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A company operates a defined benefit scheme. In statement of cash flows (operating activities), the calculation for interest paid is as below:
(Finance costs as shown in SPL – interest on defined benefit plan)
My question is why the interest on defined benefit plan not included in the calculation of interest paid? Is it because it is a non-cash item?
Thank you in advance.
Yes, the interest is accrued on the pension and it isn’t actually paid. It therefore needs to be deducted from the finance cost to get the interest paid figure.