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Question no. 311 from Kaplan
A business’s bank balance increased by $750,000 during its last financial year. During the same period it issued shares, raising $1 million and repaid a loan of $750,000. It purchased non-current assets for $200,000 and charged depreciation of $100,000. Receivables and inventory increased by $575,000.
Its profit for the year was:
A. $1,175,000
B. $1,275,000
C. $1,325,000
D. $1,375,000Now in this question I know that we add cash from shares which is 1 million, subtract NCA of 200,000, subtract loan of 750,000 and add the increase in cash of 750,000 to get cash from operating activities which is 800,000 correct? And then we would add the depreciation and subtract rec. and inven.So if what I have done is correct the answer would be B. But Kaplan says it’s A. I would like to know where I have gone wrong.
Answer A is correct.
Since the net increase in cash is 750, the cash generated from operating activities must be 750 + 200 + 750 – 1,000 = 700 (not 800).
Check the ‘normal’ way round – from operating activities is 700, you then add 1,000 (from shares) subtract 750 (to loan) and subtract 200 (for NCA’s), which gives the final 750.
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