Question

Calculate ‘Cash Flows from Investing Activities’ from the following information: \[ \begin{array}{|l|c|c|} \hline \textbf{Particulars} & \textbf{31st March, 2023 (₹)} & \textbf{31st March, 2022 (₹)} \\ \hline \text{Plant and Machinery} & 4,10,000 & 3,00,000 \\ \text{Goodwill} & 1,80,000 & 80,000 \\ \hline \end{array} \]

Additional Information:
(a) A machine costing ₹ 85,000 (depreciation provided thereon ₹ 15,000) was sold for ₹ 62,000. Depreciation charged during the year amounted to ₹ 48,000.
 

Hint:

Cash Flows from Investing Activities include cash inflows and outflows related to the purchase and sale of assets such as property, plant, and equipment.

Answer 1

To calculate Cash Flows from Investing Activities, we consider the changes in Plant and Machinery and Goodwill, as well as the sale of the machine. Cash Flow from Sale of Machine: The sale of the machine results in an inflow of ₹ 62,000. The book value of the machine is ₹ 85,000 - ₹ 15,000 = ₹ 70,000. Therefore, the cash inflow from the sale of the machine is: \[ \text{Cash inflow from sale of machine} = ₹ 62,000 \quad \text{(proceeds from sale)} - ₹ 70,000 \quad \text{(book value of machine)} = -₹ 8,000 \] Change in Plant and Machinery: The net increase in Plant and Machinery is: \[ \text{Increase in Plant and Machinery} = ₹ 4,10,000 - ₹ 3,00,000 = ₹ 1,10,000 \] This increase is considered as an outflow of cash. Change in Goodwill: The increase in Goodwill is: \[ \text{Increase in Goodwill} = ₹ 1,80,000 - ₹ 80,000 = ₹ 1,00,000 \] This is also an outflow of cash. Cash Flow from Investing Activities: \[ \text{Cash Flows from Investing Activities} = \text{Proceeds from sale of machine} - \text{Increase in Plant and Machinery} - \text{Increase in Goodwill} \] \[ = - ₹ 8,000 - ₹ 1,10,000 - ₹ 1,00,000 = - ₹ 2,18,000 \]