Chapter MCQ Test 2 — Cash Flow Statement
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
Net profit before tax Rs 1,50,000; depreciation Rs 30,000; profit on sale of asset Rs 8,000. Operating profit before working-capital changes is:
Rs 1,72,000
Rs 1,88,000
Rs 1,12,000
Rs 1,80,000
Explanation: 1,50,000 + 30,000 (add depreciation) − 8,000 (less profit on sale) = 1,72,000.
Question 2 of 10
During the year debtors rose Rs 40,000, creditors rose Rs 25,000 and inventory fell Rs 10,000. The net working-capital adjustment to operating cash is:
−5,000
+5,000
−55,000
+75,000
Explanation: − 40,000 (debtors up) + 25,000 (creditors up) + 10,000 (stock down) = −5,000.
Question 3 of 10
Why does a profitable company sometimes show NEGATIVE operating cash flow?
Profit is locked in rising debtors/inventory, so cash hasn't been received
It paid a dividend
It bought machinery
It issued shares
Explanation: Accrual profit can be tied up in working capital, leaving little or negative operating cash.
Question 4 of 10
A machine (book value Rs 50,000) is sold for Rs 60,000. In the cash flow statement this gives:
Investing inflow Rs 60,000; and Rs 10,000 profit removed from operating profit
Operating inflow Rs 60,000
Financing inflow Rs 60,000
Investing inflow Rs 50,000 only
Explanation: The full Rs 60,000 sale proceeds are an investing inflow; the Rs 10,000 profit is deducted in the operating section to avoid double counting.
Question 5 of 10
Operating cash flow +Rs 3,00,000; investing −Rs 2,40,000; financing −Rs 20,000; opening cash Rs 60,000. Closing cash is:
Rs 1,00,000
Rs 40,000
Rs 1,40,000
Rs 80,000
Explanation: Net change = 3,00,000 − 2,40,000 − 20,000 = 40,000; closing = 60,000 + 40,000 = 1,00,000.
Question 6 of 10
For a normal (non-finance) company, interest paid on a loan is classified as:
Financing outflow
Operating outflow
Investing outflow
Not shown
Explanation: Interest paid relates to borrowed funds, a financing activity for a non-finance firm.
Question 7 of 10
Proposed dividend of the previous year, paid this year, is shown as:
A financing outflow when actually paid
An operating item
An investing inflow
Ignored
Explanation: Dividend actually paid during the year is a financing outflow.
Question 8 of 10
Which item is added back to net profit AND also shown separately as an outflow elsewhere?
Interest on borrowings (added back in operating, shown as financing outflow)
Sales
Closing stock
Share capital
Explanation: Interest is removed from operating profit (added back) and the cash interest is shown under financing.
Question 9 of 10
Closing cash computed in the statement does NOT match the balance sheet's cash. This means:
An error or omission in the cash flow statement
Normal
High profit
More dividends
Explanation: The statement's closing cash must reconcile to the balance sheet; a mismatch signals an error.
Question 10 of 10
The fundamental purpose of the cash flow statement is to:
Explain why cash changed and bridge the gap between profit and cash
Replace the balance sheet
Compute tax
List all ratios
Explanation: It reconciles accrual profit to actual cash and reveals how cash was generated and used.