Question

State which one of the following affects the flow of funds?

• A. A transaction affecting current assets
• B. A transaction affecting non-current assets
• C. A transaction affecting both current and non-current assets
• D. A transaction not affecting either the current of non-current assets

Answer 1

The correct option is C A transaction affecting both current and non-current assets

Flow of funds means inflow of funds and outflow of funds. Changes in the value of current assets and non current assets, both will affect the flow of funds.

If fixed assets are purchased, its an outflow of funds. If any fixed asset is sold , this will increase the inflow of funds.

Decrease in the value of current assets increase the flow of funds i.e. inflow of funds and increase in the value of current assets decrease the flow of funds i.e. outflow of funds.

Hence a transaction affecting both current and non current assets affects the flow of funds either way.