Discussion
ABC Ltd. has profit after tax ₹ 80,000, Depreciation ₹ 15,000 and decrease in debtors ₹ 25,000. What is the cash flow from operating activities ?
Answer: C
Cash flow from operating activities is ₹ 1,20,000.
Under the indirect method, start from profit, add back non-cash charges and adjust for changes in working capital. A decrease in debtors means cash was collected, so it is added.
\[ \begin{aligned} \text{CFO} &= 80{,}000 + 15{,}000 + 25{,}000 \\ &= 1{,}20{,}000 \end{aligned} \]
₹ 55,000 and ₹ 40,000 come from treating the decrease in debtors (and depreciation) as deductions; ₹ 65,000 deducts depreciation instead of adding it back.
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