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Cash Flow

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Business
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Homework
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A Private Note:
First of all I want to make a correction in the question itself. And I am sorry for pointing it.
In the question under adjustments in place of Inc in AP it has to be corrected like Dec in AP.
Then only the answer Net cash from OA is correct. Thank you for agreeing and accepting the
correction.
Explanation to your question:
Under Indirect Method of Cash Flow Statement the adjustments can be divided into
two parts:
Part I - Adjustments for Non-cash items and Non-operating Incomes
Part II - Adjustments for changes in Current Assets and Current Liabilities
Part I - Adjustments for Non-cash items and Non-operating Incomes:
Non Cash Items and Non-operating items:
There are certain items on the debit side of the Profit and Loss A/c which reduces the
Net Profit but do not affect the cash. Such items are known as Non-cash Items.
These items should be added back or subtracted to/from net profits that are given in
the question as follows:
Plus items
Goodwill impairment
Depreciation
IT Exp
Interest Exp
Assumption:
If these above items are not in the Income Statement (P&L A/c) the profit will be
more because these items are reducing the Net Profit level. Because the above items
are not our regular business related transactions.
Minus item:
Gain from HFT
Assumption:
If the above item is not in the Income Statement(P&L A/c) the profit will be less
because these type of items are increasing the Net Profit level. Because the above
items are not our regular business related transactions.
Part II - Adjustments for changes in Current Assets and Current Liabilities:
The changes in Current Assets and Current Liabilities (except cash, bank overdraft,
short term investments and marketable securities) are to be adjusted to calculate the
cash flow from operating activities. These Current Assets and Current Liabilities do
not affect Net Profit of the business. But these affect the amount of cash generated
from Operating Activities.

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A Private Note: First of all I want to make a correction in the question itself. And I am sorry for pointing it. In the question under adjustments in place of Inc in AP it has to be corrected like Dec in AP. Then only the answer Net cash from OA is correct. Thank you for agreeing and accepting the correction. Explanation to your question: Under Indirect Method of Cash Flow Statement the adjustments can be divided into two parts: Part I - Adjustments for Non-cash items and Non-operating Incomes Part II - Adjustments for changes in Current Assets and Current Liabilities Part I - Adjustments for ...
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