Question

For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow viz, operating, investing and financing. 

(a) Acquired machinery for Rs. 2,50,000 paying 20% drawn and executing a bond for the balance payable. 

(b) Paid Rs. 2,50,000 to acquire shares in Informa Tech and received a dividend of Rs.50,000 after acquisition. 

(c) Sold machinery of original cost Rs. 2,00,000 with an accumulated depreciation of Rs. 1,60,000 for Rs. 60,000.

Answer 1

(b) Related to investing activity. Acquiring shares in Informa Tech is an investment and dividend received on it is also part of same (Rs. 2,50,000-50,000= Rs. 2,00,000 outflow). 

(c) Related to investing activity. It is treated as sale of investment. Rs. 60,000 inflow and Rs. 20,000 as profit on sale of investment as operating activity.