1. What are incidental expenses in cash flow?
I can not understand please quote entire line of the AS or book where ever you find this ..
2. Why do TAXATION come in cash flow from operating activities only....?
Taxation mainly arises due to business operation , so it is shown as deduction from cash from operation , in case the tax is from investing activity (say capital gain tax on investment purchased and sold ) this will surely comes as deduction from investing activity , similarly corporate dividend tax will be shown as deduction from Financing activity. SO the purpose matters .
But if only 'income tax' is given it is income tax from operation unless otherwise specifically mentioned !!
3. Why do we write opposie if something increase like current assets they should be added but in changes from working capital
Add ; Decrease in current assets and increase in current liab.
Less : Increase in current assets and dec. in current liab...
Cash flow from operating activities >>>>
Why do we add decrease in current assets and not less?
Decrease in current assets(say collection of cash from debtors ) and increase in liability (say expenses outstanding ), increases cash balance, Increase in current assets(say sale made but debtors not collected wil increase profit but not cash ) and dec. in current liab..(decrease profit but not cash balance ). so adjusted .
Note: actually all these are non cash operating item . take a example
this year you have made sales of 25'00'000 ,
no opening balance of debtor
purchase 20,00,000 ,
no opening and closing stock ,
no other expenses,
and the amount remains uncollected so closing debtors is 25,00,000
and profit 500000(25 lakhs- 20 lakhs )
closing creditors 20 lakhs (for purchase during the year )
now you are making C/F statement from indirect method
(you already know no cash inflow during the year )
|
Particulars |
|
amount |
|
Profit as per profit and loss A/c |
|
500000 |
|
Add: depreciation |
|
nil |
|
Less: Increase in assets/ decrease in liability
increase in Debtors
|
|
25,000,000 |
|
Add: decrease in assets/ Increase in liability
Increase in creditors
|
|
20,000,000 |
|
CASH INLOW |
|
NIL |
hope you understand , frankly speaking this is very basic concept and in exam you have to do it very fast so understand it carefully , it is most important
4.Why goodwill is amortised?
ICAI says goodwill it a intangible assets , every goodwill is different from other there is no ready market so a local pan shop may say his goodwill is Rs. 100000, so being a very flexible concept , they say presence of goodwill is like valuing a thing without basis (although goodwill is one of the most important thing ask the sony brand its brand value has a huge goodwill ) , but presence of non uniform basis, present a diverfied financial statement and position so it is better to write-off goodwill over a period of 5 years !! let me tell you this a a bit controversial issue , but ICAI has removed this by requiring to write off goodwill over period of 5 years
5.Why do we take " Provision for doubtful debts " in changes from working capital and why dont we add it to net profit
Net profit
+ Reserves
+ provision for income tax
+ provision for doubtful debts ( this is not correct but why ? )
Provision for Doubtful Debt is not changes in working capital being a non cash expenditure it should be added to profit just after depreciation !!
6.Parveen sharma sir said
if 2 balance sheet + profit and loss a/c = direct mehtod
only 2 balance sheet = indirect method
whh?
for solving sum through direct method you needed detailed information , about P/l and Balance sheet, further 2 balance sheet and profit and loss a/c is given direct mehhod is easy, but i will strongly recommended you to solve at least 2 sum by both the method and see what actually happens..
elaborate ur question No. 1
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