Introduction: Interim dividends are dividends paid to shareholders during the year before the final dividend is declared. These dividends are paid out of the company's profits.

Explanation: In the cash flow statement, interim dividends paid during the year are added back to the net profit figure. This is because interim dividends are treated as a cash outflow and not an expense. Therefore, they are not deducted from the net profit figure when calculating the cash flow from operating activities.

Reasons: There are several reasons why interim dividends are added back to the net profit figure in the cash flow statement:

1. Interim dividends are not a regular expense: Interim dividends are not a regular expense like salaries or rent. They are paid out of the company's profits and are not necessary for the day-to-day running of the business.

2. Interim dividends are a cash outflow: Interim dividends are a cash outflow and reduce the amount of cash available to the company. Therefore, they are added back to the net profit figure to show the true cash inflows and outflows from operating activities.

3. Interim dividends are not included in the final dividend: Interim dividends are paid before the final dividend is declared. Therefore, they are not included in the final dividend figure and are treated separately in the cash flow statement.

Conclusion: In summary, interim dividends paid during the year are added back to the net profit figure in the cash flow statement because they are not a regular expense, they are a cash outflow, and they are not included in the final dividend. By adding back interim dividends, the cash flow statement shows the true cash inflows and outflows from operating activities.

Because interim dividend is paid out of profit thus deducting the profit so to calculate the cash flow from operating activities it is added