Question

If the net profit of the company is Rs 35,000 after writing off goodwill of Rs 16,000 and loss on sale of machinery of Rs 5,000, then cash flow from operating activities will be:

• A. 56,000
• B. 41,000
• C. 30,000
• D. 14,000

Hint:

Add back all non-cash expenses and losses on asset sales to net profit to calculate cash flow from operating activities.

Answer 1

The Correct Option is A

Net profit forms the basis for cash flow from operating activities. Non-cash expenditures, such as goodwill write-offs, and losses incurred from asset sales are reinstated as they reduce reported profit without impacting cash balances. Consequently, Cash flow from operating activities is calculated as Rs 35,000 + Rs 16,000 + Rs 5,000, totaling Rs 56,000.