If the net profit earned during the year is Rs.50,000 and amount of Depreciation during the year is Rs.15,000, then the cash flow from operating activities will be equal to Rs. _______.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs.65,000
Depreciation is deducted in arriving at net profit but involves no payment of cash. So, under the indirect method, it is added back to the net profit to find the cash flow from operating activities.
Net profit = Rs. 50,000
Add: Depreciation (non-cash expense) = Rs. 15,000
Cash flow from operating activities = Rs. 50,000 + Rs. 15,000 = Rs. 65,000
Deducting the depreciation (Rs. 35,000) would count it twice, since it has already reduced the profit.