How the statement is built
The indirect method starts from profit and turns it into cash. Section A (operating) adds back what cost no cash, such as depreciation and goodwill written off, takes out what is not from operations, adjusts for working capital, then deducts tax paid. Section B (investing) shows cash spent on or received from machinery and investments. Section C (financing) shows shares and debentures issued or redeemed, interest and dividends paid. A + B + C is the change in cash and cash equivalents, which must take the opening balance to the closing one.
Example: net profit before tax in set EXCF5D
The surplus of Dhauli Industries Ltd rose from ₹4,85,000 to ₹8,26,000, a change of ₹3,41,000. Add back the transfer to general reserve of ₹50,000, the final dividend of ₹40,000 proposed for 2024-25 and paid this year (this year’s proposed ₹84,000 waits for approval), and the provision for tax made: closing provision 1,05,000 + tax paid 1,59,000 − opening provision 1,20,000 = ₹1,44,000. Net profit before tax is ₹5,75,000. After the adjustments and working capital changes, cash generated from operations is ₹7,86,000; less tax paid of ₹1,59,000 leaves ₹6,27,000 from operating activities. Open set EXCF5D
Questions
How do you find net profit before tax for a cash flow statement?
Take the change in surplus (balance in the statement of profit and loss) between the two balance sheets. Add back what came out of this year's profit: the transfer to general reserve, the dividends paid during the year (final and interim) and the provision for tax made this year.
How is proposed dividend treated in a cash flow statement?
Last year's proposed dividend is approved at this year's annual general meeting and paid this year, so add it back to find net profit before tax and show it as dividend paid under financing. This year's proposed dividend is only a contingent liability in the notes (AS 4) and is left out.
Where does interest on debentures go?
For a company that is not a finance company it is a finance cost. Add it back in operating activities, then show the interest paid under financing activities. Work it on the opening debentures: those issued on 31 March earn no interest that year, and those redeemed on 31 March were held all year, so they do.
Is income tax paid the same as the provision for tax?
Not usually. Tax paid = opening provision + provision made this year − closing provision. Add the provision made back to find net profit before tax, and deduct the tax paid after cash generated from operations.
Why is an increase in current assets deducted?
Cash tied up in more inventories, receivables or prepaid expenses has not come in yet, so an increase is deducted and a decrease added. Current liabilities work the other way: an increase in trade payables or outstanding expenses is added, a decrease deducted.
How do I show machinery sold during the year?
Find the book value (cost less accumulated depreciation). The profit or loss against the sale price is adjusted in operating activities, and the whole sale price is an inflow under investing. Purchases are the closing cost less the opening cost plus the cost of the machine sold.
Are current investments part of cash and cash equivalents?
In CBSE questions, yes: current investments are taken as marketable securities unless the question says otherwise, so add them to cash when you work out the opening and closing cash and cash equivalents.
How do I type outflows and deductions?
With a minus sign or in brackets: −40,000 or (40,000). Inflows and additions need no sign. Rupee signs, Rs. and /- are fine, and commas can be Indian (1,25,000) or in threes. Leave a line empty, or type 0, when it does not apply.
Sources: NCERT Accountancy Part II (Reprint 2026-27), chapter 3, Financial Statements of a Company (the Schedule III form, proposed dividend) and chapter 6, Cash Flow Statement; the CBSE class 12 Accountancy curriculum, cash flow statement unit (indirect method only, current investments as marketable securities).