Class 12 Accountancy NCERT Solutions: Here we have presented complete NCERT Solutions for Class 12 Accountancy Part 2, Chapter 6, Cash Flow Statement. Here, NCERT Solutions for class 12 Accountancy chapter 6 all exercise pdf download links are available for free. The entire NCERT Exercise for Cash Flow Statement is presented below for you to practice and prepare for Board Examinations.
Short Answer Questions, Long Answer Questions, and Numerical Problems have been covered in detail here. CBSE’s latest Syllabus and curriculum have been referred to in making of these NCERT Solutions. We have closely looked at the deleted topics and chapters and made sure that the updated Exercise is presented before you all.
Practising NCERT Solution strengthens your knowledge about the chapter. It also helps you brainstorm, imprints formulas in your mind during practise, and also brings clarity to concepts. Further, NCERT Solutions can also help you in preparation for related competitive examinations. Thus, it is important for students to constantly practise NCERT Solutions to improve their academic scores as well as build textual knowledge.
Related:
CBSE Class 12 Accountancy Sample Paper 2023-24 (PDF)
NCERT Solutions for Class 12 Accountancy 2023-2024
MCQs for CBSE Class 12 Accountancy 2023-2024
Highlights of NCERT Solutions for Class 12 Accountancy Chapter 6- Cash Flow Statement
Students can find highlights for CBSE Class 12 Accountancy Chapter 6, Cash Flow Statement, NCERT Solutions here.
- NCERT Solutions will assist you in preparing for examinations, thus ensuring high scores in Board exams
- The NCERT Questions and Solutions are designed to clear your concepts about the chapter
- They are great last-minute revision partners and hom-work buddies
Key Features of NCERT Solutions for Class 12 Accountancy Chapter 6- Cash Flow Statement
Here, some key features of NCERT Solutions have been presented here for your reference:
- These NCERT exercise are divided into three parts: Short Question Answer, Long Question Answer, and Numerical Problems
- They are completely based on the updated and revised CBSE Syllabus 2023-2024
- A thorough analysis of the chapter has been done in making of these NCERT Solutions
NCERT Solutions for Class 12 Cash Flow Statement
Short Answer Questions
1. What is a Cash flow statement?
Answer. Cash flow statement is one type of financial statement that shows the inflows and outflows of cash and cash equivalents.
2. How are the various activities classified while preparing cash flow statement?
Answer. While preparing the cash flow statement, various activities are classified under these three classifications, named as:
- Operating
- Investing
- Financing Activities
3. State the objectives of cash flow statement.
Answer. The objectives of cash flow statement are:
- To provide useful information about cash flows during a specific period
- Provide the ability to assess an enterprise’s capability to generate cash and cash equivalents.
- It also checks an enterprise’s ability to utilize its cash flows.
4. What are the objectives of preparing cash flow statement?
Answer. The objective of preparing cash flow statement is to assess the ability of a company to generate cash and cash equivalents and its ability to utilize its cash flows.
5. State the meaning of the terms:
- Cash Equivalents- Cash equivalents are short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value
- Cash flows- It refers to the movement of cash in and out due to some non-cash items. Receipt of cash from a non-cash item is termed as cash inflow while cash payment in respect of such items as cash outflow
6. Prepare a format of cash flow from operating activities.
Answer. The format of cash flow from operating activities is as follows:
| Indirect Method | ||
| Net profit before tax and extraordinary items |
| … |
| Add: Non-cash expenses and non-operating Depreciation Goodwill Interest Paid Loss on sale of fixed assets Foreign Exchange |
… … … … … |
… |
| Less: Non-operating Incomes Dividend Received Profit on sale of fixed assets Interest Received |
… … … |
… |
| Operating profit before working capital changes Add: Decrease in current assets Add: Increase in current liabilities Less: Increase in current assets Less: Decrease in current liabilities |
… … … … | …
…
… |
| Cash generated from operating activities |
| … |
| Income tax paid |
| … |
| Cash flow before extraordinary items |
| … |
| Add/Less: Extraordinary items |
| … |
| Net cash flow from operating activities |
| … |
7. State clearly what would constitute the operating activities for each of the following enterprises:
- Hotel- Receipts from the sale of goods to customers, Payment of wages and salaries, electricity, food items and other items used in accommodation
- Film production house- Receipts from selling film rights of a film to the distributors, Payment to the staff, actors, actresses, and directors.
- Financial enterprise- Receipts from repayment of loans, interest incomes from investments, Repayment of loans, recovery expenditure for recovery of loans etc, salaries of employees.
- Media enterprise- Receipts from advertisements, Payments to photographers, staff, reporters, etc
- Steel manufacturing unit- Receipts from sale of steel sheets, steel castings, steel rods, etc, Payment for iron, coal, salaries to staff, etc.
- Software development business unit- Receipts from sale of software and renewal of licenses, Payment of salaries to their employees, etc.
8. “The nature/type of enterprise can change altogether the category into which a particular activity may be classified.” Do you agree? Illustrate your answer.
Answer. Yes, the nature/type of enterprise can change altogether the category into which a particular activity may be classified. To illustrate this, here’s an example: Let’s take two firms, one is into financing services and the other one is into management services. For a financing firm, interest received or paid is classified under operating activities whereas, for the managing firm, interest paid is classified under financing activities and interest received as investing activities.
Long Answer Questions
1. Describe the procedure to prepare Cash Flow Statement.
Answer. The procedure for preparing Cash Flow Statement has been mentioned in the form of the following steps:
- Ascertain the cash flows from operating activities
- Ascertain the cash flows from investing activities
- Ascertain the cash flows from financing activities
- Calculate net increase or decrease by adding the above three
- Take the opening balance of cash and cash equivalents and subtract it from the net increase or decrease, mentioned in the above step. The answer would be the closing statement.
2. Describe “Indirect” method of ascertaining Cash Flow from operating activities.
Answer. Indirect method of ascertaining Cash Flow from operating activities starts from net profit or loss. Since the profit and loss statement incorporates the effects of operating services. It also includes certain non-operating items such as interest paid, profit/loss on sale of fixed assets, etc.) and non-cash items (such as depreciation, goodwill written-off, dividend declared, etc.
Various items included are:
a) Depreciation is a non-cash item and hence, Rs. 5,000 charged as depreciation does not result in any cash flow.
b) Finance costs of Rs. 5,000 is a cash outflow on account of financing activity.
c) Other income includes profit on sale of land: It is cash inflow from investing activity.
Under indirect method, net cash flow from operating activities is determined by adjusting net profit or loss for the effect of :
a) Non-cash items such as depreciation, goodwill written-off, provisions, deferred taxes, etc., which are to be added back
b) All investing and financing incomes are to be deducted from the amount of net profits while all such expenses are to be added back.
c) Increase in current assets and decrease in current liabilities are to be deducted while increase in current liabilities and decrease in current assets are to be added up.
| Cash Flows from Operating Activities (Indirect Method) Net Profit/Loss before Tax and Extraordinary Items |
| |
| + | Deductions already made in Statement of Profit and Loss on account of | xxx |
|
| Non-cash items such as Depreciation, Goodwill to be Written-off. |
|
| + | Deductions already made in Statement of Profit and Loss on Account of | xxx |
|
| Non-operating items such as Interest. |
|
| – | Additions (incomes) made in Statement of Profit and Loss on | xxx |
|
| Account of Non-operating items such as Dividend received, | xxx |
|
| Profit on sale of Fixed Assets. |
|
| Operating Profit before Working Capital changes Add : in case of increase in current assets (other than cash and cash equivalent) and decrease in current liabilities. Less : in case of decrease in current assets (other than cash and cash equivalent) and decrease in current liabilities. Cash Flows from Operation Activities before Tax and Extraordinary items – Income Tax Paid +/– Effects of Extraordinary Items |
xxx xxx xxx xxx xxx | |
| Net Cash from Operating Activities | xxx | |
3. Explain the major Cash inflow and outflows from investing activities.
Answer. The major cash inflows and outflows from investing activities are:
- Cash payments to acquire fixed assets including intangibles and capitalized research and development.
- Cash payments to acquire shares, warrants, or debt instruments of other enterprises other than the instruments held for trading purposes.
- Cash advances and loans made to a third party (other than advances and loans made by a financial enterprise wherein it is operating activities).
- Cash receipt from the disposal of fixed assets including intangibles.
- Cash receipt from the repayment of advances or loans made to third parties (except in the case of financial enterprise).
- Cash receipt from disposal of shares, warrants, or debt instruments of other enterprises except those held for trading purposes.
- Interest is received in cash from loans and advances.
- Dividend received from investments in other enterprises.
4. Explain the major Cash inflow and outflows from financing activities.
Answer. Major cash inflows and outflows from financing activities are:
- Cash proceeds from issuing shares (equity or/and preference).
- Cash proceeds from issuing debentures, loans, bonds, and other short/ long-term borrowings.
- Cash repayments of amounts borrowed. l
- Interest paid on debentures and long-term loans and advances.
- Dividends paid on equity and preference capital
For complete NCERT Solutions for CBSE Class 12 Cash Flow Statement, click on the link below.
Also Find:
CBSE Class 12 Syllabus 2023-24 (All Subjects)
CBSE Class 12 Sample Papers 2023-24 (All Subjects)