Lesson eLearning

When preparing the Cash Flow Statement using the indirect method, which of the following adjustments is made to reconcile profit before tax to cash provided by operating activities?

medium MCQ 2 marks Class 12 · Accountancy · Financial Statements of a Company
  1. Add depreciation expense
  2. Add interest expense
  3. Add loss on sale of assets
  4. All of the above
Answer
All of the above

The correct answer is All of the above — Thus all listed adjustments are required.

Step-by-step solution

  1. Identify non‑cash items that affect profit but not cash: depreciation, interest received, loss on sale of assets.
  2. Add depreciation (non‑cash expense) back to profit.
  3. Add interest received (cash inflow) to profit.
  4. Add loss on sale of assets (non‑cash loss) back to profit.
  5. Thus all listed adjustments are required.
Common mistake: Confusing interest expense with interest received, or forgetting depreciation addition

Concept tested: Adjustments in indirect cash flow statement

Published · How this solution was prepared and checked

← All Financial Statements of a Company questions