because the question states net income…net income is the excess of revenue over costs after deduction of all expenses including tax intersst and dep…however since depreciation is a non cash item it is added back to arrive at the cash flow i am not sure as to how to tax is treated under ifrs and gaap in the cash flow statement…refer to your FRA module
Yes, to calculate CFO indirectly we start with net income and make adjustments for all non-operating items (e.g., gain on the sale of equipment) and for all non-cash items (e.g., depreciation).
If we have a DTL or a DTA generated this year, then tax expense (on the income statement) may differ from taxes payable / taxes paid (from the income tax return); that difference is a non-cash item requiring an adjustment to net income to get to CFO.
Similarly, if we issued bonds at a premium, or at a discount, then interest expense (on the income statement) may differ from interest payable / interest paid (from the cash flow statement); that difference is a non-cash item requiring an adjustment to net income to get to CFO.
As a practical matter, on the exam CFA Institute won’t give the candidates non-cash interest expense or non-cash tax expense in an indirect-method-CFO problem. Nevertheless, it is good to understand that interest expense isn’t the same as interest payable/paid, and tax expense isn’t the same as taxes payable/paid. Those questions (in isolation) _ could appear _ on the exam.
