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Hi My Dear Tutor, There is a long cash flow question in Becker revision question bank calling KINGDOM showed rent received under profit before tax(cash flow from operating activities) and investing activities?
If it has been showed under profit before tax what is the reason of showing it under investing activity again?I would prefer to put it under only investing activity.
Could you explain?
Thanks in advance
The figure for rent received (and investment income, if it’s in the question) in Operating Activities is a deduction of the accruals based figure that will have been added to the operating profits to arrive at profit before taxation
Because it has been added as an income, and because it’s accruals based and not cash based, we need to deduct it from ‘profit before taxation’ to enable us to arrive at “Net cash flow from operating activities”
Now, we can work out how much actual cash has been received and that actual cash received amount goes into ‘investing activities’ as an addition
It could well be the case that the two figures are the same amount but, equally, they could well be different!
Better?
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