How is the cash payment of interest computed in the cash flo

How is the cash payment of interest computed in the cash flows statement?

Solution

Interest payment in Cash Flow

Step1==Add back:Interest expense to Profit before Tax in CashFlow statement.. (as it is implicit interest not actual interest paid)

Step2)in Financing Activity Less:Interst paid(below) real cash paid.

Interest paid Calculation

1)Opening loan liability(lprevious year )+effective interest(inint rate*loan liability)--Closing liability(this year F/P)

Or Sometimes Coupon Rate is directly given

There are two cases for categorisation of interest payment and Ineterest Received.

1) Generally if It is not belongs to core activity of business,then interest payment in Cash Flow is considered asFinancing activity

and if it is regular business then operating activity.