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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Kaveri Industries Ltd reports profit before tax of Rs 12,00,000 after charging depreciation Rs 2,00,000 and interest expense Rs 1,00,000, and after crediting profit on sale of a machine Rs 50,000 and dividend income Rs 30,000. Using the indirect method and starting from profit before tax, what is the operating profit before working capital changes?

Operating profit before working capital changes is Rs 14,20,000. Depreciation and interest expense are added back, while profit on sale of the machine and dividend income are deducted because they belong to investing activities and financing or investing classification, not operations.

  1. ARs 14,20,000Correct
  2. BRs 14,50,000
  3. CRs 13,20,000
  4. DRs 14,80,000

Explanation

Start with 12,00,000. Add depreciation 2,00,000 and interest 1,00,000 = 15,00,000. Deduct profit on sale 50,000 and dividend income 30,000 = 14,20,000. Rs 14,80,000 wrongly deducts only the profit on sale from... actually it ignores the dividend and profit adjustments in the wrong direction.

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