Arrange the followings in the correct sequence in which they are computed for determining Net Cash from operating activities as per AS-3 (Revised) : A. Operating profit before Working Capital Changes B. Cash flow before extra ordinary items C. Cash generated from operations D. Net Profit before taxation and extra ordinary items Choose the correct answer from the options given below:
Understanding Net Cash from Operating Activities (AS-3 Revised)
This solution outlines the correct sequence for determining Net Cash from operating activities, following the indirect method as per Accounting Standard (AS) 3 (Revised).
Calculation Sequence Explained
Step 1: Starting Point - Net Profit
The calculation begins with Net Profit before taxation and extra ordinary items (D). This is the initial profit figure from the income statement, before taxes and any unusual, infrequent events are considered.
Step 2: Operating Profit Before Working Capital Adjustments
Adjustments are made to the net profit. Non-cash expenses (e.g., depreciation) are added back, and non-operating incomes are subtracted (or vice versa for expenses/incomes) to arrive at Operating profit before Working Capital Changes (A).
Step 3: Cash Generated from Operations
Further adjustments are made for changes in working capital components, such as inventories, trade receivables, and trade payables. This step results in Cash generated from operations (C).
Step 4: Cash Flow Before Extraordinary Items
The figure derived from working capital adjustments (C) represents the cash flow from core operations. Cash flow before extra ordinary items (B) signifies this stage, which is obtained after accounting for working capital changes but before specific adjustments for the cash impact of any extraordinary items that might have been excluded from the initial net profit.
Conclusion: Correct Sequence
Following these logical steps in the indirect method, the correct sequence for computing Net Cash from operating activities as per AS-3 (Revised) is:
D (Net Profit before taxation and extra ordinary items)
A (Operating profit before Working Capital Changes)
C (Cash generated from operations)
B (Cash flow before extra ordinary items)
Therefore, the correct sequence is D, A, C, B.
Important Questions from Cash Flow Analysis
Which of the following activities should be shown separately in the cash flow statement prepared as per Accounting Standard-3 ?
a. Cash flow from borrowing activities.
b. Cash flow from operating activities.
c. Cash flow from financing activities.
d. Cash flow from investing activities.
e. Cash flow from miscellaneous activities.
Codes :
- The balance of property at cost has been ₹ 20,000 and ₹ 17,000 in 2015 and 2016, respectively. The profit on the sale of property of ₹ 2,000 is credited to Capital Reserve Account. New property costing ₹ 5,000 was bought in 2016. Determine the sale proceeds from property.
- Which of the following is not a cash inflow ?
Cash from Operation is equal to
Match List–I with List–II :
List I
(Transaction)
List II
(Activity)
(a)
Cash payments of salaries and wages 1.
Investing (b)
Cash proceeds from issuing shares at a premium 2.
Operating (c)
Payment of income tax 3.
Financing (d)
Tax deducted at source on interest received from subsidiary company
Select the correct answer using the codes given below.
