Question

Goodwill amortised is added to/deducted from the net profit before tax while preparing Cash Flow from Operating Activities.

Answer 1

Goodwill amortized is added to the net profit before tax under the indirect method of preparing Cash Flow from Operating Activities. Amortization is a non-cash expense that reduces net profit on the Income Statement without causing any actual cash outflow. Therefore, to calculate the true cash generated from operations, this non-cash reduction must be added back to the net profit.