CS Executive · Corporate Accounting and Financial Management · Cash Flows
Which of the following is a non-cash item that is adjusted to net profit when determining cash flow from operating activities under the indirect method, as listed in the standards?
Depreciation is a non-cash item that is added back to net profit under the indirect method. It reduces profit but involves no cash outflow. Share issue proceeds, plant purchases and loan repayments are financing or investing cash flows, not operating adjustments.
- AProceeds from issue of equity shares
- BPurchase of plant and machinery
- CDepreciationCorrect
- DRepayment of long-term borrowings
Explanation
The standards list non-cash items such as depreciation, provisions, deferred taxes and unrealised foreign exchange gains and losses as adjustments to profit. The other options are actual investing or financing cash flows, not operating adjustments.
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