ACCA FA · Chapter 12 · Question 2 of 10
A company reports the following for a year: Profit before tax $86,000 Depreciation $14,000 Profit on disposal of equipment $3,000 Finance costs $4,000 Increase in inventories $7,000 Decrease in trade receivables $5,000 Increase in trade payables $2,500 What is the cash generated from operations?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $101,500
Explanation
$86,000 + $14,000 depreciation - $3,000 profit on disposal + $4,000 finance costs = $101,000. Working capital: increase in inventory -$7,000, decrease in receivables +$5,000, increase in payables +$2,500, a net +$500. Cash generated from operations = $101,500. Adding the disposal profit gives $107,500, and reversing the working capital signs gives $100,500.
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