Question

Calculate Cash Flow from Investing Activities from the following particulars:
Plant & Machinery (Written Down Value)
1st April, 2023: ₹14,40,000
31st March, 2024: ₹17,20,000
Information:
(i) Depreciation charged during the year ₹1,70,000.
(ii) Plant & Machinery having a written down value of ₹2,20,000 was sold for ₹2,50,000.

Hint:

When calculating cash flow from investing activities, account for the net change in assets, depreciation, and proceeds from the sale of assets.

Answer 1

Step 1: Calculate the Net Increase in Plant & Machinery.
The written down value of Plant & Machinery at the beginning of the year (1st April, 2023) is ₹14,40,000 and at the end of the year (31st March, 2024) is ₹17,20,000. The net increase in the value of Plant & Machinery is: \[ \text{Net Increase in Plant & Machinery} = 17,20,000 - 14,40,000 = 2,80,000 \] Step 2: Adjust for Depreciation.
Depreciation of ₹1,70,000 is charged during the year. Depreciation reduces the book value of assets, so it is added back to calculate the actual cash flow from investing activities.
Step 3: Adjust for the Sale of Plant & Machinery.
The company sold Plant & Machinery with a written down value of ₹2,20,000 for ₹2,50,000. The sale resulted in a cash inflow of ₹2,50,000. The difference between the sale value and the written down value is the profit on sale, which is: \[ \text{Profit on Sale} = 2,50,000 - 2,20,000 = 30,000 \] Step 4: Calculate Cash Flow from Investing Activities.
To calculate the cash flow from investing activities, we use the following formula: \[ \text{Cash Flow from Investing Activities} = \text{Net Increase in Plant & Machinery} + \text{Depreciation} - \text{Profit on Sale} \] Substitute the values into the formula: \[ \text{Cash Flow from Investing Activities} = 2,80,000 + 1,70,000 - 30,000 = 4,20,000 \] Step 5: Conclusion.
The cash flow from investing activities is ₹4,20,000. This includes the net increase in the value of plant and machinery, depreciation, and the profit from the sale of machinery.