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Read the following information and answer the given question: X Ltd. made a profit of 5,00,000 after consideration of the following items: -

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Question

Read the following information and answer the given question:

X Ltd. made a profit of 5,00,000 after consideration of the following items:

   
(i) Goodwill written off 5,000
(ii) Depreciation on Fixed Tangible Assets 50,000
(iii) Loss on Sale of Fixed Tangible
Assets (Machinery)
20,000
(iv) Provision for Doubtful Debts 10,000
(v) Gain on Sale of Fixed Tangible Assets (Land) 7,500

Additional information:

Particulars 31.3.2019
(₹)
31.3.2018
(₹)
Trade Receivables 78,800 52,000
Prepaid Expenses 3,000 2,000
Trade Payables 51,000 30,000
Expenses Payable 20,000 34,000

How will goodwill written off be adjusted in the cash flow statement?

Options

  • Added to the Net Profit Before Tax 

  • Subtracted the Net Profit before Tax 

  • Not recorded in the Cash Flow 

  • None of these

MCQ

Solution

Added to the Net Profit Before Tax

Explanation:

Because it is a non-cash item, it must be added back to net profit in the cash flow statement to arrive at the cash flow from operating activities.

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