Answer to Question #258330 in Marketing for grisha

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 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

CONSOLIDATED STATEMENT OF CASH FLOW

Cash flow from operating activities                              Rd    

Net earnings                                              269244  

      Additions to cash  

  Depreciation of fixed asset                                  85000   

Amortization expenses                                      110000          

Loss on sale of an asset                                            15780

Net cash from operating activities                                    480024

Cash flow from investing activities

Gain on sales of investment                                          45000

Cash flow from financing activities

Divided income                                                    26000

Interest income                                                    35000

Finance cost paid on debentures                                       12000

CASH AND CASH EQUIVALENTS, END OF THE PERIOD             598024

Operating activities is a section of a company’s cash flow statement that explains the sources and uses of cash from ongoing regular business activities in a given period.

Loss on sales of an asset of 15780 is an operating activity, this is because sale of real property occurs on a cash flow statement show an increase in net income. It means the business loss the opportunity to make 15780 as a result of sale.

Amortization expenses is depreciation of intangible asset and can be a major souse of expenditure on a balance sheet of a company and therefore all non-cash expenses must be added back to net earnings while preparing indirect statement of cash flow.

Depreciation of a fixed asset is an operating activity

Investing activities is a section of a cash flow that shows the cash generated or spent relating to investment activities. Therefore, gain on sale of investment of 4500 is an investing activity.

Financing activities is a section of a cash flow which shows the net flows of cash that are used to fund the company, it includes transactions involving debt, equity and debentures. Financing activities provides investors with sight into a company’s financial strength and how well a company’s capital structure is managed.

Dividend income of 26000, interest income of 35000 and finance cost paid on debentures of 12000 are there financing activities of a cash flow.