Question

Calculate Cash from Operations from the following: Net Profit for the year is ₹10,000 after providing for depreciation of ₹2,000; Trade Creditors decreased by ₹15,000; Outstanding Expenses increased by ₹3,000.

Hint:

Rules:

Add non-cash expenses (depreciation)
Increase in liabilities → add
Decrease in liabilities → subtract

Answer 1

To calculate Cash from Operations, we adjust the Net Profit for non-cash items and changes in working capital. Let’s solve step by step.

Given:
• Net Profit = ₹10,000
• Depreciation = ₹2,000
• Decrease in Trade Creditors = ₹15,000
• Increase in Outstanding Expenses = ₹3,000

Step 1: Adjust for non-cash expenses
Depreciation is a non-cash expense, so it is added back to Net Profit:
Net Profit + Depreciation = 10,000 + 2,000 = ₹12,000

Step 2: Adjust for changes in working capital
• Trade Creditors decreased by ₹15,000 → cash outflow → subtract ₹15,000
• Outstanding Expenses increased by ₹3,000 → cash not yet paid → add ₹3,000

Net Cash from Operations = 12,000 − 15,000 + 3,000
Net Cash from Operations = ₹0

Step 3: Conclusion
The Cash from Operations for the year is ₹0, meaning all operational cash inflows were exactly offset by working capital adjustments.