CUET UG Accountancy Booster Test 2 Introduction and Fundamentals -

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CUET UG Accountancy Booster Test 1 Introduction and Fundamentals

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Introduction and Fundamentals

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QUESTION 1 OF 20

Assertion (A): A position statement shows the result of operational activities over a period.
Reason (R): Financial statements primarily include the Position Statement and the Income Statement.

Answer Review

1 Assertion (A): A position statement shows the result of operational activities over a period.
Reason (R): Financial statements primarily include the Position Statement and the Income Statement.

A Both A and R are true

B A is false but R is true

C A is true but R is false

D Both A and R are false

💡 Short Explanation

Position Statement shows financial position on a specific date. Income Statement shows operational results over a period. Therefore, Assertion is false while Reason is true.

✅ Correct Answer Explanation

A Position Statement (Balance Sheet) presents the financial position of an enterprise at a particular date, whereas operational results over a period are shown by the Income Statement. Financial statements primarily include both statements.

❓ Why Other Options Are Incorrect

Option A → Assertion is false.
Option C → Reason is true.
Option D → Reason is not false.

🎯 Strategy

Used: Assertion–Reason Analysis

Application: Distinguish between Position Statement and Income Statement.

Final Logic: Operational results belong to the Income Statement, not the Position Statement.

🧠 Memory Trick

Position = Date, Income = Period

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Financial Statements Overview

2 The Income Statement differs from the Cash Flow Statement primarily because the Income Statement:

A Excludes non-cash items entirely.

B Only shows the company's financial structure on a specific date.

C Is not legally required under the Companies Act 2013.

D Shows the operational results over a period, incorporating accrual-based non-cash items.

💡 Short Explanation

Income Statement follows accrual accounting. Includes non-cash items like depreciation. Shows profitability over a period.

✅ Correct Answer Explanation

The Income Statement measures revenues and expenses on an accrual basis and includes non-cash items. The Cash Flow Statement focuses only on cash and cash equivalents.

❓ Why Other Options Are Incorrect

Option A → Non-cash items are included.
Option B → Describes Position Statement.
Option C → Income Statement is legally required.

🎯 Strategy

Used: Concept Differentiation

Application: Compare Income Statement and Cash Flow Statement.

Final Logic: Accrual accounting is the key distinction.

🧠 Memory Trick

Income = Accrual, Cash Flow = Actual Cash

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Income Statement Meaning

3 Match the Following

List 1	List 2
1. Position Statement	a. Short-term highly liquid investments
2. Income Statement	b. Shows historical changes in cash flows
3. Cash Flow Statement	c. Operational results over a period
4. Cash Equivalents	d. Financial position on a particular date

A 1-d, 2-c, 3-b, 4-a

B 1-a, 2-b, 3-c, 4-d

C 1-b, 2-a, 3-d, 4-c

D 1-c, 2-d, 3-a, 4-b

💡 Short Explanation

Position Statement → Financial position. Income Statement → Operational results. Cash Flow Statement → Historical cash changes. Cash Equivalents → Liquid investments.

✅ Correct Answer Explanation

Each item correctly matches its definition, making Option A the correct answer.

❓ Why Other Options Are Incorrect

Options B, C, and D contain incorrect pairings.

🎯 Strategy

Used: Option Grouping

Application: Match definitions carefully.

Final Logic: Only Option A contains all correct mappings.

🧠 Memory Trick

Position–Date, Income–Period, Cash Flow–Cash History

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Meaning of Cash Flow Statement

4 Why is the Cash Flow Statement considered a crucial tool for financial information users?

A It proves that an enterprise is absolutely free from debt.

B It highlights the exact market value of fixed assets.

C It explains the sources and uses of cash and cash equivalents over a period from various activities.

D It guarantees the future profitability of an enterprise.

💡 Short Explanation

Shows cash generation and utilization. Helps evaluate liquidity. Assists decision-making.

✅ Correct Answer Explanation

The Cash Flow Statement provides information about cash inflows and outflows from operating, investing, and financing activities.

❓ Why Other Options Are Incorrect

Option A → Debt freedom is not guaranteed.
Option B → Market values are not shown.
Option D → Future profits are not guaranteed.

🎯 Strategy

Used: Elimination

Application: Identify the primary purpose of a Cash Flow Statement.

Final Logic: It explains cash movements.

🧠 Memory Trick

Cash Flow = Sources and Uses of Cash

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Importance of Cash Flow Statement

5 Consider the statements regarding the Companies Act, 2013:
I. Accounting Standards are notified under Section 133.
II. Non-compliance with accounting standards means financial statements are still considered true and fair.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither I nor II is correct

💡 Short Explanation

Section 133 governs Accounting Standards. Non-compliance affects true and fair presentation.

✅ Correct Answer Explanation

Accounting Standards are notified under Section 133 of the Companies Act, 2013. Financial statements not complying with standards may not present a true and fair view.

❓ Why Other Options Are Incorrect

Statement II is incorrect.

🎯 Strategy

Used: Statement Evaluation

Application: Verify each statement separately.

Final Logic: Only Statement I is true.

🧠 Memory Trick

Section 133 = Accounting Standards

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Companies Act 2013 Provisions

6 Under which specific rule are Accounting Standards notified in accordance with Section 133 of the Companies Act, 2013?

A Cash Equivalent Rules, 2010

B Financial Statement Act, 2013

C Company Operational Rules, 2005

D Accounting Standards Rules, 2006

💡 Short Explanation

Accounting Standards are formally notified through these rules. Linked with Section 133.

✅ Correct Answer Explanation

Accounting Standards are notified under the Accounting Standards Rules, 2006 in accordance with statutory provisions.

❓ Why Other Options Are Incorrect

Options A, B, and C are not applicable rules.

🎯 Strategy

Used: Recall-Based Elimination

Application: Recall the specific rule name.

Final Logic: Accounting Standards Rules, 2006.

🧠 Memory Trick

AS → Accounting Standards Rules 2006

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Accounting Standards AS-3

7 A company receives ₹20,000 as rent from property held as investment and collects ₹15,000 from trade receivables. What is the total cash inflow from these items?

A ₹35,000

B ₹20,000

C ₹15,000

D ₹5,000

💡 Short Explanation

Add both cash receipts. Both represent cash inflows.

✅ Correct Answer Explanation

Total Cash Inflow = ₹20,000 + ₹15,000 = ₹35,000

❓ Why Other Options Are Incorrect

They do not represent the total amount received.

🎯 Strategy

Used: Substitution

Application: Add all cash receipts.

Final Logic: Total inflow equals ₹35,000.

🧠 Memory Trick

Total Inflow = Sum of Receipts

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Inflows of Cash

8 During the year, a company made the following payments: Cash purchases ₹10,000; Payment to trade payables ₹5,000; Purchase of marketable securities (cash equivalents) ₹8,000. What is the total cash outflow representing cash flows out of the enterprise for operating purposes?

A ₹23,000

B ₹8,000

C ₹15,000

D ₹10,000

💡 Short Explanation

Operating outflows include purchases and payments to creditors. Purchase of cash equivalents is excluded.

✅ Correct Answer Explanation

Operating Cash Outflow = Cash Purchases ₹10,000 + Payment to Trade Payables ₹5,000 = ₹15,000 Purchase of marketable securities qualifying as cash equivalents is excluded.

❓ Why Other Options Are Incorrect

Option A includes cash equivalent purchase.
Options B and D are incomplete.

🎯 Strategy

Used: Classification + Calculation

Application: Include only operating cash outflows.

Final Logic: ₹15,000.

🧠 Memory Trick

Cash Equivalent Purchase ≠ Operating Outflow

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Outflows of Cash

9 The primary objective format evaluates changes in cash and cash equivalents. What formula represents the closing cash balance?

A Net Cash Flows − Opening Balance

B Net Cash Flows + Opening Balance

C Opening Balance − Net Cash Flows

D Operating Cash Flows + Investing Cash Flows

💡 Short Explanation

Closing balance starts with opening balance. Add net increase/decrease.

✅ Correct Answer Explanation

Closing Cash Balance = Opening Cash Balance + Net Cash Flows

❓ Why Other Options Are Incorrect

Options A and C use incorrect signs.
Option D ignores financing activities and opening balance.

🎯 Strategy

Used: Formula Recall

Application: Use standard AS-3 format.

Final Logic: Opening + Net Change = Closing.

🧠 Memory Trick

Opening + Change = Closing

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Purpose of Cash Flow Statement

10 To evaluate economic decisions, users need to assess an enterprise's ability to generate cash and cash equivalents along with their:

A Geographical location

B Employee satisfaction levels

C Historical stock market prices

D Timing and certainty of generation

💡 Short Explanation

Cash generation alone is insufficient. Timing and certainty are equally important.

✅ Correct Answer Explanation

Users assess not only the ability to generate cash and cash equivalents but also the timing and certainty of those cash flows to make informed economic decisions.

❓ Why Other Options Are Incorrect

They are unrelated to cash flow decision usefulness.

🎯 Strategy

Used: Concept Matching

Application: Recall AS-3 objective.

Final Logic: Timing and certainty are essential.

🧠 Memory Trick

Cash + Timing + Certainty = Better Decisions

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Decision Usefulness

11 According to AS-3, into which three categories are activities classified to prepare a Cash Flow Statement?

A Operating, Investing, Financing

B Direct, Indirect, Exceptional

C Historical, Current, Future

D Inflows, Outflows, Retained Earnings

💡 Short Explanation

AS-3 classifies cash flows into three categories. These categories explain sources and uses of cash. Standard format used in Cash Flow Statements.

✅ Correct Answer Explanation

AS-3 requires cash flows to be classified into Operating Activities, Investing Activities, and Financing Activities. This classification improves understanding of cash movements.

❓ Why Other Options Are Incorrect

Option B → Methods and events, not classifications.
Option C → Time periods, not cash flow categories.
Option D → Not AS-3 classifications.

🎯 Strategy

Used: Recall-Based Elimination

Application: Recall the standard AS-3 classification.

Final Logic: Operating, Investing, and Financing are the prescribed categories.

🧠 Memory Trick

OIF = Operating, Investing, Financing

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Coverage of Activities

12 A Cash Flow Statement should be presented for:

A Only periods showing a net loss

B Every quarter strictly, regardless of financial statement presentation

C Each accounting period for which financial statements are presented

D Periods where non-cash transactions occur

💡 Short Explanation

Prepared along with financial statements. Covers every reporting period. Required irrespective of profit or loss.

✅ Correct Answer Explanation

AS-3 requires a Cash Flow Statement for every accounting period for which financial statements are prepared and presented.

❓ Why Other Options Are Incorrect

Option A → Not restricted to loss periods.
Option B → Quarterly reporting is not universally mandatory.
Option D → Non-cash transactions are excluded.

🎯 Strategy

Used: Elimination

Application: Identify the general reporting requirement.

Final Logic: Every accounting period requires presentation.

🧠 Memory Trick

Every Financial Statement Period = Cash Flow Statement

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Time Period Consideration

13 Assertion (A): Internal users use the Cash Flow Statement to examine the relationship between profitability and net cash flow.
Reason (R): The Cash Flow Statement provides no information about cash inflows.

A Both A and R are true

B A is true, R is true, but R is not the correct explanation

C A is false, R is true

D A is true, but R is false

💡 Short Explanation

Internal users analyze profitability and cash flows. Cash inflows are a major component of the statement. Reason is incorrect.

✅ Correct Answer Explanation

Internal users use Cash Flow Statements to compare profits with actual cash generation. The statement clearly provides information about both cash inflows and outflows.

❓ Why Other Options Are Incorrect

Option A → Reason is false.
Option B → Reason is false.
Option C → Assertion is true.

🎯 Strategy

Used: Assertion–Reason Analysis

Application: Verify each statement independently.

Final Logic: Assertion true; Reason false.

🧠 Memory Trick

Cash Flow Statement = Cash Inflows + Cash Outflows

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Internal Users

14 Why is separate disclosure of cash flows from financing activities important for external users like capital providers?

A It helps them determine the exact cost of goods sold

B It is useful in predicting claims on future cash flows by providers of funds

C It shows the exact number of employees hired

D It outlines the daily operational costs

💡 Short Explanation

Capital providers are concerned with repayment. Financing cash flows indicate future obligations. Useful for investors and lenders.

✅ Correct Answer Explanation

Separate disclosure of financing activities helps external users assess future claims on cash flows arising from debt and equity financing.

❓ Why Other Options Are Incorrect

Option A → Related to profitability analysis.
Option C → HR information.
Option D → Operating activity concern.

🎯 Strategy

Used: Contextual Matching

Application: Focus on the needs of investors and lenders.

Final Logic: Financing activities affect future claims.

🧠 Memory Trick

Financing = Future Claims on Cash

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: External Users

15 By analyzing the Cash Flow Statement, a user notices that short-term liquid investments subject to insignificant risk are highly positive. This helps the user primarily assess the firm's:

A Future marketing budget

B Long-term debt structure

C Liquidity (Cash Equivalents)

D Non-cash operating expenses

💡 Short Explanation

Cash equivalents reflect liquidity. Highly liquid investments support short-term obligations. Important liquidity indicator.

✅ Correct Answer Explanation

Cash equivalents are short-term highly liquid investments. Their level helps users assess the firm's liquidity position.

❓ Why Other Options Are Incorrect

Option A → Unrelated.
Option B → Solvency, not liquidity.
Option D → Non-cash items are unrelated.

🎯 Strategy

Used: Concept Identification

Application: Link cash equivalents with liquidity.

Final Logic: Liquidity is being assessed.

🧠 Memory Trick

Cash Equivalents = Liquidity Strength

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Liquidity Assessment

16 The "amount of cash from operations" indicates the internal solvency level. This means it measures the ability to:

A Maintain operating capability and repay loans without external financing

B Evade taxation legally

C Revalue historical assets

D Only pay dividends to preferred shareholders

💡 Short Explanation

Operating cash reflects internal strength. Helps maintain operations. Supports debt repayment.

✅ Correct Answer Explanation

Strong operating cash flows indicate the firm's ability to sustain operations and meet obligations without depending excessively on external financing.

❓ Why Other Options Are Incorrect

Option B → Not a financial objective.
Option C → Not related to solvency.
Option D → Too narrow.

🎯 Strategy

Used: Contextual Matching

Application: Link operating cash with solvency.

Final Logic: Internal cash generation supports solvency.

🧠 Memory Trick

Operating Cash = Internal Solvency

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Solvency Evaluation

17 Consider the statements regarding inter-firm comparison:
I. Cash Flow Statements hinder comparison.
II. They eliminate the effects of using different accounting treatments for the same transactions.

A Only I is correct

B Both I and II are correct

C Neither I nor II is correct

D Only II is correct

💡 Short Explanation

Cash-based reporting improves comparison. Different accounting methods affect profit, not cash. Statement I is incorrect.

✅ Correct Answer Explanation

Cash Flow Statements improve inter-firm comparison because they focus on actual cash flows and reduce the effects of alternative accounting treatments.

❓ Why Other Options Are Incorrect

Statement I is false.
Therefore, Options A, B, and C are incorrect.

🎯 Strategy

Used: Statement Evaluation

Application: Assess each statement independently.

Final Logic: Only Statement II is correct.

🧠 Memory Trick

Cash Flow Improves Comparability

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Inter-firm Comparison

18 Cash flow information enables users to develop models to assess and compare the:

A Total number of fixed assets of different enterprises

B Present value of future cash flows of different enterprises

C Exact accounting software used by different enterprises

D Historical cost of long-term liabilities only

💡 Short Explanation

Cash flow data supports forecasting. Future cash flow estimation is possible. Helps valuation and comparison.

✅ Correct Answer Explanation

Users utilize historical cash flow information to estimate and compare future cash-generating abilities and present values across enterprises.

❓ Why Other Options Are Incorrect

Option A → Not the primary purpose.
Option C → Irrelevant.
Option D → Too limited.

🎯 Strategy

Used: Concept Application

Application: Connect cash flow analysis with forecasting.

Final Logic: Future cash flow valuation is the objective.

🧠 Memory Trick

Past Cash Flows Help Predict Future Cash Flows

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Performance Evaluation

📄 Passage

A Cash Flow Statement when used along with other financial statements provides information that enables users to evaluate changes in net assets. However, it deals only with cash and cash equivalents. Non-cash transactions like the conversion of debentures into shares are ignored in this statement, though they are disclosed elsewhere. Furthermore, it records historical changes in cash flows resulting from past transactions, meaning it reflects historical nature rather than estimating pure future profitability.

Based on the passage, what happens to the transaction of converting debentures into shares in the Cash Flow Statement?

A It is shown as an operating inflow

B It is recorded as a financing inflow

C It is ignored in the statement as it is a non-cash transaction

D It is shown as an investing outflow

💡 Short Explanation

No cash movement occurs. Non-cash transactions are excluded. Separate disclosure is required.

✅ Correct Answer Explanation

Conversion of debentures into shares does not involve cash or cash equivalents. Therefore, it is excluded from the Cash Flow Statement and disclosed elsewhere.

❓ Why Other Options Are Incorrect

No cash inflow or outflow exists.

🎯 Strategy

Used: Passage-Based Analysis

Application: Identify treatment of non-cash transactions.

Final Logic: Non-cash transactions are ignored in the statement.

🧠 Memory Trick

No Cash = No Cash Flow Entry

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Non-cash Exclusion

20 A Cash Flow Statement when used along with other financial statements provides information that enables users to evaluate changes in net assets. However, it deals only with cash and cash equivalents. Non-cash transactions like the conversion of debentures into shares are ignored in this statement, though they are disclosed elsewhere. Furthermore, it records historical changes in cash flows resulting from past transactions, meaning it reflects historical nature rather than estimating pure future profitability.
As per the passage, the Cash Flow Statement reflects:

A Historical changes resulting from past transactions

B Pure future profitability estimates

C Both cash and non-cash equivalent real-time values

D Only future predictions of net assets

💡 Short Explanation

Cash Flow Statement is historical. Based on completed transactions. Not a future forecast.

✅ Correct Answer Explanation

The statement records historical changes in cash and cash equivalents arising from past transactions and events.

❓ Why Other Options Are Incorrect

Option B → Future profitability is not reported.
Option C → Non-cash items are excluded.
Option D → Not predictive in nature.

🎯 Strategy

Used: Passage-Based Analysis

Application: Use the exact wording from the passage.

Final Logic: Cash Flow Statements are historical documents.

🧠 Memory Trick

Cash Flow Statement = History of Cash

📚 Class XII – Accountancy Part II – Chapter: Cash Flow Statement – Topic: Historical Nature

CUET UG Accountancy Booster Test 1 Introduction and Fundamentals

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