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Question
For the year ended 31st March 2025, Sona Ltd. made a profit of ₹ 4,00,000 after charging depreciation of ₹ 75,000 on fixed assets and a transfer of ₹ 1,50,000 to the general reserve.
Goodwill written off during the year was ₹ 80,000. The company sold machinery with a book value of ₹ 90,000 for ₹ 95,000. During the year, trade receivables increased by ₹ 40,000 and trade payables increased by ₹ 30,000. Prepaid expenses increased by ₹ 2,000, and outstanding wages decreased by ₹ 20,000.
Calculate cash flows from operating activities.
Ledger
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Solution
| Particulars | Details (₹) | Amount (₹) |
| Net Profit before tax and extraordinary items (Note 1) | 5,50,000 | |
| Adjustment for non-cash and non-operating items: | ||
| Add: Depreciation on fixed assets | 75,000 | |
| Add: Goodwill written off | 80,000 | |
| Less: Gain on sale of machinery (95,000 − 90,000 | (5,000) | 1,50,000 |
| Operating profit before working capital changes | 7,00,000 | |
| Adjustment for working capital changes: | ||
| Add: Increase in trade payables (current liability) | 30,000 | |
| Less: Increase in trade receivables (Current asset) | (40,000) | |
| Less: Increase in prepaid expenses (Current asset) | (2,000) | |
| Less: Decrease in outstanding wages (Current liability) | (20,000) | (32,000) |
| Cash flow from operating activities | 6,68,000 |
Working notes:
Calculation of Net Profit before Tax:
Net profit as per P&L: ₹ 4,00,000
(+) Transfer to general reserve: ₹ 1,50,000
Total: ₹ 5,50,000
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