Students of Class 12 Commerce should refer to the HOTS Accountancy Class 12 Cash Flow Statement with solutions given below, this will help them to understand the concepts and related questions given in the Class 12 Accountancy NCERT book. It’s very important to understand High Order Thinking Skills questions and answers to get better marks in examinations.

Question: Why is the cash flow statement not a suitable judge of profitability ?

Answer: Cash Flow statement is prepared on cash basis of accounting but profit is calculated on accrual basis.
So cash flow statement is not a judge of profitability.

Question: Under which accounting standard , cash flow statement is prepared ?

Answer: Under accounting standard-3(Revised).

Question: Why do we add back depreciation to net profit while calculating cash flow from operating activities.

Answer: Depreciation reduces the net profit without reducing the cash balance as it is a non-cash item.

Question: How will you classify loans given by Birla Finance Ltd.? While preparing cash flow statement.

Answer: As Operating Activities.

Question: How will you classify deposits by customers in HDFC Bank while preparing cash flow statement.

Answer: Operating Activities.

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Question: Where will you show purchase of computer in cash flow statement ?

Answer: As Outflow under Investing Activities.

Question: Give two examples of ‘ Significant non cash transactions ‘.

Answer: Give any two examples-
(i) Acquisition of fixed asset by issue of debentures or shares.
(ii) Conversion of debentures into shares.

Question: How will you classify loans given by Tata Manufacturing Company.

Answer: Classified as Financing Activities.

Question: A company receives a dividend of Rs. 2 Lakhs on its investment in other company’s share will it be
Cash inflow from operating or investing activities in case of a.
(i) Finance Company.
(ii) Non-Finance Company.

Answer: (i) Operating Activities.
(ii)Investing Activities.
(iii)Financing Activities.

Question: Cash flow from operating Activities + Cash flow from Investing Activities + Cash flow from Financing
Activities =……………………………………

Answer: …= Net Increase /Decrease in cash and Cash Equivalents.

Question: What are the two methods which can be employed to calculate net cash flow from operating activities ?

Answer: Direct Method and Indirect Method.

Question: Arvind, an industrialist purchased a machinery worth Rs.5 crores on hire purchase
basis. Categories the
(i) payment of installment and
(ii) interest into
operating/investing or financing activity as per cash flow statement.

Answer: (i) The purchase of machinery is categorized as on investing activity and
(ii) Interest payable on installments is a financing activity.

Question: Escorts Ltd. Engaged in the business of manufacturing tractors invested Rs.40,00,000 in the shares of a
Car manufacturing Company. state with reason whether the dividend received on this investment will
Be cash flow from operating activities or Investing activities.

Answer: Investing Activities Because …………….

Question: Modern Toys Ltd. Purchased a machinery of Rs.20,00,000 for manufacturing toys. State giving reason
Whether the cash flow due to the purchase of machinery will be cash flow from operating activities,
Investing activities or Financing activities ?

Answer: Investing Activities Because …………….

Question: From the following profit or loss account find out the flow of cash from operating activities of
Mohan Ltd.

Note: There was increase in Closing stock by Rs. 25,000.

Answer: Cash from Operating Activities Rs.1,03,800.

Question: Give two examples of movements of cash and cash equivalents, which are not
recorded in the Cash Flow Statement.
Answer: Certain transactions as per Accounting Standards – 3 (revised) though involve
movement of cash or cash equivalent are not recorded in cash flow statement as they
just involve cash management of cash of an enterprise.
Examples (any two) of such transactions are –
(a) Cash deposited into bank out of cash in hand.
(b) Cash withdrawn from bank from business purposes.
(c) Sale/purchase of cash equivalents, like marketable securities.

Question: Prepare Cash flow Statement from the following information of Box Ltd. For the year ended March
31,2004.

Additional Information :
1.Investment costing Rs.50,000 were sold for Rs. 48,000 during the year.
2.Tax paid during the year Rs.70,000.
3.Interest received on Investment Rs. 12,000.

Answer: (i) Cash Inflow From Operating Activities Rs.80,000.
(ii)Cash Outflow on Investing Activities Rs.1,60,000,
(iii)Cash Inflow From Financing Activities Rs. 1,00,000.

Question: M/s.Lakshmi Electrical Appliances furnish the following information –
Calculate net cash flow from financing activities:-

Additional information –
(a) Interest paid on debentures Rs.5,000/-.
(b) Dividend paid on equity shares Rs.40,000/-.
(c) Bonus shares were issued to existing shareholders in the ratio of 4:1 during the
year.
Answer: CALCULATION OF NET CASH FLOW FROM FINANCING ACTIVITIES