Cash Flow Viva Questions Class 12th -1

 Below are common Class 12 Viva Questions on Cash Flow Statements along with their suggested answers. These questions are helpful for students preparing for exams or practical assessments.

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Basic Questions

1. What is a Cash Flow Statement?

   • A Cash Flow Statement is a financial statement that shows the inflows and outflows of cash and cash equivalents in a business during a specific period. It is classified into three activities: Operating, Investing, and Financing.

2. Why is the Cash Flow Statement prepared?

   • It is prepared to assess the liquidity and solvency of a business, evaluate cash generation and utilization, and help in financial planning.

3. What are the components of a Cash Flow Statement?

   • The components are:
     1. Operating Activities: Cash flows from core business operations.
     2. Investing Activities: Cash flows from the purchase/sale of long-term assets or investments.
     3. Financing Activities: Cash flows related to borrowings, equity, and dividends.

4. What is the difference between cash flow and fund flow?

   • Cash Flow tracks cash inflows and outflows during a period, whereas Fund Flow analyzes changes in working capital over a period.

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Conceptual Questions

5. What are cash equivalents?

   • Cash equivalents are short-term, highly liquid investments that are readily convertible into cash and have a low risk of value changes (e.g., treasury bills, commercial paper).

6. What is the indirect method of preparing a Cash Flow Statement?

   • In the indirect method, the Net Profit/Loss is adjusted for non-cash items, changes in working capital, and other adjustments to calculate cash flows from operating activities.

7. What is the direct method of preparing a Cash Flow Statement?

   • The direct method involves directly listing cash receipts (from sales, etc.) and cash payments (to suppliers, employees, etc.) to calculate cash flows from operating activities.

8. What is the significance of a positive cash flow?

   • A positive cash flow indicates that the company has more cash inflows than outflows, showing good liquidity and financial health.

9. Why are non-cash expenses like depreciation added back in the Cash Flow Statement?

   • Non-cash expenses do not involve actual cash outflows, so they are added back to calculate the correct cash flow from operations.

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Practical Application Questions

10. What does a negative cash flow from investing activities indicate?

    • It often indicates that the business is investing in assets for growth, which is generally a positive sign unless overdone.

11. What is the treatment of dividends in a Cash Flow Statement?

    • Dividends paid are shown under financing activities, while dividends received are shown under operating activities.

12. How is the sale of fixed assets recorded in a Cash Flow Statement?

    • The proceeds from the sale are recorded as cash inflow under investing activities.

13. Where are income taxes shown in the Cash Flow Statement?

    • Income taxes paid are shown under cash flows from operating activities.

14. How is an increase in working capital treated in a Cash Flow Statement?

    • An increase in working capital (e.g., higher current assets or lower current liabilities) is treated as a cash outflow, as it ties up cash.

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Analytical Questions

15. What can cause a difference between net profit and cash flows?

    • The difference arises due to:
      • Non-cash expenses (depreciation, amortization)
      • Changes in working capital
      • Non-operating items (gains/losses from the sale of assets)

16. Why might a company with profits have a negative cash flow?

    • Possible reasons include:
      • High investment in fixed assets
      • Large repayment of debts
      • Increase in working capital

17. How can a Cash Flow Statement help in decision-making?

    • It helps stakeholders assess liquidity, evaluate the sustainability of operations, plan financing needs, and understand cash utilization.

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Numerical and Interpretation Questions

18. If a company shows cash inflow from financing activities but a net cash outflow overall, what does it indicate?

    • It suggests that the company might be borrowing or issuing shares to cover operational or investing deficits.

19. How do you treat a gain or loss on the sale of fixed assets?

    • • The actual sale proceeds are recorded as an inflow under investing activities.
    • Any gain/loss is adjusted in the net profit while calculating operating cash flows.

20. If depreciation for the year is ₹10,000, how is it treated in a Cash Flow Statement?

    • Depreciation is added back to Net Profit in the Operating Activities section since it is a non-cash expense.

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