Which of the following items will be added to the net profit while calculating Cash Flow from operating activities.
A. Increase in Creditors
B. Increase in Patents
C. Decrease in Prepaid expenses
D. Increase in Share capital
E. Increase in Building
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A and C only
Under the indirect method, changes in working capital adjust the net profit: a decrease in a current asset or an increase in a current liability is added back. Changes in fixed assets and capital belong to investing and financing activities.
A. Increase in Creditors — True. An increase in a current liability is added.
B. Increase in Patents — False. Buying patents (an intangible fixed asset) is an investing outflow.
C. Decrease in Prepaid expenses — True. A decrease in a current asset is added.
D. Increase in Share capital — False. Cash from issuing shares is a financing inflow.
E. Increase in Building — False. Buying a building is an investing outflow.
NCERT (2026-27 edition): NCERT (2026-27 edition):
NCERT (2026-27 edition):
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