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IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information

Rao Textiles Ltd reports profit before tax of Rs 80 lakh, depreciation of Rs 12 lakh and interest expense of Rs 6 lakh. Over the year inventory rose by Rs 9 lakh, trade receivables fell by Rs 4 lakh and trade payables rose by Rs 5 lakh. Treating interest as a financing item, what is cash generated from operations before tax and interest paid?

Cash generated from operations is Rs 98 lakh. Profit of 80 plus depreciation 12 plus interest 6 gives 98, and the working capital movements of minus 9, plus 4 and plus 5 net to zero, leaving the total unchanged.

  1. ARs 88 lakh
  2. BRs 98 lakhCorrect
  3. CRs 92 lakh
  4. DRs 104 lakh
  5. Rs 86 lakh

Explanation

Start with 80, add depreciation 12 and interest 6 to get 98 before working capital. Inventory increase -9, receivables decrease +4, payables increase +5 net to zero. Result is 98. Omitting the interest add-back gives 92, and omitting nothing else is wrong.

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