How finance costs are treated while calculating cash flow from operating activities in the cash flow statement?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Added to net profit.
Finance cost is a cash outflow on account of financing activity. Therefore, the amount of finance cost must be added back to net profit while calculating cash flows from operating activities. This amount of finance cost will be shown as an outflow under the head of financing activities.