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Question

State with reasons whether following statements are True or False:
Higher depreciation will not affect cash profit of the business.

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Solution

This statement is true. Depreciation is a non cash accounting charge and does not have a direct impact on the amount of cash flow generated by a company. since, depreciation was taken out while calculating net income and is not a cash outlay, depreciation is added back in profits, while creating the cash flow statement.

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