ACCA FA · Chapter 12 · Question 1 of 10
When preparing a statement of cash flows using the indirect method, how is depreciation for the year treated?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) It is added back to profit before tax
Explanation
Depreciation is a non-cash expense that has reduced profit. Under the indirect method, profit is adjusted to cash generated from operations, so depreciation is added back. It is not itself a cash flow, and the cash spent on assets appears under investing activities when the assets are bought.
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