Accounting · Cash Flow Statement
In the Statement of Cash Flows prepared using the indirect method, how is the annual depreciation expense on a bank's core banking servers treated, and what is the accounting rationale?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It is classified as a financing activity because server hardware is financed through long-term liabilities.
- 2It is excluded from operating activities and shown only as a cash outflow under investing activities.
- 3It is subtracted from net profit because technological assets require future cash outflows for replacement.
- 4It is added back to net profit because it is a non-cash expense that reduced profit without involving an outflow of cash.✓
Correct answer
It is added back to net profit because it is a non-cash expense that reduced profit without involving an outflow of cash.
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