Miscellaneous Questions


Q. What do you understand by Cash Flow Statement? What are the broad headings and important sub-classifications to be incorporated under as per accounting standard? (June 03)

A Cash Flow Statement is similar to the Funds Flow Statement, but while preparing funds flow statement all the current assets and current liabilities are taken into consideration. But in a cash flow statement only those sources of funds are taken which provide cash and only the uses of cash are taken into consideration, even liquid asset like Debtors and Bills Receivables are ignored.

A Cash Flow Statement is a statement, which summarizes the resources of cash available to finance the activities of a business enterprise and the uses for which such resources have been used during a particular period of time. Any transaction, which increases the amount of cash, is a source of cash and any transaction, which decreases the amount of cash, is an application of cash.

 

Cash Flow Statement
for the year ending----

    Rs. Rs.
  A. Cash flow from Operating Activities:    
  Net profit before tax and extraordinary items ------  
  Adjustment for:    
  Depreciation ------  
  Loss on sale of fixed assets ------  
  Gain on sale of fixed assets (------)  
  Interest paid ------  
  Interest received (------)  
  Dividend received (------)  
  Operating profit before working capital changes ------  
  Add: Decrease in Current Assets ------    
  Increase in Current Liabilities ------ ------  
    ------  
  Less: Increase in Current Assets ------    
  Decrease in Current Liabilities ------ (------)  
  Cash generated from operating activities ------  
  Income Tax Paid ------  
    ------  
  Cash flow from before extraordinary items ------  
  (+) or (-) Extraordinary items ------ ------
  Net cash from operating activities   ------
  B. Cash flows from Investing Activities: ------  
  Purchase of fixed assets ------  
  Sale of fixed assets ------  
  Purchase of Investment (long-term) ------  
  Sale of Investment (long-term) ------  
  Net cash from investing activities   ------
  C. Cash flows from Financial Activities: ------  
  Proceeds from issue of share capital ------  
  Proceeds from long-term borrowing ------  
  Repayment or long-term borrowings ------  
  Net cash from financing activities ------ ------
  Net Increase (or decrease) in cash and cash equivalents (A + B + C)   ------
  Cash and cash equivalents at the beginning   ------
  Cash and cash equivalents at the end   ------

Q. Elucidate the various cost reduction techniques, highlighting the importance of cost reduction under the present scenario. How is it different from cost control? (June 02)

Cost accounting is concerned with:

  • Ascertaining the costs
  • Controlling the costs
  • Reducing the costs

Cost reduction is different than cost control methods. These may involve the following:

  • More production in a specified time. Thus cost pert unit will be less.
  • More production with the available work force
  • Optimum utilization of plant and machinery

The main idea behind the cost reduction technique is to reduce cost of production per unit of a product. Cost reduction techniques to reduce material costs are inventory control techniques. These include EOQ (Economic Order Quantity) which reduces inventory-carrying costs. Queuing technique help in optimum utilization of plant & machinery.

 Difference between Cost Controlling & Cost Reduction Techniques

Both are part of cost accounting. The former starts before production starts, but the latter takes place during the production process. Cost control can be applied to direct cost only but cost reduction techniques can be applied for both direct & indirect costs. Cost control is used in direct labour costs, by choosing minimum labour for desired production. Cost reduction techniques will see that the labour is used for obtaining more than targeted production.

 
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