Question

While preparing the Cash Flow Statement, the accountant of Red Hill Co. Ltd. was undecided about the impact of amortisation of discount on issue of debentures of ₹ 10,000 on the company’s Net Operating Profit before working capital changes.

What should the accountant do to resolve this issue? Give a reason for your answer.

Answer 1

The company’s profit declines due to the non-cash amortization of the debenture discount. To find the Net Operating Profit before Working Capital Changes, this amount is added to the net profit before taxes and other unusual items.