The accountant of 'Nav Jeevan Limited' while preparing Cash Flow Statement added the proposed dividend of the current year to net profit while calculating cash flow from operating activities. Was he correct in doing so ? Give reason.

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Solution

Yes, the accountant was correct while adding proposed dividend of the current year to net profits while calculating cash flow from operating activities. This is done in order to compute the correct net profit before tax and extraordinary items.

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Depreciation expenses are _________ to net profit while calculating cash flow from operating activities.

Q. Depreciation expenses are to net profit while calculating cash flow from operating activities.

Q. Calculate Cash Flow from Operating Activities from the following information:

INCOME STATEMENT (STATEMENT OF PROFIT AND LOSS)
for the year ended 31st March, 2019
Particulars	Note No.	(₹)
I. Revenue from Operations (Sales)		5,98,000
II. Other Income	1	19,500
III. Total Revnue (I + II)		6,17,500
IV. Expenses;
Cost of Materials Consumed		4,00,000
Change in Inventories of Finished Goods and Work-in-Progress	2	15,000
Employee Benefit Expenses		1,05,000
Depreciation and Amortisation Expenses		15,000
Other Expenses	3	20,000
Total Expenses		5,55,000
V. Profit before Tax (III − IV)		62,500
VI. Tax @ 30%		18,750
VII. Profit after Tax (V − VI)		43,750

Notes to Accounts

Particulars	₹
1. Other Income
Rent	15,000
Gain (Profit) on Sale of Machinery	2,500
Interest on Debentures held as Investments	2,000
	19,500
Changes in Inventories of Finished Goods and Work-in-Progress
(a) Finished Goods
Opening Inventories	37,500
Less: Closing Inventories	25,000
Sub-Total	12,500
(b) Work-in-Progress
Opening Inventories	22,500
Less: Closing Inventories	20,000
Sub-Total	2,500
Total (a + b)	15,000
2. Other Expenses
Office Expenses	12,500
Selling Expenses	6,000
Loss on Sale of Furniture	1,500
	20,000

Current Assets and Current Liabilities	As on 31st March, 2019 (₹)	As on 1st April, 2018 (₹)
Trade Receivables	25,000	20,000
Trade Payables	32,500	35,000
Outstanding Expenses	8,000	5,000
Prepaid Expenses	5,000	3,500

Q. Which of the following items are deducted while calculating Cash Flows from Operating Activities?

In indirect method of preppearation of cash flow statement, the _______ figure from the income statement is used to calculate the amount of net cash flow from operating activities.

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