Question

Shyam is running a start-up. His initial investments are high and he is trying hard to manage and increase his cash flow. The sundry expenses that his firm incurs is negligible. He found from his accountant that the amount of pre-paid expenses in the balance sheet,
which were booked from the previous year to the current year was increased. Shyam also ensured that his cash funded by the venture capitalists did not reduce when compared to the previous year. The interest that he gets from his fixed deposits increases, which is in tune with his sundry expenses. The final effect on cash for this year would be _____________.

• A. Cash flow marginally increases
• B. Cash flow exponentially increases
• C. Cash flow remains the same
• D. None of the above

Answer 1

The Correct Option is D

To determine the final effect on cash for Shyam's start-up, we need to analyze the provided information about the cash sources and uses:

1. Pre-Paid Expenses: These have increased, meaning more cash was used to pay for expenses in advance, reducing available cash.
2. Venture Capital Funding: The cash funded by venture capitalists has not reduced, keeping the cash flow stable.
3. Interest From Fixed Deposits: Increases in interest from fixed deposits provide an increase in cash, but only in line with sundry expenses, suggesting no significant increase in net cash flow. 
4. Sundry Expenses: They are negligible and matched by the interest from fixed deposits, indicating a neutral impact on cash flow.

By evaluating these components, Shyam's cash flow is affected by the increase in pre-paid expenses, which tie up cash that could have been used elsewhere. Despite stable funding and interest flow, this increase in pre-paid expenses leads to a reduction in net cash, which means the cash flow will likely decrease slightly. Thus, the correct option should be "None of the above." None of the other options—marginal increase, exponential increase, or remaining the same—fit the analysis provided.