When reconciling operating profit after tax with net cash flow from operating activities,which of the following adjustments is not correct?
A) Add back amortisation.
B) Add an increase in a current liability.
C) Deduct an increase in a current asset.
D) Deduct a loss on the sale of an asset.

Question

Quizplus · Accepted Answer

Deducting a loss on the sale of an asset when reconciling operating profit after tax with net cash flow from operating activities is not correct. This is because the loss on the sale of an asset is a non-operating item and should be adjusted for separately in the investing activities section of the cash flow statement. The other options are correct adjustments when reconciling operating profit after tax with net cash flow from operating activities. Adding back amortisation helps to adjust for non-cash expenses, adding an increase in a current liability adjusts for the fact that the liability was not paid in cash during the period, and deducting an increase in a current asset adjusts for the fact that cash was tied up in that asset.

When Reconciling Operating Profit After Tax with Net Cash Flow