Multiple choice

If net profit is Rs. 25,000/- after writing off preliminary expenses of Rs. 5000/- then the funds from operation will be:

  1. Rs. 25,000/-

  2. Rs. 30,000/-

  3. Rs. 20,000/-

  4. Rs. 10,000/-
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Funds from operation are calculated by adding back non-cash expenses to net profit. Preliminary expenses (written off Rs. 5,000) are a non-cash item - they don't affect actual cash flow. Therefore, funds from operation = Net profit (Rs. 25,000) + Preliminary expenses written off (Rs. 5,000) = Rs. 30,000. This adjustment is necessary because the expense reduced accounting profit but not cash.

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