Read the following two statements named Assertion (A) and Reason (R).…

The correct answer is option 4- Assertion (A) is not true but Reasoning (R) is correct.

Assertion: While working out the cash flow from operating activities, the starting point is the ‘Net profit before tax’ and not the ‘Net profit before tax and extraordinary items'. This is false. While working out the cash flow from operating activities, the starting point is the ‘Net profit before tax and extraordinary items’ and not the ‘Net profit before tax' only.

Reason: Income tax paid is deducted as the last item to arrive at the net cash flow from operating activities. This is true. Income tax paid is deducted as the last item to arrive at the net cash flow from operating activities.

 

Performa of calculating cash flows from operating activities as per indirect method.

	Particulars	Amount
	Net Profit/Loss before Tax and Extraordinary Items
Add	Deductions already made in Statement of Profit and Loss on account of Non-cash items such as Depreciation, Goodwill to be Written-off.
Add	Deductions already made in Statement of Profit and Loss on Account of Non-operating items such as Interest.
Less	Additions (incomes) made in Statement of Profit and Loss on Account of Non-operating items such as Dividend received, Profit on sale of Fixed Assets.
	Operating Profit before Working Capital changes
Less	in case of increase in current assets (other than cash and cash equivalent) and decrease in current liabilities
Add	in case of decrease in current assets (other than cash and cash equivalent) and increase in current liabilities.
	Cash Flows from Operation Activities before Tax and Extraordinary items
Less	Income Tax Paid
+/–	Effects of Extraordinary Items
	Net Cash from Operating Activities