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CS Executive · Corporate Accounting and Financial Management · Cash Flows

Under Ind AS 7, when the net cash flow from operating activities is determined by the indirect method, profit or loss is adjusted for items 'for which the cash effects are investing or financing cash flows'. Which is an example?

Loss on sale of fixed assets is the example. It reduces profit but the real cash proceeds belong in investing activities, so the loss is added back when computing operating cash flow under the indirect method, as paragraph 20(c) requires.

  1. ALoss on sale of fixed assetsCorrect
  2. BProceeds from issue of shares
  3. CPurchase of investments
  4. DRepayment of borrowings

Explanation

Paragraph 20(c) requires adjusting profit for items whose cash effects are investing or financing flows. A loss on sale of fixed assets is deducted in profit, but the cash received is shown in investing, so it is added back. The other options are themselves investing or financing flows, not profit adjustments.

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