How will the proposed dividend be treated for the previous year while preparing the cash flow statement?

Added back to net profit

The correct answer is option 1- Added back to net profit.

* It is added back to the net profit before tax since it must have been paid from the net profit this year.

Proposed dividend of previous year after declaration (approved) by the shareholders will be debited to surplus i.e., Balance in Statement of Profit and Loss. While preparing the cash flow statement, previous year's proposed dividend will be added to Act Profit under operating activities and will be shown under financial activity.