Introduction to Indirect Method

Q.

What are the advantages and limitations of straight line and diminishing balance methods?

Q.

What does a negative figure in the cash flow from operating activity indicate?

Q.

State the uses of cash flow statement?

Q.

Is depreciation an asset or liability?

Q.

What is a petty cash float?

Q. Describe “Direct” and “Indirect” method of ascertaining cash flow from operating activities.

Q. Purchase of fixed assets will result in cash from investing activities.

1. inflow
2. outflow
3. disbursement
4. distribution

Q.

In indirect method of preppearation of cash flow statement, the _______ figure from the income statement is used to calculate the amount of net cash flow from operating activities.

1. Gross profit

2. Depreciation

3. None of these

4. Net profit before tax

Q.

What Will Be the Effect of Purchase of Goods for Cash < 3, 000 on Gross Profit Ratio?

Q.

The method for presenting net cash provided by operating activities that starts with net income and adjusts it for items that affected reported net income but that did not affect cash is called the ____________.

1. Working capital method

2. Indirect method

3. None of these

4. Direct method

Q. Give two examples of errors of principle.

Q. The main difference between the direct method & indirect method involves the cash flows from activities.

1. operating
2. investing
3. financing
4. payment

Q. State with reasons whether following statements are True or False:
There exists difference between the Written Down Value Method and Diminishing Balance Method of depreciation.

Q. State the primary objective of preparing a Cash Flow statement.

Q. Plant asset are depreciated over their useful lives. Which basic principle of accounting does this procedure reflect?

1. Historical cost.
2. Matching expenses with revenue.
3. Objectivity.
4. Consistency.

Q. Depreciation is a process of allocation of the cost of fixed asset.

1. True
2. False

Q. Depreciation is a classic example of a .

1. cash expense
2. cash income
3. non-cash expense
4. non-cash income

Q. Depreciation is the process of valuation of asset.

1. True
2. False

Q.

This method starts with net income and converts it to operating cash flow by adjusting for items that were used to calculate net income but did not affect cash. This method is …..

1. None of these

2. Direct method

3. Indirect method

4. Cash flow method

Q.

Does depreciation have a direct effect on the cash flow of a business?

Q. Which of the following would not be considered a non-cash investing and financing activity in preparing a statement of cash flows?

1. Withdrawal of cash by the owner of a business
2. Issuance of common stock to retire long-term debt
3. Acquisition of a manufacturing plant by issuing bonds
4. Issuance of common stock in exchange for convertible preferred stock

Q. Rs.10, 000 paid in cash for repair of a newly purchased old machine were debited to repairs account. This error:

1. will not affect the profit
2. None of these
3. is an error of omission
4. will affect the trial balance

Q.

The main difference between the direct method and the indirect method involves the cash flows from ________.

1. None of these

2. Operating activities

3. Investing activities

4. Financing activities

Q. Which of the following is/are advantage of Reducing balance method/WDV method?

1. Under this method it is easy to calculate depreciation rate.
2. The efficiency and usefulness is more in early years so depreciation amount is also more in early years and goes on diminishing year to year.
3. Income tax authorities do not accepts this method
4. All of the above

Q. starts with net profit & converts it to operating cash flow by adjusting for items that didn't affect cash.

1. Direct method
2. Accrual Method
3. Cash Method
4. Indirect method

Q. Under the diminishing balance method, depreciation is calculated on:

1. Scrap value
2. On book value
3. On original value
4. None of them

Q. Which of the following errors is an error of omission ?

1. Sale of $Rs.500$ was written in the Purchase Journal
2. Wages paid to Mohan have been debited to his account
3. The total of the sales journal has not been posted to the sales Account
4. None of these.

Q. differentiate between trading and profit and loss account AND statement of profit and loss

Q. State with reasons whether following statements are True or False:
Depreciation is cash expenditure like normal expenses.

Q. Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?

1. Overhaul of equipment
2. Increased operating costs
3. Salvage value of equipment when project is complete
4. Depreciation expense