pathshaala: Cash Flow Statement VIVA Class 12 -2 part

Here are additional Viva Questions on the Cash Flow Statement to deepen your preparation:

What is the difference between Cash Flow from Operating Activities and Cash Flow from Investing Activities?
- Operating Activities relate to cash flows from the core business activities like sales, purchases, and payments to employees.
- Investing Activities relate to cash flows from acquiring or disposing of long-term assets like machinery, buildings, or investments.
What happens if cash flow from operating activities is negative?
- A negative cash flow from operating activities suggests that the company’s core operations are not generating sufficient cash, which might indicate financial trouble unless it’s a startup or growth phase business.
How is the purchase of a fixed asset treated in the Cash Flow Statement?
- The purchase is recorded as a cash outflow under Investing Activities.
How do you treat deferred tax liabilities in the Cash Flow Statement?
- Changes in deferred tax liabilities are included under Operating Activities.
What is the impact of an increase in accounts receivable on cash flow?
- An increase in accounts receivable is treated as a cash outflow since it represents cash tied up in credit sales.

What is free cash flow, and how is it calculated?
- Free cash flow is the cash a company has after covering operating expenses and capital expenditures.
  Formula:
  Free Cash Flow = Cash Flow from Operating Activities - Capital Expenditures.
What is the importance of Cash Flow Statements for stakeholders?
- It helps investors assess the company’s ability to generate cash, meet liabilities, and reinvest in growth. For creditors, it indicates the company’s ability to repay loans.
Explain the difference between Gross Cash Flows and Net Cash Flows.
- Gross Cash Flows: The total cash inflows or outflows without adjustments.
- Net Cash Flows: The difference between total cash inflows and total cash outflows.
What are non-operating items in a Cash Flow Statement?
- Non-operating items include gains or losses from the sale of assets, dividends received, or interest income, which are adjusted in operating or investing activities.
What is the significance of cash flow from financing activities?
- It shows how a company raises capital through equity, debt, or dividend payments and evaluates its financing strategy.

How do you treat interest paid and interest received in a Cash Flow Statement?
- Interest Paid: Outflow under Financing Activities (sometimes Operating Activities as per IAS/Ind AS).
- Interest Received: Inflow under Operating Activities (or sometimes Investing Activities).
How do you treat the issuance of shares in a Cash Flow Statement?
- The cash received from the issuance of shares is treated as a cash inflow under Financing Activities.
What is the treatment of bonus shares in a Cash Flow Statement?
- Bonus shares do not involve cash, so they are not shown in the Cash Flow Statement.
If a company repays a loan, where is it shown?
- Loan repayment is recorded as a cash outflow under Financing Activities.
How is a bank overdraft treated in a Cash Flow Statement?
- A change in the bank overdraft balance is included under Financing Activities.

If prepaid expenses increase during the year, how is it treated in a Cash Flow Statement?
- It is treated as a cash outflow under Operating Activities.
If a company pays ₹50,000 as tax during the year, where is it recorded?
- It is recorded as a cash outflow under Operating Activities.
What is the formula to calculate cash flow from operating activities using the indirect method?
- Cash Flow from Operating Activities =
  Net Profit + Non-Cash Expenses (Depreciation, Amortization, etc.) ± Changes in Working Capital ± Non-Operating Adjustments.
What will happen to cash flow if inventory decreases by ₹10,000?
- A decrease in inventory represents a cash inflow, as it indicates sales of stock.
A company purchases equipment worth ₹1,00,000 by issuing equity shares. How is it treated?
- This is a non-cash transaction and is not included in the Cash Flow Statement but is disclosed in the notes.

How is the Cash Flow Statement different from the Profit and Loss Account?
- The Profit and Loss Account records revenue and expenses, while the Cash Flow Statement focuses only on actual cash inflows and outflows.
How do cash flows differ under the direct and indirect methods?
- The direct method lists cash transactions explicitly, while the indirect method starts with net profit and adjusts for non-cash items and working capital changes.
Why might a profitable company have negative cash flows?
- Reasons could include:
  - High investments in fixed assets.
  - Repayment of large debts.
  - Growth strategies requiring high working capital.
How does the treatment of dividends differ in AS-3 and IFRS?
- Under AS-3, dividends paid are Financing Activities, while dividends received are Operating Activities.
- Under IFRS, dividends received can be Operating or Investing, and dividends paid can be Operating or Financing.

If a company earns ₹1,00,000 profit but has no cash at hand, how do you explain this?
- This may happen if the profit is tied up in receivables, inventory, or other non-cash items.
Why might cash flow from financing activities be negative?
- A negative cash flow from financing activities indicates repayment of debt, dividend payments, or a buyback of shares.
What happens to cash flow if a company writes off bad debts?
- Writing off bad debts does not affect cash flow as it is a non-cash transaction.
How is a foreign exchange gain or loss treated in the Cash Flow Statement?
- It is included in Operating Activities, and unrealized gains or losses are disclosed separately.
If goodwill is amortized, how is it reflected in the Cash Flow Statement?
- Amortization of goodwill is added back to the net profit in Operating Activities.
What does a Cash Flow Statement reveal about a company’s financial health that other statements might not?
- It reveals the actual liquidity position, the company’s ability to generate cash, and insights into its cash management efficiency.

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