How will (Patents written off ₹40,000)

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Target Exam

CUET

Subject

Accountancy

Chapter

Cash Flow Statement

Question:

The profit of a company is ₹90000 after taking into account the following items:

* Patents written off ₹40,000

* Profit on sale of fixed assets ₹10,000

* Depreciation on fixed assets ₹40,000

* Interest paid on debentures ₹40,000

How will (Patents written off ₹40,000) be treated while preparing the cash flow statement?

Options:

Added to net profit before tax

Deducted from net profit before tax

Not treated

Added in financing activity

Correct Answer:

Added to net profit before tax

Explanation:

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

Writing off patents is a non-cash item. So, it is added back to profit to know the cash flow of the company.