Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Cash Flow Statement

Question:

If net profit is Rs 35,000 after writing off goodwill Rs 6,000 and loss on sale of computer Rs 2,000, cash flow from operating activities will be:

Options:

₹35000

₹37000

₹41000

₹43000

Correct Answer:

₹43000

Explanation:

To calculate cash flow from operating activities using the indirect method, we have to start with net profit and then adjust for non-cash expenses and losses. In this case, we have to add back the goodwill write-off and the loss on the sale of a computer to the net profit.
Net Profit: ₹35,000
Goodwill Write-off: ₹6,000
Loss on Sale of Computer: ₹2,000
Cash Flow from Operating Activities = Net Profit + Non-Cash Expenses + Non-Cash loss
                                                        = ₹35,000 + ₹6,000 + ₹2,000
                                                        = ₹43,000