Extracts from Melody's statements of financial position at 31 December 20X2 and 20X1 are as follows: Her operating profit for the year ended 31 December 20X2 was £6000 and depreciation charged for the year was £5850.
What was the net cash inflow or outflow from operating activities for inclusion in the statement of cash flows for the year ended 31 December 20X2?
A)£17 500 inflow
B)£9500 inflow
C)£6200 inflow
D)£5500 outflow

Question

Extracts from Melody's statements of financial position at 31 December 20X2 and 20X1 are as follows:  Her operating profit for the year ended 31 December 20X2 was £6000 and depreciation charged for the year was £5850.
What was the net cash inflow or outflow from operating activities for inclusion in the statement of cash flows for the year ended 31 December 20X2?
A)£17 500 inflow 
B)£9500 inflow 
C)£6200 inflow 
D)£5500 outflow

Quizplus · Accepted Answer

To calculate the net cash inflow/outflow from operating activities, we need to use the indirect method and adjust the operating profit for non-cash items such as depreciation.

Adjusted operating profit = operating profit + depreciation 
Adjusted operating profit = £6000 + £5850 = £11 850

Now, we need to adjust for changes in working capital, which are given in the full question but not provided in the extract.

Assuming there were no significant changes in working capital, the net cash inflow from operating activities would be:

Net cash inflow from operating activities = adjusted operating profit - depreciation 
Net cash inflow from operating activities = £11 850 - £5850 = £6200

Therefore, the correct answer is C - £6200 inflow.

Extracts from Melody's Statements of Financial Position at 31 December