Answer:
Alpha Computers' net cash flow from operating activities (using indirect method) is 60 million.
Operating Activites will be made up of;
Net income 44 million
Add Depreciation 7 million
Add loss on the sale of land 1 million
Movement in working capital;
Add Decrease in account receivable 6 million
Add Decrease in inventory 3 million
Less Decrease in account payable 1 million
Net cash form operating activities 60 million.
Explanation:
Note that using indirect method;
Add back non-cash movement items like (depreciation, amortisation, impairment and reveluations)-Depreciation 7 million ( the reason is because these items do not involve any cash transaction. in the cause of this transaction no payment was made or received.)
Less/add losses or profit from disposal of assets. (reason is because these are treated under investment activities. Losses on asset disposed are added back since they were deducted in arriving at the net income)
Movement in working capital is made up of current asset and liabilities items like receivables, inventory and payables. Decrease in receivables and inventory often imply increase in cash inflow since most debtor have paid to reduce their outstanding liabilities and the organisation must have sold its inventory for cash. However decrease in payable indicated cash outflow. Since outstanding liabilities of the organisation are paid to reduce account payable.
