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Target Exam

CUET

Subject

-- Accountancy Part B

Chapter

Cash Flow Statement

Question:

Read the following passage and answer the question.

A company has a net profit after tax of ₹5,60,000 in the current year 2022. Company write off the bad debts of ₹5,000 during the year. Depreciation charged on fixed assets is ₹40,000. Company sold the investments and a gain of ₹10,000 arise. The following details are given-

Particulars 2021 (₹) 2022 (₹)
Trade receivables 70,000 90,000
Trade payables 45,000 70,000
Outstanding expenses 5,000 1,000
Prepaid expenses - 2,000
Provision for taxation 16,000 25,000

What is the cash amount that is generated from operating activities ignoring tax?

Options:

₹5,98,000

₹6,14,000

₹6,04,000

₹6,45,000

Correct Answer:

₹6,14,000

Explanation:

The correct answer is option 2- ₹6,14,000.

 Cash flow statement

Particulars Amount (₹) Amount (₹)
Net profit before tax (*note 1)
   5,85,000
Adjustments for non-cash and non-operating items    
Add: Dep 40,000  
Add: Bad debts written off 5,000  
Less: Profit on sale of investments 10,000 35,000
OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES   6,20,000
Add: Increase in trade payables 25,000  
Less: Increase in trade receivables (*Note 3) 25,000  
Less: Increase in prepaid expenses 2,000  
Less: Decrease in o/s expenses 4,000 6,000
CASH GENERATED FROM OPERATING ACTIVITIES   6,14,000

 

* Note 1- Provision for tax for the 2022 is added back to profit to calculate the profit before tax. So, profit before tax is 5,60,000 + 25,000 = 5,85,000

* Note 3- Trade receivables are to be adjusted for the bad debts.  Trade receivables decreased by 25,000 (70,000 - 5,000 - 90,000).

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