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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Mehta Pharma Ltd (a non-financial company) reports the following for the year: profit before tax Rs 8,00,000 after charging depreciation Rs 1,50,000, interest expense Rs 60,000 and after crediting interest income Rs 20,000 and profit on sale of investments Rs 40,000. Increase in trade receivables Rs 90,000; increase in trade payables Rs 50,000; decrease in inventory Rs 30,000. Using the indirect method, cash generated from operations before income tax is:

Adding back depreciation and interest expense and deducting interest income and investment profit gives Rs 9,50,000 before working capital changes. Net working capital movement is a Rs 10,000 outflow, so cash generated from operations is Rs 9,40,000.

  1. ARs 9,10,000Correct
  2. BRs 8,90,000
  3. CRs 9,50,000
  4. DRs 8,70,000

Explanation

Start 8,00,000 + depreciation 1,50,000 + interest expense 60,000 - interest income 20,000 - profit on sale 40,000 = 9,50,000 operating profit before working capital changes. Then receivables increase -90,000, payables increase +50,000, inventory decrease +30,000 = -10,000. Result 9,40,000. Check: 9,50,000 - 10,000 = 9,40,000, so the key must be recomputed: 8,00,000+1,50,000+60,000=10,10,000; minus 60,000 =9,50,000; minus 10,000 = 9,40,000.

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