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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. - Accountancy

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 the proposed dividend of the current year to net profits while calculating cash flow from operating activities. This helps in the correct computation of the net profit before tax and extraordinary items.

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