Question

From the following information obtained from the books of 'Informatics India Ltd.', calculate 'Cash from Operations':

Net Profit for year ended 31st March, 2025 after providing depreciation of Rs 60,000 and after writing off goodwill of Rs 2,000 was Rs 3,40,000.

Additional Information:

Particulars	31.3.2024 (Rs)	31.3.2025 (Rs)
Rent received in advance	20,000	10,000
Accrued interest	30,000	40,000
Prepaid insurance	15,000	20,000
Outstanding salary	25,000	40,000
Trade receivables	1,24,000	1,25,000
Trade payables	1,30,000	1,50,000
Inventory	50,000	80,000
Other current assets	1,00,000	1,20,000

Hint:

Add back depreciation 60,000 and goodwill 2,000 to get 4,02,000. Net working capital changes are 35,000 minus 76,000, so cash from operations is Rs. 3,61,000.

Answer 1

Step 1: Know what is asked:
Cash from operations is the cash earned by the main business activity. We start from net profit and remove items that did not use or bring cash.
The profit of Rs. 3,40,000 is already after depreciation and goodwill written off. No tax figure is given, so we take it as net profit before tax.

Step 2: Add back non-cash items:
Depreciation of Rs. 60,000 and goodwill written off Rs. 2,000 reduced profit but no cash left the business.
Total add back = 60,000 + 2,000 = Rs. 62,000.
Operating profit before working capital changes = 3,40,000 + 62,000 = Rs. 4,02,000.

Step 3: Adjust for current liabilities:
Trade Payables rose from Rs. 1,30,000 to Rs. 1,50,000. We paid less cash than expenses, so we add Rs. 20,000.
Outstanding Salary rose from Rs. 25,000 to Rs. 40,000. Part of the salary is unpaid, so we add Rs. 15,000.
Rent Received in Advance fell from Rs. 20,000 to Rs. 10,000. Less advance cash came in, so we deduct Rs. 10,000.

Step 4: Adjust for current assets:
Accrued Interest rose from Rs. 30,000 to Rs. 40,000. Income was earned but not received, so we deduct Rs. 10,000.
Trade Receivables rose from Rs. 1,24,000 to Rs. 1,25,000. We deduct Rs. 1,000.
Prepaid Insurance rose from Rs. 15,000 to Rs. 20,000. More cash was paid in advance, so we deduct Rs. 5,000.
Inventory rose from Rs. 50,000 to Rs. 80,000. We deduct Rs. 30,000.
Other Current Assets rose from Rs. 1,00,000 to Rs. 1,20,000. We deduct Rs. 20,000.

Step 5: Prepare the statement:

Particulars	Rs	Rs
Net Profit before Tax		3,40,000
Add: Non-cash and non-operating items
Depreciation	60,000
Goodwill written off	2,000	62,000
Operating Profit before Working Capital Changes		4,02,000
Add: Increase in current liabilities and decrease in current assets
Increase in Trade Payables	20,000
Increase in Outstanding Salary	15,000	35,000
Less: Decrease in current liabilities and increase in current assets
Decrease in Rent Received in Advance	(10,000)
Increase in Accrued Interest	(10,000)
Increase in Trade Receivables	(1,000)
Increase in Prepaid Insurance	(5,000)
Increase in Inventory	(30,000)
Increase in Other Current Assets	(20,000)	(76,000)
Cash from Operations		3,61,000

Total additions = 20,000 + 15,000 = 35,000. Total deductions = 10,000 + 10,000 + 1,000 + 5,000 + 30,000 + 20,000 = 76,000.

Step 6: Check the arithmetic:
Net working capital effect = 35,000 - 76,000 = Rs. (41,000).
Cash from operations = 4,02,000 - 41,000 = Rs. 3,61,000.

Final Answer:
Cash from Operations of Informatics India Ltd. for the year ended 31st March 2025 is Rs. 3,61,000.