Accountancy Part BCash Flow Statement

Identify the item that is treated as non-cash, while preparing Cash F…

Identify the item that is treated as non-cash, while preparing Cash Flow Statement as per AS-3, under indirect method.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Deferred taxes

Under the indirect method of AS-3, net profit is adjusted for non-cash items such as depreciation, goodwill written off, provisions and deferred taxes, which are added back because no cash moved.

Option (1) Goodwill purchased — Incorrect. Buying goodwill is a cash outflow from investing activities.

Option (3) Debenture interest — Incorrect. It is paid in cash and shown under financing activities.

Option (4) Dividend paid — Incorrect. It is a cash outflow from financing activities.

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “… As per AS-3, under indirect method, net cash flow from operating activities is determined by adjusting net profit or loss for the effect of : Non-cash items such as depreciation, goodwill written-off, provisions, deferred taxes, etc., which are to be added back.”