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During the year ended 31 March 2027, ABC Ltd. reported profit before tax of Rs. 2,20,000. Depreciation expense charged was Rs. 40,000. Trade receivables increased by Rs. 15,000, inventories increased by Rs. 8,000, and trade payables decreased by Rs. 5,000. Interest paid was Rs. 6,000 and tax paid was Rs. 30,000. Using the indirect method, calculate the cash flow from operating activities.

medium 2 marks Class 12 · Accountancy · Cash Flow Statement
Answer
Cash flow from operating activities = Rs. 1,96,000

The correct answer is Cash flow from operating activities = Rs. 1,96,000 — Hence, cash flow from operating activities = Rs. 1,96,000.

Step-by-step solution

  1. Start with profit before tax: Rs. 2,20,000.
  2. Add back non‑cash depreciation: Rs. 2,20,000 + Rs. 40,000 = Rs. 2,60,000.
  3. Subtract increase in trade receivables (cash outflow): Rs. 2,60,000 - Rs. 15,000 = Rs. 2,45,000.
  4. Subtract increase in inventories (cash outflow): Rs. 2,45,000 - Rs. 8,000 = Rs. 2,37,000.
  5. Subtract decrease in trade payables (cash outflow): Rs. 2,37,000 - Rs. 5,000 = Rs. 2,32,000.
  6. Subtract interest paid: Rs. 2,32,000 - Rs. 6,000 = Rs. 2,26,000.
  7. Subtract tax paid: Rs. 2,26,000 - Rs. 30,000 = Rs. 1,96,000.
  8. Hence, cash flow from operating activities = Rs. 1,96,000.
Common mistake: Adding increases in inventories or receivables instead of subtracting them

Concept tested: Indirect method calculation

Published · How this solution was prepared and checked

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