CS Executive · Corporate Accounting and Financial Management · Cash Flows
Under Ind AS 7, when the indirect method is used, adjusting profit for items whose cash effects are investing or financing cash flows is required. Which item is deducted from profit in arriving at operating cash flow for this reason?
Profit on sale of a machine is deducted from profit, because under Ind AS 7 paragraph 20(c) items whose cash effects are investing or financing flows are adjusted out of operating activities. The sale proceeds are shown in investing activities.
- AProfit on sale of a machineCorrect
- BLoss on sale of a machine
- CDepreciation on machinery
- DIncrease in trade payables
Explanation
Paragraph 20(c) requires adjusting profit for items whose cash effects are investing or financing cash flows. Profit on sale of a machine is included in profit, but its cash proceeds belong in investing activities, so it is deducted. A loss would be added back, depreciation is non-cash, and payables are a working capital change.
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