Question 20.8

It's a type of cash flow type. am I right john?

It is testing on Statements of Cash Flows. We know what the change in the bank balance is ($750,000) and this must be due to cash generated from operating activities, cash generated from investing activities ( (200,000) ), and cash generated from financing activities ( $1,000,000 - $750,000). So the missing figure is cash generated from operating activities. We know the change in the working capital and the depreciation, and so we can then work backwards to calculate the profit.

sir would be the accounting treatment of working capital in this question

The profit is adjusted by the change in working capital to get the cash generated. Since we can calculate the cash generated we can work backwards and adjust for the change in working capital to arrive at the profit.

so where does working capital comes while calculating the cash flow

We adjust the profit for depreciation and for changes in receivables, payables, and inventory. Changes in working capital is the total of receivables, payables, and inventory.

okay thank you sir for helping out

You are welcome :-)