Final answer:
The statement in the question is true. Gains on the disposal of plant assets are added back to net income on the statement of cash flows when using the indirect method, as they are non-operating gains that did not generate cash. The correct option is A.
Step-by-step explanation:
The statement is true. In the indirect method of preparing the statement of cash flows, non-cash items and gains or losses associated with financing and investing activities are adjusted from the net income to convert it to cash flow from operating activities.
A gain on the disposal of a plant asset is considered a non-operating item, and since it increased the net income without affecting cash (since it's a gain on paper), it needs to be subtracted back to reconcile to the cash that was actually generated or used by operating activities.
Conversely, if there was a loss on the disposal, it would be added back because the loss reduced net income but did not involve an actual outlay of cash in operating activities.