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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Narmada Traders Ltd had opening trade receivables of Rs 6,40,000 and closing trade receivables of Rs 5,90,000. Opening trade payables were Rs 3,10,000 and closing trade payables were Rs 3,65,000. Opening inventory was Rs 4,20,000 and closing inventory Rs 4,95,000. Operating profit before working capital changes was Rs 9,00,000. What is cash generated from operations?

Cash generated from operations is Rs 9,30,000. A fall in receivables of Rs 50,000 and a rise in payables of Rs 55,000 add cash, while a rise in inventory of Rs 75,000 reduces it, giving a net addition of Rs 30,000 to the Rs 9,00,000 operating profit.

  1. ARs 9,30,000Correct
  2. BRs 8,70,000
  3. CRs 9,80,000
  4. DRs 8,20,000

Explanation

Decrease in receivables adds 50,000. Increase in payables adds 55,000. Increase in inventory deducts 75,000. Net adjustment = +30,000. Cash generated = 9,00,000 + 30,000 = 9,30,000. Rs 8,70,000 arises from reversing the sign of the net adjustment.

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