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A business 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 the profit for the year?
A.$1,175,000
B.$1,275,000
C.$1,325,000
D.$1,375,000I think the answer is A. $1,175,000.
Every operation influent on bank balance.Cash flows from operating activities:
Profit X
Depreciation $100,000
Increase in working capital ($575,000) (you have more assets or less liabilities, in any case your cash balance was decreased)Cash flows from investing activities:
Purchase of non-current assets ($200,000)Cash flows from financing activities:
Proceeds from issue of share $1,000,000
Repayment of a loan note ($750,000)Net increase in cash $750,000 (bank balance increasing).
So Profit will be: $750,000 +$750,000 – $1,000,000 + $200,000 + $575,000 – $100,000 = $1,175,000.
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