Chapter cash-flow-statement: Cash Flow Statement Assertion-Reason Questions | accountancy Class 12 CBSE

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 1

Logic Check

Assertion (A): Cash Flow Statement is a mandatory financial statement for companies under the Companies Act, 2013. Reason (R): As per AS-3, Cash Flow Statement must be prepared for each accounting period for which financial statements are presented.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 2

Logic Check

Assertion (A): Purchase of marketable securities qualifying as cash equivalents is NOT shown in the Cash Flow Statement. Reason (R): Such purchases are treated as movements within cash and cash equivalents themselves, not as investing activities.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 3

Logic Check

Assertion (A): Depreciation is added back to net profit under the indirect method of computing cash flow from operating activities. Reason (R): Depreciation is a cash outflow that reduces the value of fixed assets.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 4

Logic Check

Assertion (A): For a non-financial enterprise, dividend paid is classified as a financing activity. Reason (R): Dividend paid represents a return to the providers of capital and results in changes in the composition of owners' funds.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 5

Logic Check

Assertion (A): Acquisition of fixed assets by issue of equity shares is shown as an outflow under investing activities in the Cash Flow Statement. Reason (R): Such transactions are non-cash in nature and are excluded from the Cash Flow Statement as per AS-3.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 6

Logic Check

Assertion (A): An increase in trade payables is added to net profit while computing cash flow from operating activities under the indirect method. Reason (R): An increase in trade payables indicates that less cash has been paid to creditors, resulting in higher cash retention.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 7

Logic Check

Assertion (A): For a share brokerage firm, purchase of shares is classified as an investing activity. Reason (R): For a share brokerage firm, purchase and sale of shares represents inventory specifically held for resale and is therefore an operating activity.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 8

Logic Check

Assertion (A): Interest received on loans given by a non-financial enterprise is classified as an investing activity. Reason (R): Such interest arises from advancing loans, which is an investing activity for a non-financial enterprise.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 9

Logic Check

Assertion (A): Extraordinary items such as loss due to earthquake must be excluded from the Cash Flow Statement. Reason (R): As per AS-3, cash flows associated with extraordinary items must be classified and disclosed separately under appropriate activity heads.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 10

Logic Check

Assertion (A): An increase in trade receivables is deducted from operating profit while computing cash flow from operating activities. Reason (R): An increase in trade receivables means more sales are on credit; less cash has been collected, reducing actual cash inflow from operations.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 11

Logic Check

Assertion (A): Cash Flow Statement eliminates the effect of using different accounting treatments for the same transactions. Reason (R): Cash Flow Statement is prepared on cash basis, not accrual basis, making comparisons between enterprises more meaningful.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 12

Logic Check

Assertion (A): Capital gains tax paid on sale of a fixed asset is classified under investing activities. Reason (R): Capital gains tax can be specifically identified with the investing activity of selling the fixed asset.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 13

Logic Check

Assertion (A): The direct method of computing cash flow from operating activities is more commonly used by companies in practice. Reason (R): The direct method discloses major classes of gross cash receipts and gross payments, providing more useful information for estimating future cash flows.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 14

Logic Check

Assertion (A): Loss on sale of a fixed asset is added back to net profit while calculating operating profit under the indirect method. Reason (R): Loss on sale of fixed asset is a non-operating item related to investing activity and does not represent actual cash outflow.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 15

Logic Check

Assertion (A): For a financial enterprise, dividend paid is classified as an operating activity. Reason (R): For a financial enterprise, all activities related to interest and dividend are classified as operating activities.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 16

Logic Check

Assertion (A): Cash Flow Statement provides information about the historical changes in cash and cash equivalents. Reason (R): Cash Flow Statement classifies cash flows into operating, investing, and financing activities.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 17

Logic Check

Assertion (A): Goodwill amortised is added back to net profit under the indirect method. Reason (R): Goodwill amortisation is a non-cash charge that was deducted to arrive at net profit but does not involve actual cash outflow.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 18

Logic Check

Assertion (A): Proceeds from issue of debentures are classified as financing activities. Reason (R): Financing activities are those that result in changes in the size and composition of owners' capital and borrowings of the enterprise.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 19

Logic Check

Assertion (A): Cash paid for income tax is always classified as an operating activity. Reason (R): Unless income tax can be specifically identified with financing or investing activities, it is classified as an operating activity as per AS-3.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 20

Logic Check

Assertion (A): A decrease in inventories is added to net profit in the indirect method of computing operating cash flows. Reason (R): A decrease in inventories means inventory was sold or consumed; it results in cash inflow or cost saving, increasing actual cash generated from operations.

Reasoning Options

ByteNotes

Chapter sections

Chapter cash-flow-statement: Cash Flow Statement | Assertion-Reason

Assertion (A): Cash Flow Statement is a mandatory financial statement for companies under the Companies Act, 2013. Reason (R): As per AS-3, Cash Flow Statement must be prepared for each accounting period for which financial statements are presented.

Assertion (A): Purchase of marketable securities qualifying as cash equivalents is NOT shown in the Cash Flow Statement. Reason (R): Such purchases are treated as movements within cash and cash equivalents themselves, not as investing activities.

Assertion (A): Depreciation is added back to net profit under the indirect method of computing cash flow from operating activities. Reason (R): Depreciation is a cash outflow that reduces the value of fixed assets.

Assertion (A): For a non-financial enterprise, dividend paid is classified as a financing activity. Reason (R): Dividend paid represents a return to the providers of capital and results in changes in the composition of owners' funds.

Assertion (A): Acquisition of fixed assets by issue of equity shares is shown as an outflow under investing activities in the Cash Flow Statement. Reason (R): Such transactions are non-cash in nature and are excluded from the Cash Flow Statement as per AS-3.

Assertion (A): An increase in trade payables is added to net profit while computing cash flow from operating activities under the indirect method. Reason (R): An increase in trade payables indicates that less cash has been paid to creditors, resulting in higher cash retention.

Assertion (A): For a share brokerage firm, purchase of shares is classified as an investing activity. Reason (R): For a share brokerage firm, purchase and sale of shares represents inventory specifically held for resale and is therefore an operating activity.

Assertion (A): Interest received on loans given by a non-financial enterprise is classified as an investing activity. Reason (R): Such interest arises from advancing loans, which is an investing activity for a non-financial enterprise.

Assertion (A): Extraordinary items such as loss due to earthquake must be excluded from the Cash Flow Statement. Reason (R): As per AS-3, cash flows associated with extraordinary items must be classified and disclosed separately under appropriate activity heads.

Assertion (A): An increase in trade receivables is deducted from operating profit while computing cash flow from operating activities. Reason (R): An increase in trade receivables means more sales are on credit; less cash has been collected, reducing actual cash inflow from operations.

Assertion (A): Cash Flow Statement eliminates the effect of using different accounting treatments for the same transactions. Reason (R): Cash Flow Statement is prepared on cash basis, not accrual basis, making comparisons between enterprises more meaningful.

Assertion (A): Capital gains tax paid on sale of a fixed asset is classified under investing activities. Reason (R): Capital gains tax can be specifically identified with the investing activity of selling the fixed asset.

Assertion (A): The direct method of computing cash flow from operating activities is more commonly used by companies in practice. Reason (R): The direct method discloses major classes of gross cash receipts and gross payments, providing more useful information for estimating future cash flows.

Assertion (A): Loss on sale of a fixed asset is added back to net profit while calculating operating profit under the indirect method. Reason (R): Loss on sale of fixed asset is a non-operating item related to investing activity and does not represent actual cash outflow.

Assertion (A): For a financial enterprise, dividend paid is classified as an operating activity. Reason (R): For a financial enterprise, all activities related to interest and dividend are classified as operating activities.

Assertion (A): Cash Flow Statement provides information about the historical changes in cash and cash equivalents. Reason (R): Cash Flow Statement classifies cash flows into operating, investing, and financing activities.

Assertion (A): Goodwill amortised is added back to net profit under the indirect method. Reason (R): Goodwill amortisation is a non-cash charge that was deducted to arrive at net profit but does not involve actual cash outflow.

Assertion (A): Proceeds from issue of debentures are classified as financing activities. Reason (R): Financing activities are those that result in changes in the size and composition of owners' capital and borrowings of the enterprise.

Assertion (A): Cash paid for income tax is always classified as an operating activity. Reason (R): Unless income tax can be specifically identified with financing or investing activities, it is classified as an operating activity as per AS-3.

Assertion (A): A decrease in inventories is added to net profit in the indirect method of computing operating cash flows. Reason (R): A decrease in inventories means inventory was sold or consumed; it results in cash inflow or cost saving, increasing actual cash generated from operations.

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