Question

While computing cash from operating activities, which of the following item(s) will be added to the net profit?

1. Decrease in value of inventory
2. Increase in share capital
3. Increase in the value of trade receivables
4. Increase in the amount of outstanding expenses

Options

• Only (i)

• Only (i) and (ii)

• Only (i) and (iii)

• Only (i) and (iv)

Answer 1

Only (i) and (iv)

Explanation:

A decrease in inventory means goods worth less are being held, freeing up cash that would otherwise be tied up in stock. An increase in outstanding expenses means expenses have been incurred but not yet paid, so the business retains more cash in the short term.