Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Part of a company's statement of cash flows is shown below: €'000 Operating profit 8,000 Depreciation expense (2,000) Increase in inventory (300) Increase in trade payables 400 The following criticisms have been made: 1) Depreciation expense should have been added, not deducted 2) Increase in inventory should have been added, not deducted 3) Increase in trade payables should have been deducted, not added Which of the criticisms are valid? Group of answer choices 2 only 2) and 3) only 1) only 1) and 3) only
Part of a company's statement of cash flows is shown below:
| €'000 | |
| Operating profit | 8,000 |
| Depreciation expense | (2,000) |
| Increase in inventory | (300) |
| Increase in trade payables | 400 |
The following criticisms have been made:
1) Depreciation expense should have been added, not deducted
2) Increase in inventory should have been added, not deducted
3) Increase in trade payables should have been deducted, not added
Which of the criticisms are valid?
Group of answer choices
2 only
2) and 3) only
1) only
1) and 3) only
Expert Solution
Depreciation should be add to operating income because it is a non cash transaction. Increase in inventory which results in cash outflow, it should be deducted from operating income. Increase in trade payables which results in cash inflow, it should be added to operating income.
Hence, 3rd option is correct. "1 only. Depreciation should have been added not deducted to operating income".
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
