A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 51 - 52 of 93

Question 51

Question

MCQ▾

Unfavorable bank balance means:

Choices

Choice (4)

a.

Favorable balance in the cash book

b.

Credit balance in the passbook

c.

Credit balance in the cash book

d.

Debit balance in the cash book

Answer

c.

Explanation

The cash book is the statement of account maintained by the account holder. Unfavorable bank balance indicates a negative balance which means that a loan has been taken from the bank and money is owed to bank. In this case, the banks are in expectation of its principal amount along with the interest so, the customers become an asset for the bank. Assets carry a debit balance so; it is debited whereas the unfavorable balance is credited. If the cash book balance is unfavorable it goes to the credit side.

Question 52

Question

MCQ▾

An example of cash flow from investing activity is:

Choices

Choice (4)

a.

Issue of debenture

b.

Sale of investment by non-financial enterprise

c.

Repayment of long-term loan

d.

Payment of dividend

Answer

b.

Explanation

Investing activities include the purchase and sale of long-term assets such as land, buildings, plant, and machinery etc. not held for resale. These activities also include the purchase and sale of such investments which are not included in cash equivalents flow from investing activities discloses the expenditures incurred for resale intended to generate future income and cash flows. Some Special Items: outflow on account of interest and dividend inflow arising from interest and dividends rec investing activities whereas cash outflow should be shown as cash flow from financing

Examples of cash flows from investing activities are:

  • Cash payments to acquire fixed assets
  • Cash receipts from sale of fixed assets

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