From the following information obtained from the books of ‘Informatics India Ltd.’, calculate ‘Cash from Operations’ : Net Profit for year ended 31st March, 2025 after providing depreciation was ₹ 60,000 and after writing off goodwill ₹ 2,000 was ₹ 3,40,000. Additional Information :
| Particulars | 31.3.2024 (₹) | 31.3.2025 (₹) |
|---|---|---|
| Rent received in advance | 20,000 | 10,000 |
| Accrued interest | 30,000 | 40,000 |
| Prepaid insurance | 15,000 | 20,000 |
| Outstanding salary | 25,000 | 40,000 |
| Trade receivables | 1,24,000 | 1,25,000 |
| Trade payables | 1,30,000 | 1,50,000 |
| Inventory | 50,000 | 80,000 |
| Other current assets | 1,00,000 | 1,20,000 |
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Start your 14-day free trial to unlock the full solution →Cash from Operations for Informatics India Ltd. for the year ended 31st March, 2025 is Rs 3,61,000.
Concept: Cash from Operations under the Indirect Method
Cash from Operations measures the cash generated by a company's core business. We start with Net Profit and adjust it by:
- Adding back non-cash expenses - depreciation and goodwill written off reduce profit but involve no cash outflow.
- Adjusting for changes in working capital -
- Current Asset increase -> cash blocked -> subtract
- Current Asset decrease -> cash released -> add
- Current Liability increase -> cash saved -> add
- Current Liability decrease -> cash used -> subtract
Item treatment here:
- Rent received in advance (current liability): 20,000 -> 10,000, a decrease of Rs 10,000 -> subtract.
- Accrued interest (current asset): 30,000 -> 40,000, increase Rs 10,000 -> subtract.
- Prepaid insurance (current asset): 15,000 -> 20,000, increase Rs 5,000 -> subtract.
- Outstanding salary (current liability): 25,000 -> 40,000, increase Rs 15,000 -> add.
- Trade receivables (current asset): 1,24,000 -> 1,25,000, increase Rs 1,000 -> subtract.
- Trade payables (current liability): 1,30,000 -> 1,50,000, increase Rs 20,000 -> add.
- Inventory (current asset): 50,000 -> 80,000, increase Rs 30,000 -> subtract.
- Other current assets: 1,00,000 -> 1,20,000, increase Rs 20,000 -> subtract.
Solution: Statement of Cash from Operations
Informatics India Ltd. - Cash Flow from Operating Activities (Indirect Method) - For the year ended 31st March, 2025
| Particulars | Amount (Rs) | Amount (Rs) |
|---|---|---|
| Net Profit (after depreciation and goodwill written off) | 3,40,000 | |
| Add: Non-cash expenses | ||
| Depreciation | 60,000 | |
| Goodwill written off | 2,000 | 62,000 |
| Operating Profit before Working Capital changes | 4,02,000 | |
| Adjustments for changes in Working Capital: | ||
| Accrued interest (30,000 -> 40,000) | (10,000) | |
| Prepaid insurance (15,000 -> 20,000) | (5,000) | |
| Trade receivables (1,24,000 -> 1,25,000) | (1,000) | |
| Inventory (50,000 -> 80,000) | (30,000) | |
| Other current assets (1,00,000 -> 1,20,000) | (20,000) | |
| Outstanding salary (25,000 -> 40,000) | 15,000 | |
| Trade payables (1,30,000 -> 1,50,000) | 20,000 | |
| Rent received in advance (20,000 -> 10,000) | (10,000) | (41,000) |
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