For the following two statements of Assertion (A) and Reasoning (R), indicate the correct code : Assertion (A) : Cash Flow Statement as per the financial statements as well is incapable in revealing the overall financial position of a firm. Reasoning (R) : Cash is an important constituent of the working capital based on the recorded facts only. Codes :
(A) and (R) both are correct and (R) is an explanation of (A).
Assertion (A) is correct. A Cash Flow Statement shows only the inflows and outflows of cash and cash equivalents from operating, investing and financing activities. It ignores non-cash transactions, accruals and the other current assets and liabilities, so it cannot by itself reveal the overall financial position; for that, the balance sheet, income statement and funds flow analysis are also needed.
Reason (R) is correct. Cash is only one constituent of working capital, alongside debtors, inventories and other current items, and the cash flow statement is prepared from recorded, historical facts only, so it says nothing about future position or about items not yet reflected in cash.
The reason explains the assertion: because the statement deals with just one component of working capital and relies solely on recorded past cash movements, it is incapable of portraying the complete financial position of the firm. This is the accepted reading in the official key.
Hence, (A) and (R) both are correct and (R) is an explanation of (A).
Similar Questions
Which of the following items would be specifically included in the statement of cash flows constructed in compliance with AS-3 ?
Important Questions from Cash Flow Analysis
Which of the following activities should be shown separately in the cash flow statement prepared as per Accounting Standard-3 ?
a. Cash flow from borrowing activities.
b. Cash flow from operating activities.
c. Cash flow from financing activities.
d. Cash flow from investing activities.
e. Cash flow from miscellaneous activities.
Codes :
- The balance of property at cost has been ₹ 20,000 and ₹ 17,000 in 2015 and 2016, respectively. The profit on the sale of property of ₹ 2,000 is credited to Capital Reserve Account. New property costing ₹ 5,000 was bought in 2016. Determine the sale proceeds from property.
- Which of the following is not a cash inflow ?
Cash from Operation is equal to
Match List–I with List–II :
List I
(Transaction)
List II
(Activity)
(a)
Cash payments of salaries and wages 1.
Investing (b)
Cash proceeds from issuing shares at a premium 2.
Operating (c)
Payment of income tax 3.
Financing (d)
Tax deducted at source on interest received from subsidiary company
Select the correct answer using the codes given below.
