Answer to Question #266001 in Management for Riya

Question

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 activitiesLoss 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 ==> Financing

Gain on sale of investment ==> investment

depreciation on fixed assets==> operating

amortization expenses==> operating

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

Explanation

Depreciation 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

Depreciation vs amortization

depreciation word is used for tangible assets whereas amortization is for intangible assets.