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The following details were provided by an entity, which had a profit before tax of $434,850 for the year ended 31 December 20X6.
Depreciation of $37,400 was charged to the statement of profit or loss; this included an amount of $7,600 which was the loss on disposal of a non-current asset.
Finance costs of $35,000 were charged to the statement of profit or loss
The following extract of the statement of financial position at31 December 20X5 and 20X6 was provided:
31 Dec20X6 31 Dec20X5
$000 $000
Inventory 145 167
Trade receivables 202 203
Prepayments 27 16
Trade payables 166 212
Interest payable 6 28The answer for cash generated from operations is 503,250- which includes added finance costs of 35,000 to the Profit before tax.
My question is why the answer includes only the 35,000 instead of following the following format to solve the cash paid in relation to finance/interest paid.
Thank you!
e.g. Interest/tax payable account
Accrual b/f X
Cash paid (ß) X P&L charge X
Accrual c/f X
––––– –––––
X X
––––– –––––We add back to the profit the tax charged in the SOPL, which is $35,000, to get the profit before tax.
Separately on the statement we then subtract the actual tax paid (which does mean adjusting for the brought forward and carried forward accruals).
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