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A business’s bank balance increased by $750,000 during its last financial year. During the same period it issued shares of $1 million and repaid a loan note of $750,000. It purchased non-current assets for $200,000 and charged depreciation of $100,000. Working capital (other than the bank balance) increased by $575,000.
What was its profit for the year?
Is it able to use T account to solve this question?
I’ve seen the workings on BPP, but dont really understand.No, it is not a t-account question. It is a question on Statements of Cash Flows.
We know the change in the cash balance, we know the cash flows from investing activities and from financing activities, so you can work backwards and calculate the cash flow from operating activities.
Once you have that, you can adjust for the increase in working capital and calculate the profit.
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