Study the information given below carefully and answer the following question.
Radhika an alumni of IIM Bangalore initiated her startup Radhika Ltd. in 2020. The profits of Radhika Ltd in the year 2021-2022 after all appropriations was ₹31,25,000. This profit was arrived after taking into consideration the following items:-
| S No | Particulars | Amount ( In ₹) |
| 1 | Gain of sale of assets | 12,50,000 |
| 2 | Goodwill written off | 7,80,000 |
| 3 | Transfer to general Reserve | 8,75,000 |
| 4 | Provision for taxation | 4,37,500 |
Additional Information:
| S No | Particulars | 31.03.2022 ( In ₹) |
31.03.2021 (In ₹) |
| 1 | Prepaid Expenses | 7,50,000 | 5,00,000 |
| 2 | Inventory | 10,50,000 | 8,20,000 |
| 3 | Trades Payable | 4,50,000 | 3,50,000 |
| 4 | Trade Receivable | 6,20,000 | 5,90,000 |
Cash from Operating Activities before tax will be……………………
Answer & explanation
Correct answer: option 1
The correct answer is option 1- ₹35,57,500.
Net profit before tax and Extraordinary items = Net profit after all appropriations + Transfer to general Reserve + Provision for taxation
= 31,25,000 + 4,37,500 + 8,75,000
= 44,37,500
Add : Deductions already made in Statement of Profit and Loss on account of Non-cash items such as Depreciation, Goodwill to be Written-off- 7,80,000
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- 12,50,000
Operating profit before working capital changes = (44,37,500 + 7,80,000 - 12,50,000)
= 39,67,500
Operating Profit before working capital Changes = 39,67,500
Add: Increase in Current liabilities (Trade Payables) = 1,00,000
Less: Increase in Current assets = (Prepaid Exp 2,50,000 + inventory 2,30,000 + Trade Receivables 30,000)=5,10,000
Cash from Operating Activities before tax = 39,67,500 + 1,00,000 - 5,10,000
= ₹35,57,500