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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?
I have used the equation closing net asset = opening net asset + capital introduced + profit – drawing to get the answer. But confused with the bank balance and increased working capital and didn’t get the right answer. Please explain the concept to get the answer.
Thanks in advance.
This is a question on Statement of cash flows. If you have not watched the lecture on Statements of cash flows then best to do so first.
If you have watched it, then you will know that the increase in the cash balance = cash from operating activities + cash from financing activities + cash from investing activities
So: 750,000 = cash from operating activities + (1,000.000 – 750,000) – 200,000.
So cash from operating activities = 750,000 – 250,000 + 200,000 = 700,000
Cash from operating activities = profit + depreciation – increase in working capital.
Now you should be able to calculate the profit 🙂
Thanks for your help. I’m from Myanmar which has very limited access to internet and slow connection to watch the lecture. But I’ll try my best. Thanks again. It will help my study.
You are welcome 🙂