T.S. Grewal Class 12 Vol 3 Chapter 5 Q.46 - Cash Flow Statement

Question 46

Property, Plant and Equipment (Net): Closing ₹31,75,000, Opening ₹25,50,000. During the year, a machine costing ₹3,50,000 (Depreciation provided thereon ₹1,50,000) was sold for ₹1,25,000. Depreciation charged for the year was ₹3,50,000. A machine costing ₹75,000 was purchased by issue of equity shares of ₹10 each at a premium of 20%. Net profit before tax ₹2,50,000.

How will you disclose these items while preparing a Cash Flow Statement?

Solution

I. Cash Flow from Operating Activities

Particulars	Amount (₹)	Amount (₹)
Net Profit before Tax		2,50,000
Add: Loss on Sale of Machine (3,50,000 − 1,50,000 − 1,25,000)	75,000
Add: Depreciation	3,50,000	4,25,000
Cash Flow from Operating Activities		6,75,000
II. Cash Flow from Investing Activities
Purchase of Machine (WN)		(11,00,000)
Sale of Machine		1,25,000
Net Cash Used in Investing Activities		(9,75,000)

Note: The machine costing ₹75,000 acquired by issuing equity shares (6,250 shares of ₹10 each at a 20% premium, i.e. ₹12 issue price) is a non-cash transaction and is excluded entirely from both Investing Activities (no cash paid for the machine) and Financing Activities (no cash received from the share issue).

Working Note: Property, Plant and Equipment (Net) Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	25,50,000	By Bank A/c (Sale)	1,25,000
To Equity Share Capital A/c (6,250 × 10)	62,500	By Statement of Profit and Loss (Loss on Sale)	75,000
To Securities Premium Reserve A/c (6,250 × 2)	12,500	By Depreciation A/c	3,50,000
To Bank A/c (Purchase, balancing figure)	11,00,000	By Balance c/d	31,75,000
Total	37,25,000	Total	37,25,000