Correct Answer - Option 1 : Depreciation is source of funds.
1. Depreciation is a source of funds- False
Explanation:
- Depreciation is a process of allocation of cost.
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It cannot be a source of funds.
- At best by charging adequate depreciation, the taxable profit may be legally reduced.
- The tax burden may be reduced.
- It may help to conserve working capital.
- It may indirectly regulate the fund position but cannot increase funds.
2. Major source of working capital in the long run, is profits form operations- True
Explanation:
- Working capital is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities.
- The major source of working capital is the company's profits earned from its day-to-day operations.
- For example, the collection of receivables.
3. Any transaction that increases working capital is a source of funds- True
Explanation:
- Companies always seek sources of funding to grow the business.
- Funding, also called financing, represents an act of contributing resources to finance a program, project, or need.
- Funding can be initiated for either short-term or long-term purposes.
- The different sources of funding include Retained earnings, Debt capital, Equity capital, etc.
- Any transaction whose benefit outweighs the cost is a source of fund for the firm.
4. Profits earned from non-operating activities is added to net profit while calculating profits from operations- True
Explanation:
- Non-operating income is the portion of an organization's income that is derived from activities not related to its core business operations.
- It can include dividend income, profits or losses from investments, as well as gains or losses incurred by foreign exchange and asset write-downs.
- Profits earned from non-operating activities are added to net profit while calculating profits from operations.
