Question

If the net profit earned during the year is ₹ 1,00,000 and the amount of Bills receivables in the beginning and the end of the year is ₹ 20,000 and ₹ 40,000 respectively, then cash flow from operating activities will be:

• A. ₹ 60,000
• B. ₹ 1,00,000
• C. ₹ 80,000
• D. ₹ 1,20,000

Answer 1

The Correct Option is C

To calculate the cash flow from operating activities, we need to adjust the net profit by changes in working capital components like Bills Receivables. The net profit is ₹ 1,00,000. We'll examine the change in Bills Receivables:

1. Beginning Bills Receivables: ₹ 20,000

2. Ending Bills Receivables: ₹ 40,000

An increase in Bills Receivables indicates cash has not yet been received, meaning the cash flow from operating activities decreases. The increase is:

Increase in Bills Receivables = ₹ 40,000 - ₹ 20,000 = ₹ 20,000

3. Adjust Net Profit:

Cash Flow from Operating Activities = Net Profit - Increase in Bills Receivables

Cash Flow from Operating Activities = ₹ 1,00,000 - ₹ 20,000

Cash Flow from Operating Activities = ₹ 80,000

Thus, the cash flow from operating activities is ₹ 80,000.