In the indirect method of cash flow, net profit is adjusted for: MCQ with Answer and Explanation

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In the indirect method of cash flow, net profit is adjusted for:

A. Only dividends

B. Only depreciation

C. Only taxes

D. Non-cash items and changes in working capital

Answer: Option D

Solution (By JKSSB Mock Tests)

Indirect method starts with net profit and adjusts for non-cash expenses, non-operating items, and working capital changes.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

If a partner takes over an unrecorded liability during dissolution, the accounting entry is:

A. No entry is required

B. Debit Realisation A/c, Credit Partner's Capital A/c

C. Debit Partner's Capital A/c, Credit Realisation A/c

D. Debit Liability A/c, Credit Cash

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Correct Answer: Option B

Explanation:
The firm is assuming a cost (Debit Realisation) and compensating the partner who took the liability (Credit Partner's Capital).

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Question #2

A: Marginal cost is the cost of producing one additional unit. R: Marginal cost includes both fixed and variable costs. Choose the correct option.

A. A is false but R is true

B. Both A and R are true but R is NOT the correct explanation of A

C. Both A and R are true and R is the correct explanation of A

D. A is true but R is false

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Correct Answer: Option D

Explanation:
Marginal cost is indeed the cost of producing one additional unit. However, it only includes variable costs, as fixed costs do not change with the level of production in the short term. A is true, R is false.

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Question #3

Which of the following is not a feature of a partnership?

A. Separate legal entity

B. Sharing of profits

C. Unlimited liability

D. Agreement between partners

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Correct Answer: Option A

Explanation:
A partnership firm does not have a separate legal entity distinct from its partners (except limited liability partnerships).

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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