Answer to Question #247989 in Finance for RAJESH

Question

1. The net profit before taxes as per the profit and loss account, of Gaman Ltd is Rs 269244. With the given set of information, classify the given items as (operating / investing / financing), share the correct classification with logical reasoning

And calculate the cash flow from operating activities

Loss on sale of asset

95780

dividend income

26000

interest income

35000

finance cost paid on debentures

12000

gain on sale of investment

45000

Depreciation on fixed assets

85000

Amortisation Expenses

110000

Answer 1

Loss on sale of asset ==> investing

Divided income. ===> investing

Interest income. ==> investing

Finance cost paid on debenture ==> Finanacing

Gain on sale of investment ==> investment

depriciation on fixed assets==> operating

amortization expenses==> operating

Cashflow from operating activities= (269244)+(95780)-(2600)-(35000)+(12000)-(45000)+(85000)+(110000)= 466024 (answer)

Explanation

Depriciation although operating item but does not result into outflow of cash. Since it has been deducted to arrive at the figure of net profit before taxes the same must be added to arrive at cash flows, Similarly we shall treat amortization expenses

Depriciation vs amortization

depriciation word is used for tangible assets( as 10)

Amortization is for intangible assets (as 26)