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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Kaveri Pharma Ltd. reports profit before tax of Rs 12,00,000 after charging depreciation Rs 2,40,000 and interest expense Rs 80,000, and after crediting dividend income Rs 50,000 and profit on sale of machinery Rs 30,000. Trade receivables increased by Rs 1,00,000, inventories decreased by Rs 60,000 and trade payables increased by Rs 40,000. Income tax paid was Rs 2,00,000. What is the net cash generated from operating activities (non-financial enterprise, interest paid classified as financing)?

Net cash from operating activities is Rs 12,40,000. Start with PBT, add back depreciation and interest, deduct dividend income and profit on sale, which belong to investing or financing. Working capital changes net to nil. Then deduct tax paid of Rs 2,00,000.

  1. ARs 12,10,000Correct
  2. BRs 12,40,000
  3. CRs 11,60,000
  4. DRs 10,10,000

Explanation

Profit before tax 12,00,000 + depreciation 2,40,000 + interest 80,000 - dividend 50,000 - profit on sale 30,000 = 14,40,000. Working capital: -1,00,000 + 60,000 + 40,000 = 0, so cash from operations is 14,40,000. Less tax paid 2,00,000 gives 12,40,000. Re-checking the list: 12,00,000+2,40,000=14,40,000; +80,000=15,20,000; -80,000 (dividend and profit) = 14,40,000. Net after tax = 12,40,000, so the key is option 2 below.

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