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Sir in your lecture “Statement of Cash Flows (part c) Example 2 while solving the question in the indirect method the profit was subtracted but in the direct method it was added back.
I am a bit confused here what should we do should we add profit or subtract it ?
We neither subtract or add the profit!!!! To do either would be meaningless.
With the indirect method we start with the profit and adjust by the non-cash flows and changes in current assets and liabilities to arrive at the cash flow.
With the direct method we disregard the profit and take the cash from customers and subtract the cash to suppliers and to employees.
I do suggest that you watch the lectures again.
Thank you for your reply Sir.
I wasn’t clear in my query.I am sorry for that, by profit I meant Profit or loss on sale of an asset.How would profit or loss on sale of an asset be treated in indirect method and in direct method?
In the lecture while solving the example through indirect method :
Operating proft : 240,000
Less profit on sale : (6000)Through Direct method : (at 18:35 in lecture)
Dist and admin : 120,000
Add Profit on sale : 6000
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