In Q.no 116 pls explain why the Statement 2 is wrong because we have learned in CFS chapter that amortization and depreciation is added to NI .
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In Q.no 116 pls explain why the Statement 2 is wrong because we have learned in CFS chapter that amortization and depreciation is added to NI .
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Statement 2 is incorrect because bond premium should not be added back to net income when preparing the cash flow statement.
In the context of accounting, bond premium refers to the amount paid by investors that exceeds the face value of a bond. It represents an additional cost to the issuer of the bond. When preparing the cash flow statement, the focus is on the cash flows generated by the business, not on accounting adjustments such as bond premiums.
The cash flow statement aims to show the sources and uses of cash during a given period. It is divided into three sections: operating activities, investing activities, and financing activities. The operating activities section starts with net income (or loss) from the income statement and adjusts it for non-cash items such as depreciation and amortization.
Bond premium does not represent a cash flow for the business. It is simply the difference between the cash received from issuing the bond and the face value of the bond. Therefore, it should not be added back to net income when preparing the cash flow statement.