Which of the following will be added in Net Profit before tax & extraordinary items, to reach at operating profit before Working Capital changes?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) - Depreciation.
Depreciation is a non cash item which should be added back to net profit before tax and ordinary items because there is no use of cash in depreciation.
Net Profit/Loss before Tax and Extraordinary Items
ADD: Deductions already made in Statement of Profit and Loss on account of Non-cash items such as Depreciation, Goodwill to be Written-off.
ADD: Deductions already made in Statement of Profit and Loss on Account of Non-operating items such as Interest.
DEDUCT: Additions (incomes) made in Statement of Profit and Loss on Account of Non-operating items such as Dividend received, Profit on sale of Fixed Assets
Operating Profit before Working Capital changes