T.S. Grewal Class 12 Vol 3 Chapter 5 Q.4 - Cash Flow Statement

Question 4

For each of the following transactions, calculate the resulting Cash Flow and state its nature, i.e. whether it is Operating, Investing, or Financing: (a) Acquired machinery for ₹2,50,000, paying 20% by cheque and executing a bond for the balance payable; (b) Paid ₹2,50,000 to acquire shares in Informa Tech Ltd. and received a dividend of ₹50,000 after acquisition; (c) Sold machinery of original cost ₹2,00,000, with accumulated depreciation of ₹1,60,000, for ₹60,000.

Solution

(a) Investing Activity: ₹50,000 (cash outflow) — only the 20% (₹50,000) paid by cheque is a cash flow; the balance settled by executing a bond is a non-cash financing arrangement and does not appear in the Cash Flow Statement.

(b) Investing Activity: ₹2,00,000 (net cash outflow) — ₹2,50,000 paid to acquire shares, less ₹50,000 dividend received, both being Investing Activities for a non-financial company.

(c) Investing Activity: ₹60,000 (cash inflow) — the actual sale proceeds received, regardless of the ₹20,000 profit over net book value (₹2,00,000 − ₹1,60,000 = ₹40,000) that the sale represents.