Question

Identify the correct sequence of the following steps involved in calculating cash flows from operating activities of a company:(A) Operating profit before working capital changes
(B) Cash generated from operations
(C) Income tax paid
(D) Net cash flow from operating activities
(E) Goodwill amortised

• A. E, C, D, A, B
• B. E, A, D, B, C
• C. A, B, C, D, E
• D. E, A, B, C, D

Answer 1

The Correct Option is D

The correct sequence of steps involved in calculating the cash flows from operating activities of a company is as follows: 

1. (E) Goodwill amortised:
   The first step involves accounting for any goodwill amortisation. Goodwill amortisation is a non-cash charge that is added back to operating profit, as it does not affect the actual cash flow.
2. (A) Operating profit before working capital changes:
   After accounting for goodwill amortisation, the next step is to calculate the operating profit before changes in working capital. This is the profit generated from the core business operations, excluding any changes in working capital.
3. (B) Cash generated from operations:
   This step involves adjusting the operating profit for changes in working capital such as changes in current assets (like inventory, receivables) and current liabilities (like payables). This gives the net cash generated by the company from its operations.
4. (C) Income tax paid:
   The next step involves deducting income taxes paid during the period. Although taxes are part of operating expenses, they are treated separately as they are cash outflows related to the operations.
5. (D) Net cash flow from operating activities:
   Finally, after deducting the income tax paid, we arrive at the net cash flow from operating activities. This figure reflects the actual cash generated or used by the company's operating activities.

Thus, the correct order of steps is:

(4) (E), (A), (B), (C), (D)

Answer 2

Sequencing Items to Arrive at Net Cash Flow 

In order to determine the net cash flow from a business, specific accounting steps must be followed. These steps, as outlined in accounting standards, help in arriving at accurate values for net cash flow.

Note: Only operating profit is considered in this process. Other profits and related items will be handled in their respective segments.

Items in Sequence

1. (A) Operating Profit
2. (B) Cash Generated
3. (C) Tax Paid
4. (D) Net Cash Flow
5. (E) Goodwill Amortised

Conclusion

The correct sequence, according to standard accounting practices, is:

(A) Operating Profit → (B) Cash Generated → (C) Tax Paid → (D) Net Cash Flow → (E) Goodwill Amortised

This order is reflected in Option 4.