My Simple question is why we need to make adjustments for Non-Cash Item from Net Profit/Current Asset/Current Liability in Cash Flow Statement to find Profit from Operating Activities? Please consider following example before putting any comment.
|
Particulars |
Cash Flow after Adjusting Non Cash Item |
Cash Flow without Adjusting Non Cash Item |
|
Net Profit |
100 |
100 |
|
Add: Provision [Non Cash] |
5 |
|
|
Total |
105 |
100 |
|
|
|
|
|
Adjustment of Working Capital Changes |
|
|
|
|
|
|
|
Current Asset |
20 |
20 |
|
Current Liabilities |
10 |
10 |
|
Less: Provision [Non Cash] |
5 |
|
|
Net Current Liabilities |
5 |
|
|
Net Increase in Current Asset |
15 |
10 |
|
|
|
|
|
Net Cash Flow from Operating Activities |
90 |
90 |
My point is that without adjusting Non-Cash items we get the same result then why we need to made the adjustment of the same?
I am sure that you will not reply simply that it is as per requirement of AS 3 but you will make the rout cause analysis of above.
Regards,
Nayan Joshi
CAclubindia
