Cash Flow Preparation Question

Because both of these are non-cash items

They are both accruals based and we are preparing a statement of CASH flows

So we need to deduct the figure for investment income – this has been credited in arriving at profit before taxation and it’s non-cash so we need to deduct it

Similarly, the interest expense is the finance cost for the year on an accruals basis (a non-cash basis) and has been deducted in arriving at profit before taxtaion so we need to add it back

We then compute the aactual amount of cash received by way of investment income and show that as an inflow within the investing activities section of the statement of cash flow

Similarly we compute the actual amount of cash paid in respect of interest and deduct that computed amount within the operating activities section of the statement of cash flows

It may be that, in either or both of these figures, the cash received is exactly the same as the accruals based figure

In this case we have to deduct the investment income figure from the profit before interest and taxation and add that same figure in as a positive flow within investing activities

Similarly we need to add back the interest expense to profit before interest and taxation within operating activities and then deduct it – again, within operating activities

OK?