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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Kaveri Traders Ltd. reported net profit before tax and extraordinary items of Rs 6,00,000. Adjustments: depreciation Rs 90,000; loss on sale of machinery Rs 15,000; interest expense Rs 40,000; profit on sale of investments Rs 25,000. Increase in trade receivables Rs 70,000; increase in trade payables Rs 30,000. Using the indirect method, cash generated from operations before tax is:

Cash generated from operations is Rs 6,80,000. Add back depreciation, loss on sale and interest to the profit, deduct the profit on investments, then deduct the increase in receivables and add the increase in payables. This gives 7,20,000 minus 70,000 plus 30,000 less 0 other adjustments.

  1. ARs 6,80,000Correct
  2. BRs 6,50,000
  3. CRs 6,90,000
  4. DRs 6,00,000

Explanation

Start 6,00,000 + depreciation 90,000 + loss on sale 15,000 + interest 40,000 = 7,45,000. Less profit on investments 25,000 = 7,20,000. Working capital: less receivables increase 70,000 and add payables increase 30,000 = 6,80,000. Rs 6,50,000 arises if the payables increase is ignored and the interest is not added back wrongly... actually it results from subtracting rather than adding the payables increase.

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