Question 2 of 22intermediate🔧 ApplyFill in the Blanks3 marks

Choose one of the two alternatives given below and fill in the blanks in the following statements: (a) If the net profits earned during the year is Rs. 50,000 and the amount of debtors in the beginning and the end of the year is Rs. 10,000 and Rs. 20,000 respectively, then the cash from operating activities will be equal to Rs. _____ (Rs. 40,000/Rs. 60,000) (b) If the net profits made during the year are Rs. 50,000 and the bills receivables have decreased by Rs. 10,000 during the year then the cash flow from operating activities will be equal to Rs. _____ (40,000/Rs. 60,000) (c) Expenses paid in advance at the end of the year are _____ the profit made during the year (added to/deducted from). (d) An increase in accrued income during the particular year is _____ the net profit (added to/deducted from). (e) Goodwill amortised is _____ the profit made during the year for calculating the cash flow from operating activities (added to/ deducted from). (f) For calculating cash flow from operating activities, provision for doubtful debts is _____ the profit made during the year (added to/ deducted from).

(a)
Answer

Rs. 40,000

(b)
Answer

Rs. 60,000

(c)
Answer

deducted from

(d)
Answer

deducted from

(e)
Answer

added to

(f)
Answer

added to

Explanation

The answers are derived based on the treatment of items while calculating Cash Flow from Operating Activities.

  • Debtors (a): An increase in debtors (Rs. 10,000 to Rs. 20,000) indicates an increase in current assets, which is deducted from net profit. Thus, Rs. 50,000 - Rs. 10,000 = Rs. 40,000.
  • Bills Receivables (b): A decrease in bills receivables (current assets) is added to net profit. Thus, Rs. 50,000 + Rs. 10,000 = Rs. 60,000.
  • Prepaid Expenses (c): Expenses paid in advance are current assets; an increase is deducted from profit.
  • Accrued Income (d): An increase in accrued income (current asset) is deducted from net profit.
  • Goodwill Amortised (e): Amortisation is a non-cash expense, similar to depreciation, and is added back to profit.
  • Provision for Doubtful Debts (f): This is a non-cash expense deducted from profit, so it is added back to calculate cash flow.
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