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a business bank balance increased by $750,000 during its last financial year . during the same period it issued shares of $1 million and repaid loan of $750,000 . it purchased non current assets for $200,000 . and charged a depreciation of $100,000. working capital other than bank balance increased by $575,000 .
what was the profit for the year .sir in this question i understood that we will add bank balance and share and subtract loan repayment and money we paid for purchase of non current asset . i donno what to do with working capital and depreciation . how the adjustment should be made and what is the reason for the adjustment .
Thank You .This is a question on Statement of cash flows.
We know the increase in cash over the year.
We know the flow from investing activities, and from financing activities.
So the cash flow from operating activities is the missing figure.
Since the flow from operating activities is the profit as adjusted by the depreciation and by the changes in working capital, we can work backwards to get the profit.
increase is wc = ca – cl ryt ? so when it increases we spend money to get the ca so cash flow out . am i coorrect ?
If working capital increases then yes – the operating cash flow will be less than the profit.
So when you are working backwards as I told you to do, you need to add the increase in working capital to the cash flow to get back to the profit.
I don’t know why you want me to do it numerically – you must have an answer to it in the book where you found the question.
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