A business makes an operating profit of £27 600 in its financial year ended 31 December 20X1, after charging £15 200 in depreciation for the year.Its profit before tax was £22 500 and profit after tax was £15 000. The business's net change in the total of current assets (excluding cash) less current liabilities (inventory, trade receivables and trade payables) for the year was a cash outflow of £3300.
What was the net cash inflow from operating activities for the year ended 31 December 20X1?

Question

Quizplus · Accepted Answer

To calculate the net cash inflow from operating activities, start with the profit before tax (£22,500), add back the depreciation (£15,200), and adjust for the change in working capital (a cash outflow, so subtract £3,300). This gives a total of £22,500 + £15,200 - £3,300 = £34,400. However, tax paid must also be considered. Since profit after tax is £15,000 and profit before tax is £22,500, the tax paid is £22,500 - £15,000 = £7,500. Therefore, the correct calculation is £34,400 - £7,500 = £26,900, indicating a mistake in my initial explanation. The correct net cash inflow from operating activities should be calculated by correctly adjusting the initial calculation to account for all relevant factors.

A Business Makes an Operating Profit of £27 600 in Its