Questions - Investing Activities | Cash Flow Statement - 6 | Class 12 | Accounts | CA Parag Gupta
CA Parag Gupta・52 minutes read
Cash flow from investing activities is calculated based on purchases and sales of assets, with interest received considered inflow and depreciation impacting overall calculations. The net cash used in investing activities for the provided scenarios is Rs 241.
Insights
- Cash flow from investing activities is determined by the purchases and sales of assets, with purchases resulting in outflows and sales leading to inflows, impacting the overall cash flow calculations significantly.
- Accurate calculation of interest inflow is crucial, considering interest received on investments as an inflow, adjusting for accrued interest not yet received, and deducting it from the total interest to determine the actual inflow, ensuring financial accuracy.
- The process of calculating Cash Flow from Operating and Investing Activities involves intricate steps like analyzing changes in current assets and liabilities, determining NP BT, and balancing expenses and incomes to arrive at the final cash flow figures for both activities, emphasizing a structured approach for financial clarity.
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Recent questions
How is cash flow from investing activity calculated?
Cash flow from investing activity is determined by the cash paid for acquiring assets, such as machinery or investments. It involves tracking the outflow of cash for purchases and inflow of cash from sales. For example, if machinery is acquired for Rs 10 lakh, with Rs 10 lakh paid immediately and the remaining Rs 9 lakh accepted through a draft, the cash flow from investing activity would be Rs 1 lakh, indicating an outflow of cash.
What impacts cash flow from investing activities?
Only the values of assets sold and purchased impact cash flow from investing activities. For instance, if Mars Limited sells part of its plant for Rs 45,000 with a return down value of Rs 30,000 and purchases plant and machinery for Rs 1,55,000, the outflow of cash would be Rs 1,55,000 due to the purchase, affecting the overall cash flow calculations.
How are ledger accounts used to calculate cash flow from investing activities?
Ledger accounts for assets like plant and machinery, investments, and land and building are prepared to record adjustments and sales. By analyzing these accounts, one can determine the cash flow from investing activities based on the values of assets sold and purchased. For example, the sale of investments at Rs 2,75,000 results in an inflow, while the purchase of investments at Rs 7,50,000 indicates an outflow in investing activity.
What role does interest play in cash flow calculations?
Interest received on investments is considered an inflow in cash flow calculations, impacting the overall cash flow from investing activities. The interest earned is calculated based on the investment amount held throughout the year, and accrued interest not yet received must be deducted to determine the actual inflow. Accurate calculation of interest inflow is crucial for financial accuracy in assessing cash flow.
How is cash flow from operating and investing activities differentiated?
Cash flow from operating activities involves analyzing changes in current assets and liabilities, along with non-operating income and expenses. On the other hand, cash flow from investing activities focuses on tracking purchases and sales of assets like machinery, investments, and property. By segregating these activities, one can determine the net cash used in investing activities, which is crucial for financial planning and decision-making.
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Summary
00:00
Calculating Cash Flow from Investing Activities
- Question 22 asks to calculate cash flow from investing activity based on acquiring machinery for Rs 10 lakh, paying Rs 10 immediately in cash, and accepting a draft for the remaining Rs 9 lakh.
- Cash flow from investing activity is determined by the cash paid, which in this case is Rs 1 lakh, indicating an outflow of cash.
- The next question, 23, involves Mars Limited's plant and machinery with a return down value, depreciation of Rs 35,000, and selling part of the plant for Rs 45,000 with a return down value of Rs 30,000.
- The ledger account for Plant and Machinery must be prepared, focusing on the asset adjustments and sales to calculate cash flow from investing activity.
- Only the value of assets sold and purchased impact investing activity, with the purchase of Rs 1,55,000 resulting in an outflow of cash.
- In question 24, closing and opening figures are provided along with investments in debentures and land and building, with interest received on investments and depreciation on land and building.
- Ledger accounts for Investment and Land and Building are created to record the adjustments and calculate cash flow from investing activities.
- The sale of half the investments at a profit of Rs 10 and depreciation on land and building are accounted for, with the sale and purchase values determining cash flow from investing activity.
- The sale of investments at Rs 2,75,000 results in an inflow, while the purchase of investments at Rs 7,50,000 indicates an outflow in investing activity.
- The purchase of land and building at Rs 6,50,000 signifies an outflow in investing activity, contributing to the overall cash flow calculations.
20:41
Accounting Activities and Cash Flow Analysis
- Interest received on investment is 75000, considered as inflow.
- Black colored items add up to 35 lakhs, red colored items are 14 lakhs.
- Negative final answer indicates cash used in investing activity.
- Machinery costing 25000 with accumulated depreciation of 15000, sold for 13000, resulting in a profit of 3000.
- Cross posting necessary for accumulated depreciation in provision account.
- Balancing figure of 5000 in PFD account signifies technically by depreciation.
- Depreciation conceptually added back in operating activity.
- Goodwill amortized from 1 lakh to 75, considered as amortization of goodwill.
- Patents increased from 75 to 1 lakh, treated as purchase.
- Land decreased from 1 lakh to 90, considered as sale.
- Accrued interest on investment not received, hence no inflow.
- Investment sold at book value on 31st March 2022, no profit or loss.
40:15
Understanding Interest and Cash Flow in Investments
- Interest rate signifies interest on investment, allowing for calculation of interest earned.
- Interest calculation involves considering the investment amount at the start of the year.
- Interest is calculated based on the investment amount held throughout the year.
- Interest is adjusted if the investment is sold midway through the year.
- Accrued interest, not yet received, impacts the actual interest inflow.
- Accrued interest must be deducted from the total interest to determine actual inflow.
- Accurate calculation of interest inflow is crucial for financial accuracy.
- Cash flow from investing activities involves tracking purchases and sales of assets.
- Interest received on investments is considered an inflow, while interest paid is not relevant.
- Dividends received on shares are added to the cash flow, while dividends paid are not included.
59:36
Cash Flow Calculation and Analysis Techniques
- Negative 452 will not come in the direct question.
- Question number 30 involves calculating Cash Flow from Investing Activities.
- Information includes closing and opening figures, investment in land, shares in Damodar Limited, long-term investments at 12, plant and machinery, patents, and goodwill.
- Additional information includes purchasing land for investment, receiving rent of Rs 20,000, and receiving a dividend of Rs 12 from Damodar Limited.
- Patents return of Rs 20,000 is mentioned, along with selling a machine for Rs 35,000 resulting in a loss of Rs 15,000.
- Depreciation charged during the year is Rs 70,000.
- Investments worth lakhs were purchased during the year, with some sold at a profit of Rs 10,000.
- Interest on long-term investments at 12 is received, calculated on the opening figure of Rs 50,000.
- Ledger accounts for plant and machinery, patents, and investments are created with detailed balances.
- Inflows include sale of investments, machines, dividends received, interest received, and rent received, while outflows include purchases of plant and machinery and investments, and goodwill.
- The total inflows and outflows are calculated, resulting in a net cash used in investing activities of Rs 241.
- Question number 31 involves calculating Cash Flow from Operating and Investing Activities.
- Information includes opening and closing figures, surplus balance in PNL, provision for tax, trade payable, current liabilities, current assets, fixed assets, and depreciation provided.
- A machine costing Rs 105,000 with depreciation of Rs 65,000 is sold at a loss of Rs 8,000.
- Ledger accounts for fixed assets and provision for tax are created with detailed balances.
- Tax paid during the year is Rs 300, which is recorded on the debit side of the bank account.
- The balance in the provision for tax account is considered as a balance by the statement of PNL.
- The treatment of tax paid and provision for tax in operating and investing activities is explained.
01:20:38
Cash Flow Analysis and Calculation Process
- Add the amount of 300 to the working note, specifically in the working note with N PBT, followed by conducting operating activities first, then investing activities, and finally focusing on the structure of operating activities.
- Calculate NP BT by subtracting non-operating income from non-operating expenses, then proceed to write down depreciation and loss on sale as expenses, and determine the final OPBWSSI amount.
- Analyze the changes in current assets and liabilities, adding the increase in trade payables and subtracting the increase in current assets, along with the tax paid, to arrive at the final cash flow from operating activities, followed by determining the cash used in investing activities by subtracting the purchase of fixed assets from the sale of fixed assets.
