Neglience claim

The first is because a non-cash item (provision no longer required) has been added into the statement of profit or loss as a credit, thus increasing the reported profit for the year

That then allows us to put a title onto the operating profit figure

That revised profit figure will then be adjusted for interest, taxation and (possibly) dividends paid as well as the adjustments for the changes in working capital

But now we are also faced with the issue of having actually paid out 200 to our former employee. I have a slight doubt as to where to include this in a statement of cash flows … should it be within the section that culminates with the line:

“Net cash flow from operating activities” or within the section that culminates with the line

“Net cash flow from investing activities” or within the section that culminates with the line

“Net cash flow from financing activities”?

It’s hardly investing is it and I can’t see it being financing so, by default, I would include it within operating

The first adjustment (provision no longer required) is balanced by the fact that, in previous years, we have added back to profits before interest and taxation the movement in the provision account as we have been building up that provision

So the deduction this year is simply compensating for those earlier add-backs

And, of course, the CASH transaction of paying out 200 has nowhere previously been included within any statement of cash flows – obviously because the only cash flow took place this year!

So, in answer to your question, yes, you are correct. But I trust that I have explained it clearly enough for you to accept it

OK?