The correct answer is option 1- B and D only.
A. Purchase of Goodwill - Investing activity
B. Transfer to General Reserve- Operating activity as it is added to net profit before tax and Extraordinary Items to calculate the cash flow from operating activity.
C. Issue of fresh shares - Financing activity
D. Gain on sale of machinery- Operating activity as it is deducted from net profit before tax and Extraordinary Items to calculate the cash flow from operating activity.
As per AS-3, under indirect method, net cash flow from operating activities is determined by adjusting net profit or loss for the effect of :
- Non-cash items such as depreciation, goodwill written-off, provisions, deferred taxes, etc., which are to be added back.
- All other items for which the cash effects are investing or financing cash flows. The treatment of such items depends upon their nature. All investing and financing incomes are to be deducted from the amount of net profits while all such expenses are to be added back. For example, finance cost which is a financing cash outflow is to be added back while other income such as interest received which is investing cash inflow is to be deducted from the amount of net profit. Dividend declared is a financial activity and is therefore added back to net profit and shown as out flow under financial activity.
- Changes in current assets and liabilities during the period. Increase in current assets and decrease in current liabilities are to be deducted while increase in current liabilities and decrease in current assets are to be added up.
|
