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CMA Intermediate · Corporate Accounting and Auditing · Cash Flow Statement

Net profit before tax of Anand Foods Ltd for the year is ₹9,00,000 after charging depreciation ₹1,50,000 and interest expense ₹60,000, and after crediting profit on sale of an old machine ₹40,000 and interest income ₹30,000. Interest paid and interest income are classified under financing and investing activities respectively. What is the operating profit before working capital changes?

Operating profit before working capital changes is ₹10,40,000. Add back depreciation and interest expense to profit before tax, and deduct the profit on sale of the machine and the interest income, because those belong to non-operating classifications: 9,00,000 + 1,50,000 + 60,000 − 40,000 − 30,000.

  1. A₹10,40,000Correct
  2. B₹10,60,000
  3. C₹10,80,000
  4. D₹10,00,000

Explanation

Start with 9,00,000. Add depreciation 1,50,000 and interest expense 60,000 = 11,10,000. Deduct profit on sale 40,000 and interest income 30,000 = 10,40,000. Taking only the profit on sale as an adjustment gives 10,70,000; forgetting interest income gives 10,70,000 too, so both items must be removed.

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