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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Narmada Traders Ltd had trade receivables of Rs 4,00,000 at the start of the year and Rs 5,50,000 at the end. Trade payables were Rs 3,00,000 at the start and Rs 2,20,000 at the end. Inventory fell from Rs 2,50,000 to Rs 1,90,000. Operating profit before working capital changes is Rs 10,00,000. Ignoring tax, what is the cash generated from operations?

Cash generated from operations is Rs 8,30,000. Increase in receivables of Rs 1,50,000 and decrease in payables of Rs 80,000 reduce cash, while the Rs 60,000 fall in inventory increases it, giving 10,00,000 minus 2,30,000 plus 60,000.

  1. ARs 7,70,000Correct
  2. BRs 8,30,000
  3. CRs 9,30,000
  4. DRs 6,90,000

Explanation

Receivables increase: minus 1,50,000. Payables decrease: minus 80,000. Inventory decrease: plus 60,000. Net = 10,00,000 - 1,50,000 - 80,000 + 60,000 = 7,30,000. Check: this gives Rs 8,30,000? No; 10,00,000-2,30,000+60,000 = 8,30,000.

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