Cash flow question query
Vader
Registered Posts: 15
Hi, could anyone please help with this question, calculating the Net cash from operating activities:
Dep charge = £200
SPL
Revenue £1397
Cost of sales £(1110)
Gross Profit £287
Gain on Disposal of PPE £80
Operating Expenses (£205)
Profit from Operations £162
Dividends received and gain on investments £20
Finance costs (£40)
Profit before tax £142
Tax (£57)
Profit for year from continuing operations £85
So the answer is:
Profit from operation £162
Adjustments for:
Depreciation £200
Gain on disposal (£80)
Decrease in inventories £30
Decrease in trade payables (£202)
Decrease in trade receivables £110
Cash generated by operations:
Tax Paid (£50)
Interest paid (£40)
Net cash from opetation activities £130
What I want to know is, in the 'adjustments for' bit, why isn't finance costs of £40 added on and dividends received of £20 taken off?
Thanks
Dep charge = £200
SPL
Revenue £1397
Cost of sales £(1110)
Gross Profit £287
Gain on Disposal of PPE £80
Operating Expenses (£205)
Profit from Operations £162
Dividends received and gain on investments £20
Finance costs (£40)
Profit before tax £142
Tax (£57)
Profit for year from continuing operations £85
So the answer is:
Profit from operation £162
Adjustments for:
Depreciation £200
Gain on disposal (£80)
Decrease in inventories £30
Decrease in trade payables (£202)
Decrease in trade receivables £110
Cash generated by operations:
Tax Paid (£50)
Interest paid (£40)
Net cash from opetation activities £130
What I want to know is, in the 'adjustments for' bit, why isn't finance costs of £40 added on and dividends received of £20 taken off?
Thanks
0
Comments
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Hello Lord Vader,
In order to answer this question you first have to move away from the dark side of the force
The finance costs are not added back as an adjustment because they are not included in Profit from Operations. You may come across another cash flow question where you would have to start from Profit before Tax as the interest per the Income statement does not equal interest paid (due to accruals) however I do not think this appears in an AAT exam.
Dividends received again for the same reason are not part of operating Profit.
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Someone has to do the Death Star accounts
Thanks for your answer, but aren't finance costs always subtracted from operating profit (so not included in profit from operations).0 -
Hi Vader,
Yes, you are correct - therefore as finance costs are not included operating proift there is no need to adjust for them when calculating cash generated by operations.
Hope this makes sense.1
