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Home Questions 3HMHRZC9WJ
Target Exam

CUET

Subject

Accountancy

Chapter

Cash Flow Statement

Question:

READ THE FOLLOWING PASSAGE AND ANSWER THE FOLLOWING QUESTION.

The profit of a company is ₹90,000 after taking into account the following items:

Particulars Beginning of the year (₹) End of the year (₹)
Bills Receivables 40,000 50,000
Creditors 30,000 50,000
Debtors 50,000 30,000
* Patents written off ₹40,000
* Profit on sale of fixed assets ₹10,000
* Depreciation on fixed assets ₹40,000
* Interest paid on debentures ₹40,000

Identify the part of the change in working capital with reference to the cash flow statement:

Options:

Increase in share capital

Increase in building

Increase in machinery

Decrease in bills payable

Correct Answer:

Decrease in bills payable

Explanation:

The correct answer is option 4- Decrease in bills payable.

Decrease in bills payable- Decrease in B/P is a decrease in current liability.  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 in the operating profit before working capital changes.

  • Increase in share capital- FINANCING ACTIVITY
  • Increase in building- INVESTING ACTIVITY
  • Increase in machinery- INVESTING ACTIVITY

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