Arrange the following steps in the correct sequence while calculating the cash flow from operating activities:
(A) Add in profit deductions already made in the Statement of Profit and Loss on account of non-cash items
(B) Calculate Operating Profit before Working Capital changes
(C) Deduct additions (incomes) made in the Statement of Profit and Loss on Account of Non-operating items
(D) Calculate Net Profit/Loss before Tax and Extraordinary Items
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (D), (A), (C), (B)
Under the indirect method, the profit figure is adjusted step by step until it shows only the operating profit, and only then are working capital changes taken in:
(D) Calculate Net Profit/Loss before Tax and Extraordinary Items — the starting point.
(A) Add in profit deductions already made in the Statement of Profit and Loss on account of non-cash items — depreciation, goodwill written off and similar items are added back.
(C) Deduct additions (incomes) made in the Statement of Profit and Loss on Account of Non-operating items — dividend received, profit on sale of fixed assets and similar incomes are taken out.
(B) Calculate Operating Profit before Working Capital changes — the result of these adjustments.
NCERT (2026-27 edition):
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