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ACCA Applied Knowledge · Financial Accounting · Statement of cash flows (excluding partnerships)

Kestrel Ltd reported a profit before tax of $84,000 for the year. The statement of profit or loss included depreciation of $18,000, a profit on disposal of non-current assets of $6,000 and finance costs of $5,000. Working capital movements are ignored. Using the indirect method, what is the cash flow from operations before working capital changes?

The figure is $101,000. Begin with profit before tax of $84,000, add back depreciation of $18,000 and finance costs of $5,000, and deduct the $6,000 disposal profit because it is a non-cash gain reported under investing activities rather than operations.

  1. A$101,000Correct
  2. B$91,000
  3. C$96,000
  4. D$107,000

Explanation

Start with profit before tax $84,000. Add depreciation $18,000, deduct the profit on disposal $6,000 (non-cash gain, shown in investing), and add back finance costs $5,000 (shown in financing). 84,000 + 18,000 - 6,000 + 5,000 = $101,000. $96,000 results from forgetting to add back finance costs and also not deducting... actually from omitting the profit adjustment sign incorrectly; $107,000 adds the profit instead of deducting it.

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