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why are provisions included under cash flow from operating activities given that provisions are non-operational in nature?
Hi,
It isn’t that they aren’t operational it is because we are removing the expense when calculating the cash generated from operation from profit before tax using the indirect method.
When the provision has been recognised an expense will have been created that will have reduced the profits for the year. This is a non-cash expense, similar to depreciation and so will need to be added back to profit before tax to get back to the cash figure.
Thanks
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