Identify the starting point for working

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Target Exam

CUET

Subject

-- Accountancy Part B

Chapter

Cash Flow Statement

Question:

Identify the starting point for working out the Cash Flow from Operating Activities.

Options:

Net profit before Tax

Net profit before tax and Extraordinary items

Net cash from operating activities

Cash flows from operating activities before Tax and Extraordinary items

Correct Answer:

Net profit before tax and Extraordinary items

Explanation:

The correct answer is Option 2 - Net profit before tax and Extraordinary items.

The starting point for working out the Cash Flow from Operating Activities is Net profit before tax and Extraordinary items.

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