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Question

Which of the following are adjusted from the net profit to arrive at the operating cashflow under indirect method?

A.    Depreciation

B.    Income Tax paid

C.  Dividend received

A Only A Correct Answer Incorrect Answer
B A and B Correct Answer Incorrect Answer
C A and C Correct Answer Incorrect Answer
D B and C Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

Cash flow from operations are Primarily derived from the principal revenue generating activities of the entity. Under the indirect method, net profit or loss is adjusted for the effects of transactions of a non-cash nature, deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing activities. As such, depreciation will be adjusted (added back to net profit) as it is a non-cash item. Dividend received will be adjusted (reduced from net profit) as it is an income from investing activities.

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