13) Increases in amount of creditors results in Increases in cash
14) Cash flow statement is useful for external analysis
15) Cash flow example from a financing activity is Repayment of loans
16) While calculating operating profit which will be added to net profit
Transfer to General Reserves, Depreciation, Amortisation etc
17) An example of cash flow from operating activity is :
Interest paid on term-deposits by a bank, salary paid, rent paid, purchases etc
18) How will you treat payment of ‘Interest on Debentures’ while preparing a Cash Flow Statement?
Answer: Cash Flow from Financing Activities
19) There are two methods of reporting cash flows from operating activities.
20) Securities Premium reserve is the reserve generated by issuing shares at premium

Short Questions

1. Cash flow statement

A.A cash flow statement summarizes the amount of cash and cash equivalents entering and
leaving a company.
 2. What are the 3 types of cash flows?

A. There are three cash flow types that companies should track and analyse to determine the
liquidity and solvency of the business: cash flow from operating activities, cash flow from
investing activities and cash flow from financing activities

3. Operating Activities

A. Operating Activities: The principal revenue-generating activities of an organization

and other activities that are not investing or financing; any cash flows from current assets
and current liabilities.
4. Investing Activities

A. Investing Activities: Any cash flows from the acquisition and disposal of long-term
assets and other investments not included in cash equivalents
5. Financing Activities
A. Financing Activities: Any cash flows that result in changes in the size and composition of the contributed
equity capital or borrowings of the entity (i.e., bonds, stock

6. What causes Cash Flow problems?

Three main causes of Cash Flow problems are: low profits (or losses), over-investment in
capacity, and too much stock.

7. What is the difference between income statement and Cash Flow?

A company’s Cash Flow statement includes three types of Cash Flow: Cash Flow from
operating activities, Cash Flow from investing activities and Cash Flow from financing
activities.

8. Define AS-3
AS-3 sets out the rules for the preparation of cash flow statements defined under Companies
Act,2013.

9. Give two examples of operating activities.

A.1. Cash received from sales of goods
2. Cash paid for the supply of goods

10. Give two examples of investing activities.

A.1.Cash received on the sales of shares
2. Cash paid to purchase equipment