ICANFinancial AccountingStatement of Cash Flows2022

Adeola Manufacturing Limited reported profit before tax of ₦42,500,000 for the year ended 31 December 2023. The following information is also available: Depreciation charge ₦6,800,000; Increase in trade receivables ₦3,200,000; Decrease in inventories ₦1,500,000; Increase in trade payables ₦2,100,000; Profit on disposal of plant ₦900,000. Using the indirect method, what is the cash generated from operations before tax?

A₦48,800,000CORRECT
B₦49,700,000
C₦47,900,000
D₦50,600,000
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Why the answer is A, and why the others tempt you.
Starting with profit before tax ₦42,500,000: add depreciation ₦6,800,000; deduct profit on disposal ₦900,000 (non-cash investing gain); deduct increase in receivables ₦3,200,000; add decrease in inventories ₦1,500,000; add increase in payables ₦2,100,000. Total = 42,500,000 + 6,800,000 − 900,000 − 3,200,000 + 1,500,000 + 2,100,000 = ₦48,800,000.
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