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CMA Intermediate · Financial Management and Business Data Analytics · Cash Flow Statement - Preparation and Analysis

Sharma Traders reported net profit before tax of ₹5,00,000 after charging depreciation ₹80,000 and interest expense ₹30,000, and after crediting profit on sale of machinery ₹20,000. Using the indirect method starting from profit before tax, operating profit before working capital changes is:

Operating profit before working capital changes is ₹5,90,000. Start with profit before tax of ₹5,00,000, add back depreciation ₹80,000 and interest ₹30,000, and deduct the ₹20,000 profit on sale of machinery, which belongs to investing activities.

  1. A₹5,90,000Correct
  2. B₹5,70,000
  3. C₹5,50,000
  4. D₹6,10,000

Explanation

Add back depreciation 80,000 and interest 30,000 (shown under financing), and deduct the profit on sale of machinery 20,000 (investing). 5,00,000 + 80,000 + 30,000 - 20,000 = 5,90,000. Option ₹5,70,000 ignores the interest add-back.

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