Answer to Question #258329 in Financial Math 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

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)-(26000)-(35000)+(12000)-(45000)+(85000)+(110000)= 466024

Depreciation being an operating item does not result into outflow of cash. Thus it has been deducted to arrive at net profit before taxes and the same must be added to arrive at cash flow. Amortization is treated as an expense.