While computing cash flow from operating activities, which of the following items will not be adjusted to the net profit?
A. Increase in value of creditors
B. Decrease in income received in advance
C. Decrease in value of inventory
D. Increase in value of patent
E. Issue of share
Choose the correct answer from the option given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → D and E only
Only changes in current assets and current liabilities adjust the net profit in finding cash flow from operating activities. Items of investing or financing activities are left out of that calculation.
A. Increase in value of creditors — False. It is adjusted: an increase in a current liability is added.
B. Decrease in income received in advance — False. It is adjusted: a decrease in a current liability is deducted.
C. Decrease in value of inventory — False. It is adjusted: a decrease in a current asset is added.
D. Increase in value of patent — True. Purchase of patents is an investing activity, not adjusted to net profit.
E. Issue of share — True. It is a financing activity, not adjusted to net profit.
NCERT (2026-27 edition): NCERT (2026-27 edition):
NCERT (2026-27 edition):
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