Question

Answer please the Question Below Types - Not a Hand Writing please With explanation

2.The Stars Company Products Corporation provided the following financial information for the quarter ending March 31, 2019: 1. Depreciation and amortization - $ 180,000 2. Net Income - $480.000 3. Increase in receivables - $ 180.000 4. Increase in inventory - $148.000 5. Increase in accounts payables - $170,000 6. Decrease in marketable securities - $78,000. What is the cash flow from operating activities generated during this quarter by the fimm?

Answer 1

Sol: Cash Flow from Operating Activities generated during the Quarter by The Stars Company Products Corporation is calculated below as :-

Amount (In $) Cash Flow Statement of The Stars Company Products Corporation For the Quarter ended on 31st March, 2019 Particular Amount (In $) (A) Cash flow from Operating Activites Net profit before Tax & Extraordinary items Add: Non cash & non operating items already debited to profit & Loss A/C Depriciation & amortisation 180000.00 Transfer to reserves & provisions 0.00 Loss on sale or disposal of fixed assets/investment 0.00 480000.00 180000.00 Less : Non cash & non operating items already credited to Profit & Loss A/c Other Income Dividend on investments Operating Profit before Working Capital Changes 0.00 0.00 0.00 660000.00 Adjustment for changes in Current Assets & Liabilities: 78000.00 0.00 Add: Decrease in current assets : Decrease in Marketable Securities Decrease in bills receivables Decrease in stock in trade/inventories Decrease in prepaid expenses Add: Increase in current liabilities: Increase in creditors Increase in bills payable Increase in outstanding expenses 0.00 0.00 0.00 170000.00 0.00 -180000.00 -148000.00 0.00 Less : Increase in current assets: Increase in Trade debtors Increase in bills receivables Increase in stock in trade/inventories Increase in prepaid expenses Less: Decrease in current liabilities: Decrease in Creditors Decrease in wages payable Decrease in outstanding expenses Cash generated from / (used in) operations before tax Net Cash from Operating Activities 0.00 0.00 0.00 -80000.00 580000.00

Explanation for each item :-

1) Depreciation & Amortization - Since this is a non-cash expense & has been already been debited to the P & L A/c, lowered the Net Profit, so its added back to the Net Income or Profit & loss.

2) Increase In Receivables & Inventories - Since the increase in Current Assets in business, lowers the cash in hand or cash flow as it gets stucked in these assets, so it indicates low cash in hand, hence deducted.

3) Increase in Accounts payable - Since the Increase in Current Liabilities indicate, that the cash which was to be paid is not actually paid & converted in current liabilities, resulting in lower cash outflow, so added.

4) Decrease in Marketable securities - As we know Marketable securities are Current assets, so decrease in current assets means, that their amount is converted into cash, resulting in increase in cash inflows so added.

Conclusion :- Decrease in Current Assets, Increase in Current Liabilities leads to increase in cash flows, as when assets gets converted into cash & the amount that was supposed to be paid is deffered in current liabilities also helps in lower outflow of cash or cash retention in business, so added.
& its Vice-a-versa happens in case of Increase in current assets , Decrease in current liabilities - Leads to decrease in Cash flows/Cash retention in business or Cash outflow, so deducted.