READ THE FOLLOWING PASSAGE AND ANSWER THE FOLLOWING QUESTION.
The profit of a company is ₹90,000 after taking into account the following items:
| Particulars | Beginning of the year (₹) | End of the year (₹) |
| Bills Receivables | 40,000 | 50,000 |
| Creditors | 30,000 | 50,000 |
| Debtors | 50,000 | 30,000 |
| * Patents written off ₹40,000 |
| * Profit on sale of fixed assets ₹10,000 |
| * Depreciation on fixed assets ₹40,000 |
| * Interest paid on debentures ₹40,000 |
Identify the part of the change in working capital with reference to the cash flow statement:
Answer & explanation
Correct answer: option 4
The correct answer is option 4- Decrease in bills payable.
Decrease in bills payable- Decrease in B/P is a decrease in current liability. 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 in the operating profit before working capital changes.
- Increase in share capital- FINANCING ACTIVITY
- Increase in building- INVESTING ACTIVITY
- Increase in machinery- INVESTING ACTIVITY