Question

Increase in Fixed Assets due to cash purchase is

• A. Source of fund
• B. Application of fund
• C. Inflow of fund
• D. None of these

Hint:

Application of fund = Using cash to acquire fixed assets; Source of fund = Raising money.

Answer 1

The Correct Option is B

Step 1: Understanding fund flow.
Fund flow analysis studies the sources and applications of funds in a business.
Any increase in fixed assets means money is being used, not generated.
Step 2: Cash purchase of fixed assets.
When a company buys land, buildings, or machinery with cash, funds are applied or used up.
This reduces available liquidity but increases long-term assets.
Step 3: Option analysis.
- (A) Source of fund: Wrong, because it consumes funds, not generates.
- (B) Application of fund: Correct, cash is used for acquiring fixed assets.
- (C) Inflow of fund: Wrong, this is an outflow.
- (D) None of these: Wrong, since (B) is right.
Step 4: Conclusion.
Cash purchase of fixed assets is an application of funds.