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

Sundaram Textiles Ltd reports net profit of ₹8,00,000 for the year, depreciation of ₹1,50,000, a gain on sale of machinery of ₹40,000, an increase in trade receivables of ₹90,000 and an increase in trade payables of ₹30,000. Using the indirect method, what is the net cash flow from operating activities (ignore tax separately)?

Operating cash flow is ₹8,50,000. Profit of ₹8,00,000 plus depreciation of ₹1,50,000 is adjusted by deducting the ₹40,000 gain on sale, deducting the ₹90,000 rise in receivables and adding the ₹30,000 rise in payables, because the gain is investing in nature and working capital changes shift cash.

  1. A₹8,50,000Correct
  2. B₹8,30,000
  3. C₹9,10,000
  4. D₹8,70,000

Explanation

Start with profit 8,00,000, add depreciation 1,50,000 = 9,50,000. Deduct the non-operating gain 40,000 = 9,10,000. Deduct increase in receivables 90,000 = 8,20,000. Add increase in payables 30,000 = 8,50,000. The option 9,10,000 stops before the working capital changes, and 8,30,000 wrongly adds the gain.

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