Question

The following information has been extracted from the books of Lata Ltd.:
\begin{tabular}{|l|r|r|} \hline Particulars & 31.3.2024 (Rs.) & 31.3.2023 (Rs.)
\hline Machinery (Cost) & 70,00,000 & 50,00,000
Accumulated Depreciation & 10,00,000 & 8,00,000
\hline \end{tabular} \vspace{0.25cm} Additional Information:
(i) During the year, a piece of machinery costing Rs. 1,40,000 on which accumulated depreciation was Rs. 90,000, was sold at a gain of Rs. 10,000.
(ii) Depreciation charged during the year amounted to Rs. 2,90,000.
Calculate: Cash Flows from Investing Activities

Hint:

When calculating investing cash flows, ignore non-cash items like depreciation and use book value + gain/loss for sale proceeds.

Answer 1

Step 1: Calculate Sale Value of Machinery Sold
Cost of machinery sold = Rs. 1,40,000
Less: Accumulated Depreciation = Rs. 90,000
$\Rightarrow$ Book Value = Rs. 50,000
Gain on sale = Rs. 10,000
$\Rightarrow$ Sale Price = Rs. 50,000 + Rs. 10,000 = Rs. 60,000

Step 2: Calculate Purchase of Machinery
Let machinery purchased = Rs. $x$
Opening Gross Block = Rs. 50,00,000
Less: Cost of machinery sold = Rs. 1,40,000
Add: Purchases = $x$
Closing Gross Block = Rs. 70,00,000

$70,00,000 = 50,00,000 - 1,40,000 + x \Rightarrow x = 21,40,000$

Step 3: Calculate Cash Flow from Investing Activities
Outflow: Purchase of Machinery = Rs. 21,40,000
Inflow: Sale of Machinery = Rs. 60,000

$\textbf{Net Cash Used in Investing Activities} = 21,40,000 - 60,000 = Rs. 20,80,000$

Final Answer:
$\boxed{\text{Cash Used in Investing Activities} = \text{Rs. } 20,80,000}$