State the objectives of cash flow statement.

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Q. State the objectives of cash flow statement.

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Concept understanding — Cash Flow Classification

Cash Flow Classification: From Pocket Money to a Business

Think about your own monthly allowance. You get some money from your parents (inflow), you spend on snacks, movies, and stationery (outflow), and maybe you save a bit or borrow from a friend. Now, if someone asked you, "Where did your money come from and where did it go?", you'd naturally group those transactions: money from parents, money spent on fun, money saved. That's exactly what Cash Flow Classification does for a business — it sorts every cash transaction into one of three buckets so you can see the story behind the cash.

The Three Buckets: Operating, Investing, Financing

The NCERT Class-12 Accountancy textbook (Part II, Chapter 6) defines Cash Flow Statement as a statement that shows inflows and outflows of cash and cash equivalents from operating, investing, and financing activities. Let's break each one down.

1. Operating Activities (The Core Business)

These are the cash flows from the main revenue-producing activities of the business. For a manufacturing company, that means cash from selling goods and cash paid to suppliers, employees, and for rent. Think of it as the cash generated by the business's day-to-day operations.

Examples:

Cash received from customers
Cash paid to suppliers
Cash paid for salaries, rent, taxes
Cash received from interest or dividends (for a non-financial company, these are often classified as operating or investing — NCERT allows both, but operating is common)

2. Investing Activities (Buying and Selling Long-Term Assets)

These are cash flows from the purchase and sale of long-term assets and investments that are not cash equivalents. This bucket answers: "Is the business investing in its future growth or selling off its assets?"

Examples:

Purchase of machinery, building, land (cash outflow)
Sale of old machinery (cash inflow)
Purchase of shares or debentures of other companies (cash outflow)
Sale of such investments (cash inflow)
Loans given to others (cash outflow) and repayment received (cash inflow)

3. Financing Activities (How the Business is Funded)

These are cash flows from transactions with the owners and lenders. This bucket shows how the business raises money and repays those who funded it.

Examples:

Issue of shares or debentures (cash inflow)
Repayment of long-term loans (cash outflow)
Payment of dividends (cash outflow)
Buyback of shares (cash outflow)
Proceeds from long-term borrowings (cash inflow)

Why Does This Classification Matter?

A single number like "net cash flow" tells you very little. But when you see that a company has negative cash flow from operations but positive cash flow from financing, you immediately know: the company is burning cash from its core business and is surviving by borrowing or issuing shares. That's a red flag.

Conversely, a company with strong positive operating cash flow but negative investing cash flow is likely a healthy business investing in growth. The classification gives you the diagnosis of the business's financial health — not just the final number.

Accounting Treatment: No Debit/Credit Here

This is a crucial point for Class-12 students: The Cash Flow Statement is not a ledger account. It does not involve debiting or crediting any account. It is a statement prepared from the Balance Sheet and Statement of Profit & Loss (Income Statement). You do not pass journal entries for it.

Instead, you reclassify the changes in balance sheet items and income statement items into the three categories. The format is prescribed by the NCERT and is based on AS-3 (Revised).

The NCERT Format (Proforma) of Cash Flow Statement

Below is the standard format as per NCERT Class-12 Accountancy (Part II, Chapter 6). Note that the textbook uses ₹ for amounts.

Particulars	Amount (₹)
A. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items	XXX
Adjustments for:
Depreciation	+ XXX
Loss on Sale of Asset	+ XXX
Gain on Sale of Asset	– XXX
Operating Profit before Working Capital Changes	XXX
Changes in Working Capital:
Increase in Current Assets	– XXX
Decrease in Current Assets	+ XXX
Increase in Current Liabilities	+ XXX
Decrease in Current Liabilities	– XXX
Cash Generated from Operations	XXX
Less: Income Tax Paid	(XXX)
Net Cash Flow from Operating Activities	XXX
B. Cash Flow from Investing Activities
Purchase of Fixed Assets	(XXX)
Sale of Fixed Assets	XXX
Purchase of Investments	(XXX)
Sale of Investments	XXX
Interest Received	XXX
Dividends Received	XXX
Net Cash Flow from Investing Activities	XXX
C. Cash Flow from Financing Activities
Proceeds from Issue of Shares	XXX
Proceeds from Long-term Borrowings	XXX
Repayment of Long-term Borrowings	(XXX)
Interest Paid	(XXX)
Dividends Paid	(XXX)
Net Cash Flow from Financing Activities	XXX
Net Increase/Decrease in Cash & Cash Equivalents (A+B+C)	XXX
Add: Cash & Cash Equivalents at the Beginning	XXX
Cash & Cash Equivalents at the End	XXX

Important

The Net Increase/Decrease in cash must match the difference between the opening and closing balances of Cash & Cash Equivalents (Cash + Bank + Short-term highly liquid investments) as shown in the Balance Sheet.

A Key Formula You'll Use (But Not in LaTeX)

When calculating Interest on Capital for a partnership firm (which appears in the Profit & Loss Appropriation Account, not directly in cash flow), the formula is:

Interest on Capital = Capital × Rate of Interest × Time (in months/12)

For example, if a partner's capital is ₹5,00,000 and the interest rate is 6% per annum for a full year, the interest is ₹5,00,000 × 6/100 × 12/12 = ₹30,000.

This is not a cash flow item directly — it's an appropriation of profit. But understanding it helps you see why interest paid to partners appears under Financing Activities in the cash flow statement (since it's a payment to owners).

Common Mistake to Avoid

Watch out

Students often confuse Operating Activities with Revenue from Operations. Remember: Operating cash flow is about cash received and paid, not just revenue earned. A sale on credit increases revenue but does not affect cash flow until the cash is actually received. Always adjust for changes in debtors, creditors, and inventory.

The Bottom Line

Cash Flow Classification is your financial X-ray. It tells you whether a business is generating cash from its core operations, investing wisely, or relying too heavily on borrowing. For your exams, memorise the three categories and the format above — but more importantly, understand why a particular transaction goes into a particular bucket. That understanding will never let you down.

A Cash Flow Statement provides insights into a company's cash generation and utilisation, helping users assess liquidity, solvency, and operational efficiency.

The Cash Flow Statement is a crucial financial statement that provides a detailed picture of all cash inflows (receipts) and cash outflows (payments) of an enterprise during a specific accounting period. Unlike the Income Statement, which focuses on accrual-based profits, or the Balance Sheet, which presents a snapshot of assets, liabilities, and equity at a point in time, the Cash Flow Statement focuses purely on cash movements. It categorises these movements into three main activities: Operating, Investing, and Financing.

Understanding the objectives of preparing a Cash Flow Statement is key to appreciating its value. It's not just another report; it serves several vital purposes for both internal management and external stakeholders like investors, creditors, and analysts.

Here are the primary objectives of a Cash Flow Statement:

To Provide Information about Cash Inflows and Outflows: The fundamental objective is to present a clear summary of how cash is generated and spent by the business. It breaks down these movements into operating activities (core business operations), investing activities (purchase and sale of long-term assets), and financing activities (changes in equity and borrowings). This categorisation helps users understand the sources and applications of cash from different facets of the business.
To Help Assess Liquidity and Solvency:
- Liquidity refers to a company's ability to meet its short-term obligations. By showing the net cash generated from operations, the statement helps assess if the business can cover its immediate liabilities without resorting to external financing or selling off long-term assets.
- Solvency refers to a company's ability to meet its long-term obligations. The statement helps evaluate if the company is generating enough cash internally to sustain its operations, invest in growth, and repay long-term debts. A consistent positive cash flow from operations is a strong indicator of financial health.
To Facilitate Forecasting Future Cash Flows: Historical cash flow data is an excellent basis for predicting future cash flows. By analysing past trends in operating, investing, and financing cash flows, management and investors can make more informed projections about the company's ability to generate cash in the future, which is vital for budgeting, strategic planning, and valuation purposes.
To Evaluate Management's Efficiency in Generating and Using Cash: The statement allows stakeholders to assess how effectively management is generating cash from its core operations and how prudently it is using that cash for investments and financing. For instance, a company with high profits but low operating cash flow might indicate issues with receivables collection or inventory management, highlighting areas where management needs to improve.
To Identify Non-Cash Transactions: While the statement itself focuses on cash, its preparation (especially using the indirect method) often requires adjusting net profit for non-cash items like depreciation, amortisation, and provisions. This process implicitly highlights the impact of these non-cash items on the accrual-based profit, providing a bridge between the Income Statement and the Cash Flow Statement.
To Compare Operating Performance of Different Entities: Since the Cash Flow Statement focuses on actual cash movements, it can be a more reliable tool for comparing the operating performance of different companies, especially those using different accounting policies for non-cash items. It provides a more standardised view of cash-generating ability, making inter-firm comparisons more meaningful.

Important

In India, the preparation and presentation of Cash Flow Statements are governed by Accounting Standard (AS) 3 (Revised), issued by the Institute of Chartered Accountants of India (ICAI), which is largely consistent with International Accounting Standard (IAS) 7. For companies following Ind AS, Ind AS 7 applies.

✓Final answer

The primary objectives of a Cash Flow Statement are to provide information on cash inflows and outflows, assess liquidity and solvency, facilitate future cash flow forecasting, and evaluate management's efficiency in generating and utilising cash.

Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

Showing the 12 most recent of 129 on this concept.

CBSE 2026Set 67/3/11 markMCQ

Q. (a) Which of the following are 'investing activities' for preparation of Cash Flow Statement ?

(i) Payment of taxes

(ii) Payment of dividend and interest

(iii) Receipt of interest and dividend Choose the correct option from the following : (A) (i),

(ii) and

(iii) (B)

(i) and

(ii) (C)

(ii) and

(iii) (D)

(iii) only

(OR)

(b) Which of the following statements is correct ? (A) Sale of property is a financing activity. (B) Cash deposited into bank will result in outflow of cash. (C) Receipt of royalties is an operating activity. (D) Buy-back of own equity shares is an investing activity.

›Reveal solution

Part (a): only receipt of interest and dividend are investing activities for a non-financial enterprise -> option (D).

Part (b): receipt of royalties is an operating activity -> statement (C) is correct.

The Cash Flow Statement classifies every cash inflow and outflow into three heads:

Operating - principal revenue-producing activities (sale of goods/services, royalties, fees; payment to suppliers/employees; payment of income tax).
Investing - acquisition/disposal of long-term assets and investments (purchase/sale of fixed assets; and, for a non-financial enterprise, receipt of interest and dividend).
Financing - changes in owner's capital and borrowings (issue/redemption of shares and debentures; and, for a non-financial enterprise, payment of interest and dividend).

Part (a)

Classifying each item (non-financial enterprise, the standard assumption):

Item	Classification
(i) Payment of taxes	Operating
(ii) Payment of dividend and interest	Financing
(iii) Receipt of interest and dividend	Investing

Only (iii) falls under investing activities.

✓Final answer

The correct option is (D) (iii) only .

Part (b)

Statement	Correct head	Verdict
(A) Sale of property is a financing activity	Investing	Wrong
(B) Cash deposited into bank is an outflow	Movement within Cash & Cash Equivalents (no flow)	Wrong
(C) Receipt of royalties is an operating activity	Operating	Right
(D) Buy-back of own equity shares is investing	Financing	Wrong

✓Final answer

The correct statement is (C) Receipt of royalties is an operating activity .

CBSE 2026Set 67/3/11 markMCQ
$Q. Statement I : Operating activities are the activities that constitute the primary or main activities of an enterprise. Statement II : Cash advances and loans made by financial enterprises are usually classified as operating activities. Choose the correct option from the following : (A) Both the Statements are false. (B) Statement I is true and Statement II is false. (C) Statement I is false and Statement II is true. (D) Both the Statements are true.$
›Reveal solutionSolution

Both statements are true: operating activities form the core business of an enterprise, and for financial enterprises specifically, cash advances and loans are indeed classified as operating activities because they represent their primary business function.

The classification of activities in a cash flow statement rests on understanding what constitutes the "core business" of an enterprise. Operating activities are not some abstract accounting category—they represent the day-to-day transactions that generate the principal revenue for which the entity was established. For a manufacturing company, this means buying raw materials, producing goods, and selling them. For a retailer, it means purchasing inventory and selling it to customers. The key is identifying what the business fundamentally does to earn its keep.

Statement I captures this essential principle. Operating activities are indeed the primary activities of an enterprise—the ones that define its business model and generate its main revenue streams. These activities typically involve transactions that enter into the determination of net profit or loss. They include cash receipts from the sale of goods and services, cash payments to suppliers for goods and services, cash payments to and on behalf of employees, and similar day-to-day transactions. This is the heartbeat of the business, the reason it exists.

Now here's where many students stumble: they assume that because loans and advances sound "financial," they must always be classified as investing or financing activities. That's true for most non-financial enterprises. If a trading company lends money to a supplier, that's an investing activity—it's outside the company's core business. But financial enterprises operate under entirely different rules because their core business is money itself.

For banks, non-banking financial companies, and similar institutions, making loans and advances is not a side activity—it's the main event. A bank exists to accept deposits and lend money. When it advances a loan to a customer, that's as much an operating activity as a baker selling bread. The cash outflow for loans made and the cash inflow from loan repayments are part of the bank's ordinary, revenue-generating operations. This is why Statement II is also true: cash advances and loans made by financial enterprises are classified as operating activities, even though the same transactions would be investing activities for a non-financial company.

Important

The classification of an activity depends on the nature of the enterprise. What is an operating activity for one type of business may be an investing or financing activity for another. Context determines category.

The accounting standard recognizes this fundamental difference. AS 3 (Cash Flow Statements) explicitly states that for financial enterprises, cash flows arising from the provision of loans and advances should be classified as operating activities because they relate to the main revenue-producing activities of the enterprise. This isn't an exception to the rule—it's the rule applied correctly to the specific business model of financial institutions.

✓Final answer
$Both statements are true (Option D). Operating activities constitute the primary activities of any enterprise, and for financial enterprises specifically, cash advances and loans are classified as operating activities because lending is their core business function, not a peripheral investment.$
CBSE 2026Set 67/4/11 markMCQ
$Q. Statement I : Quick Credit Ltd., a finance company, paid interest on borrowings amounting to ₹ 80,000. This will be shown as cash outflow from operating activities in its Cash Flow Statement. Statement II : Royal Foods Ltd., a non-financial enterprise, paid dividends amounting to ₹ 2,30,000. It will be shown as cash outflow from operating activities in its Cash Flow Statement. Choose the correct option from the following : (A) Statement I is true and Statement II is false. (B) Statement I is false and Statement II is true. (C) Both the Statements are true. (D) Both the Statements are false.$
›Reveal solutionSolution

Statement I is true because a finance company treats interest paid as an operating activity, while Statement II is false because a non-financial enterprise shows dividends paid as a financing activity.

To understand why these two statements are treated differently, we need to step into the logic of the Cash Flow Statement as per Accounting Standard 3 (AS-3) under the Companies Act. The core idea is that cash flows are classified into three buckets: operating, investing, and financing activities. But the classification of certain items — especially interest and dividends — depends entirely on the nature of the enterprise.

Let’s take Statement I first. Quick Credit Ltd. is a finance company. For such a company, borrowing and lending money is its main business. Think of it like a shop that sells loans — its raw material is borrowed funds, and its revenue comes from interest earned on loans given. So, when Quick Credit pays interest on its borrowings, that is not a financing cost in the usual sense; it is an operating expense, just like a manufacturer paying for raw materials. The NCERT textbook explicitly states that for a financial enterprise, interest paid and interest received are classified as operating activities because they arise from the core revenue-generating activities of the business. Therefore, Statement I is correct.

Note

The same logic applies to dividends received by a finance company — those too are operating inflows, because they are part of its regular income stream.

Now, Statement II involves Royal Foods Ltd., a non-financial enterprise — say, a company that makes and sells packaged foods. For such a company, paying dividends is not part of its day-to-day operations. Dividends are a distribution of profit to shareholders, which is a financing decision. The NCERT textbook clearly states that for non-financial enterprises, dividends paid are classified as financing activities, not operating activities. So, showing dividends paid as an operating outflow would be incorrect. Statement II is therefore false.

Important

A common mistake is to assume that all interest and dividends are treated uniformly. The key distinction is: for financial enterprises, these are operating items; for non-financial enterprises, interest paid is usually a financing outflow, and dividends paid are always a financing outflow.

Thus, only Statement I is true.

✓Final answer
$Option (A) is correct: Statement I is true and Statement II is false.$
CBSE 2026Set 67/4/11 markMCQ
$Q. (a) The following information was obtained about the cash flows of XYZ Ltd. for the year ended 31st March, 2025 : Cash inflows from operating activities ₹ 28,000; cash used in investing activities ₹ 32,000 and cash inflows from financing activities ₹ 5,000. If the opening balance of cash and cash equivalents on 1st April, 2024 was ₹ 25,000, the closing balance of cash and cash equivalents on 31st March, 2025 will be : (A) ₹ 90,000 (B) ₹ 6,000 (C) ₹ 26,000 (D) ₹ 70,000$
(OR)
$(b) The following information was obtained from the books of PQR Ltd. : Profit and Loss balance (Dr.) as at 31st March, 2024 : ₹ 30,000 Profit and Loss balance (Cr.) as at 31st March, 2025 : ₹ 56,000 Interim Dividend paid during the year : ₹ 36,000 The net profit before taxation for the year ended 31st March, 2025 will be : (A) ₹ 86,000 (B) ₹ 62,000 (C) ₹ 1,22,000 (D) ₹ 50,000$
›Reveal solutionSolution

Part (a): closing cash and cash equivalents = ₹26,000, option (C). Part (b): net profit before tax = ₹1,22,000, option (C).

Part (a)

"Cash used in" investing is an outflow (negative).

Particulars Amount (₹)
Opening balance (1 Apr 2024) 25,000
Add: Operating inflow 28,000
Less: Investing outflow (32,000)
Add: Financing inflow 5,000
Closing balance (31 Mar 2025) 26,000

✓Final answer
$Closing balance = (C) ₹26,000 .$

Part (b)

Net profit before tax is worked back from the movement in the Surplus (P&L) balance, adding back appropriations such as interim dividend. The opening balance is a Dr (debit) balance of ₹30,000 (accumulated loss), so it is added.

Particulars Amount (₹)
Closing Surplus (Cr) 31 Mar 2025 56,000
Add: Opening Surplus (Dr) 31 Mar 2024 30,000
Add: Interim dividend paid 36,000
Net profit before taxation 1,22,000

✓Final answer
$Net profit before taxation = (C) ₹1,22,000 .$
CBSE 2026Set 67/5/11 markMCQ
$Q. Statement I : In case of non-financial enterprises, payment of interest and dividend are classified as financing activities. Statement II : In case of financial enterprises, payment of interest and dividend are classified as investing activities. Choose the correct option from the following : (A) Both the statements are true. (B) Both the statements are false. (C) Statement I is true, but Statement II is false. (D) Statement I is false, but Statement II is true.$
›Reveal solutionSolution

Statement I is correct—non-financial enterprises treat interest and dividend payments as financing activities—but Statement II is false because financial enterprises classify these payments as operating activities, not investing activities.

The classification of cash flows in a statement of cash flows depends fundamentally on the nature of the enterprise. Indian Accounting Standard (Ind AS) 7 and the NCERT textbook on Accountancy recognize that what constitutes a core business activity for one type of company may be peripheral for another, and this distinction shapes how we report cash movements.

For non-financial enterprises—manufacturing firms, retailers, service companies—the primary business revolves around producing goods or delivering services. Their core operations generate revenue through sales. When such a company pays interest on borrowed funds or distributes dividends to shareholders, these payments relate to how the business is financed, not how it operates day-to-day. Interest represents the cost of debt capital, and dividends are the return on equity capital. Both are consequences of financing decisions—choices about capital structure—rather than the operational cycle of buying inputs, adding value, and selling output. Therefore, the textbook and accounting standards classify payment of interest and dividend by non-financial enterprises as financing activities. Statement I captures this correctly.

Now consider financial enterprises—banks, insurance companies, non-banking financial companies. For these institutions, money itself is the product. A bank's core business is accepting deposits and lending money; interest paid on deposits and interest received on loans are the very heartbeat of operations. Similarly, dividends received from investments form part of the regular business activity for many financial institutions. The textbook explicitly states that for financial enterprises, interest paid and interest and dividends received are classified as operating activities because they directly relate to the main revenue-generating functions of the business.

Important

The key principle: classify cash flows according to the nature of the enterprise. What is financing for a manufacturer is operating for a bank.

Statement II claims that financial enterprises classify payment of interest and dividend as investing activities. This is incorrect. Investing activities relate to the acquisition and disposal of long-term assets—property, plant, equipment, and long-term investments. While financial enterprises do have investing activities (buying or selling securities held as investments, for instance), the routine payment of interest and dividends falls under operating activities because these payments are integral to their day-to-day business model.

The textbook makes no mention of any special treatment that would place these payments in the investing category for financial enterprises. The standard classification is clear: operating activities for financial enterprises, financing activities for non-financial enterprises.

✓Final answer
$Statement I is true—non-financial enterprises correctly classify interest and dividend payments as financing activities—while Statement II is false because financial enterprises treat these as operating activities, not investing activities. The correct option is (C) .$
CBSE 2026Set 67/5/11 markMCQ
$Q. (a) During the year ended 31st March, 2025, H.P. Ltd. paid an interim dividend of ₹ 50,00,000. From the following, choose the correct option for the purpose of preparing ‘Cash Flow Statement’ : (A) ₹ 50,00,000 paid as interim dividend during the year will be shown as outflow of cash under financing activities and added back to net profit to calculate cash flows from operating activities. (B) ₹ 50,00,000 paid as interim dividend during the year will be shown as outflow of cash under financing activities and deducted from net profit to calculate cash flows from operating activities. (C) ₹ 50,00,000 paid as interim dividend during the year will be shown as cash outflow from financing activities only. (D) ₹ 50,00,000 paid as interim dividend during the year will be added back to net profit to calculate cash flows from operating activities only.$
(OR)
$(b) Which of the following is a financing activity for the purpose of preparing a Cash Flow Statement ? (A) Interest received (B) Dividend received (C) Royalties received (D) Interest paid on debentures$
›Reveal solutionSolution
Part (a): interim dividend paid = financing outflow only — (C). Part (b): interest paid on debentures = financing activity — (D).

Part (a)

Dividends paid (interim or final) are a distribution to shareholders — the providers of capital — so they are a financing activity. Since dividend is an appropriation recorded after net profit, it never touches the Statement of Profit & Loss, so no add-back or deduction is made while computing cash from operations. Options (A) and (B) wrongly add an operating adjustment; (D) wrongly limits it to operating.

✓Final answer
$(C) — ₹50,00,000 interim dividend is shown as cash outflow from financing activities only.$

Part (b)

(A) Interest received / (B) Dividend received → investing activity (for a non-financial firm).

(C) Royalties received → operating (business income).

(D) Interest paid on debentures → financing, as debentures are a source of long-term finance.

✓Final answer
$(D) Interest paid on debentures$
CBSE 2026Set MARCH1 markMCQ
$Q. Cash equivalent has _____.$
(a) higher liquidity
(b) higher solvency
(c) higher profitability
(d) All of the above
›Reveal solutionSolution

Cash equivalents are marked by higher liquidity, so the answer is (a).

Cash equivalents are short-term, highly liquid investments (for example, treasury bills or very short-term deposits) that are readily convertible into a known amount of cash and carry an insignificant risk of change in value. Their essential characteristic is therefore high liquidity, which is why they are treated almost on par with cash in the cash flow statement.

✓Final answer
$(a) higher liquidity.$
CBSE 2026Set MARCH1 mark
$Q. In which activity the received dividend and interest are recorded?$
›Reveal solutionSolution
Dividend and interest received are shown under investing activities (for a non-finance company).

In the cash flow statement of a company other than a financial enterprise:

Dividend received on investments and interest received on loans/investments are inflows earned from the company's investing activities, so they appear under Cash Flow from Investing Activities.

(Note: For a financial company whose main business is lending and investing, these would form part of operating activities; the general rule for an ordinary trading/manufacturing company places them under investing activities.)

✓Final answer
$Under investing activities (for a non-financial enterprise).$
CBSE 2026Set MARCH1 markMCQ
$Q. Following is an extraordinary item :$
(a) a) Salary paid
(b) b) Tax paid
(c) c) Rent paid
(d) d) Loss due to theft
›Reveal solutionSolution

Loss due to theft is unusual and non-recurring, so it is the extraordinary item - option (d).

Extraordinary items are those that are not part of the routine, day-to-day operations of the business and are not expected to occur regularly (for example, loss by fire, theft, or gains/losses from lawsuits). Salary paid, tax paid and rent paid are all ordinary, recurring items of business.

✓Final answer
$Correct option: (d) Loss due to theft. It is an abnormal, one-off event outside normal operations, hence classified as an extraordinary item and disclosed separately.$
CBSE 2026Set ANNUAL1 markMCQ
$Q. "Purchase of a plant for cash" is A) Cash outflow B) No cash flow C) Cannot be determined D) Cash inflow$
›Reveal solutionSolution

Purchase of a plant for cash is a cash outflow - option (A).

When a plant (a fixed/non-current asset) is purchased for cash, cash goes OUT of the business, so it reduces the closing cash balance. In the Cash Flow Statement it is recorded as an outflow under Investing Activities.

It is certainly a cash flow (so B and C are wrong) and it decreases cash (so it is an outflow, not an inflow).

✓Final answer
$Purchase of a plant for cash is a cash outflow — option (A).$
CBSE 2026Set ANNUAL1 mark
$Q. Fill in the blank: While preparing the cash-flow statement, deferred tax is a __________ item. (Non-cash/Cash)$
›Reveal solutionSolution

Deferred tax is a non-cash item in the Cash Flow Statement.

Deferred tax arises from timing differences between accounting profit and taxable profit; it is a book adjustment and involves no actual movement of cash in the period. Therefore, like depreciation or goodwill written off, it is a non-cash item and is added back/adjusted while computing cash flow from operating activities under the indirect method.

✓Final answer
$While preparing the Cash Flow Statement, deferred tax is a Non-cash item.$
CBSE 2026Set ANNUAL1 markMCQ
$Q.'Payment of Dividend' will come under what type of activity while preparing Cash Flow Statement?$
(a) Operating activity
(b) Investing activity
(c) Financing activity
(d) None of these
›Reveal solutionSolution

Payment of dividend is a financing activity - option (c).

Financing activities are those that change the size and composition of the owners' capital and borrowings. Payment of dividend is a distribution to the shareholders (the providers of ownership capital), so it is an outflow classified under financing activities (for a non-financial company). It is not part of operating or investing activities.

✓Final answer
$(c) Financing activity.$

Particulars	Amount (₹)
Opening balance (1 Apr 2024)	25,000
Add: Operating inflow	28,000
Less: Investing outflow	(32,000)
Add: Financing inflow	5,000
Closing balance (31 Mar 2025)	26,000

Particulars	Amount (₹)
Closing Surplus (Cr) 31 Mar 2025	56,000
Add: Opening Surplus (Dr) 31 Mar 2024	30,000
Add: Interim dividend paid	36,000
Net profit before taxation	1,22,000

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Q.State the objectives of cash flow statement.

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