Scott Limited had a net profit after tax of $650,000 for the financial year. Included in this profit was: Depreciation expense $80 000
Gain on sale of investments $30 000
Decrease in inventories $15 000
Increase in Accounts receivable $35 000
The cash flow from operating activities during the year was:
A) $580,000.
B) $620,000.
C) $680,000.
D) $720,000.

Question

Quizplus · Accepted Answer

To calculate the cash flow from operating activities, start with the net profit after tax and adjust for non-cash and working capital changes. Add back depreciation ($80,000) since it's a non-cash expense. Subtract the gain on sale of investments ($30,000) because it's a non-operating cash inflow. The decrease in inventories ($15,000) is added back because it means less cash was used to purchase inventory. The increase in accounts receivable ($35,000) is subtracted because it represents sales that have not yet been collected in cash. Thus, the calculation is $650,000 + $80,000 - $30,000 + $15,000 - $35,000 = $680,000.

Scott Limited Had a Net Profit After Tax of $650,000