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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Sundaram Textiles Ltd reported profit before tax of Rs 80 lakh. Depreciation was Rs 12 lakh and interest expense was Rs 6 lakh. During the year inventories rose by Rs 9 lakh, trade receivables fell by Rs 4 lakh and trade payables rose by Rs 5 lakh. Income tax paid was Rs 20 lakh. What is net cash from operating activities, treating interest paid as a financing flow?

Net cash from operating activities is Rs 78 lakh. Start with profit before tax of 80, add depreciation 12 and interest 6 to get 98, working capital changes net to nil, and deduct tax paid of 20. Interest is shown in financing, so it is not deducted again.

  1. ARs 78 lakhCorrect
  2. BRs 72 lakh
  3. CRs 84 lakh
  4. DRs 66 lakh
  5. Rs 90 lakh

Explanation

Profit before tax 80 + depreciation 12 + interest 6 = 98. Working capital: -9 + 4 + 5 = 0, so cash generated is 98. Less tax 20 gives 78. Rs 72 lakh wrongly also deducts the interest of 6 as paid, although it is treated as financing here.

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