Identify the correct sequence in calculation of Cash Flow from Operating Activities.(A) Addition and subtraction of Non cash/Non operating items(B) Payment of income tax(C) Calculation of operating profit before working capital changes.(D) Calculation of net profit/loss before tax and extraordinary itemsChoose the correct answer from the options given below :
- A(D), (A), (C), (B)
- B(D), (A), (B), (C)
- C(C), (D), (A), (B)
- D(C), (D), (B), (A)
Solution & Step-by-step Explanation
The sequence for calculating Operating Cash Flow using the indirect method is:Start with Net Profit before Tax and extraordinary items (D).Adjust for non-cash and non-operating items (A).This yields the Operating Profit before working capital changes (C).After adjusting for working capital changes, finally deduct the payment of income tax (B).Thus, the correct order is (D), (A), (C), (B).