CS Executive · Corporate Accounting and Financial Management · Cash Flows
Sundaram Traders Ltd reported net profit before tax of ₹5,00,000 after charging depreciation of ₹80,000 and after crediting profit on sale of an old machine of ₹20,000. Interest and other items are nil. What is the operating profit before working capital changes?
Operating profit before working capital changes is ₹5,60,000. Depreciation of ₹80,000 is added back as a non-cash item, and the ₹20,000 profit on sale of the machine is deducted because its cash effect belongs to investing activities.
- A₹5,60,000Correct
- B₹5,80,000
- C₹5,00,000
- D₹6,00,000
Explanation
Add back non-cash depreciation: 5,00,000 + 80,000 = 5,80,000. Deduct profit on sale of machine, because its cash effect is an investing flow: 5,80,000 - 20,000 = 5,60,000. The option ₹5,80,000 wrongly leaves the profit on sale in operating activities.
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