CHAPTER 5: CASH FLOW STATEMENT: CASH FLOW FROM INVESTING ACTIVITY



DEAR STUDENTS, AFTER THE MAJOR PORTION  OF CASH FLOW FROM OPERATING ACTIVITIES IN CASH FLOW STATEMENT . WE MOVE TO THE SIMPLE  CASH FLOW FROM INVESTING ACTIVITY. 

LEARNING OUTCOMES:

AFTER THIS TOPIC YOU WILL BE ABLE TO:

PREPARE FIXED ASSET ACCOUNT, INVESTMENT ACCOUNT, ACCUMULATED DEPRECIATION ACCOUNT WITH EASE AND WILL BE ABLE TO COMPUTE CASH FLOW FROM INVESTING ACTIVITY.


II.  Cash flows from investing activities

*Proceeds from Sale of Tangible Fixed
Assets 

*Proceeds from Sale of Non Current Investments (other than current investments( to be included in cash and cash equivalents) and Marketable Securities)

*Interest received, Dividend received,(for Non Financial Companies only) 

*Rent received 

*Purchase of Fixed Tangible Assets and Intangible Assets like Goodwill

* Purchase of Non Current Investments (other than Marketable Securities)

*Extraordinary Items (e.g. Insurance claim on Machinery against Fire) (+/-)

* Capital gain tax paid

TASK# 2

WATCH THE PPT ON CASH FLOW STATEMENT GIVEN BELOW :



AGAIN WE WILL USE THE SAME TECHNIQUE OF LEARNING THROUGH EXAMPLES.

TASK # 3


EXAMPLE:  1



Calculate Cash flows from Investing Activities from the following information:

Particular                                       31st march 2020                 31st march 2019 Investments in land                              1600000                               600000
10% Long term investments                 250000                               400000
Plant and machinery                             300000                               200000
Goodwill                                                  80,000                                15,000

Additional information:

A machinery costing 40000 (depreciation provided thereon 12000) was sold for 35000.
Depreciation charged during the year was 60000.

SOLUTION: 1

Calculation of Cash Flow from Investing Activities:

Particulars Details(₹) Amount ( ₹)

Purchase of land (1000000)
Sale of long term investments 150000
Interest on long term investment 40000
Purchase of plant and machinery (188000)
Sale of plant and machinery 35,000
Purchase of goodwill ( 65000) n

___________________________________________________________________
Net cash used in investing activities ( 10,28,000)
____________________________________________________________________


Working Notes:

Plant and machinery account

Particulars Amount( ₹) Particulars Amount( ₹)

To Balance b/d 200000 By Bank a/c( sale) 35000
To Statement of P/L 7000 By Depreciation 60000
(gain on sale) By Balance c/d 300000
To Bank a/c (purchase)(Bal.Fig.) 346000
______________________________________________________________________

395000 395000
______________________________________________________________________


Top Tips:

1. Book value of land is increased in from ₹ 600000 to ₹1600000. It means land costing ₹1000000 purchased during the year 2019 - 20 i.e. outflow of cash from investing activities.

2. Book value of 10% long term investments is decreasing from ₹ 400000 to ₹ 250000. It means there was a sale of long term investments ₹ 150,000 during the year, that is cash inflow from investing activities.

3.Since date of sale of 10% long term investments is not given, we may assume that sale took place on 31st March 2020 that is at the end of the current year. Therefore balance of 10% long term investments was ₹ 400000 throughout the year. Thus, interest received on long term investment for whole year (assuming that whole amount of interest income is received) = 10% of ₹ 4 lakh = ₹ 40000 which is cash inflow from investing activities.

4. Value of goodwill is increased from ₹15000 to ₹ 80000, that is purchase of goodwill = ₹ 65000 , that is cash outflow from investing activities



EXAMPLE  2    9.10

Calculate Cash flows from Investing Activities from the following information. Show the workings clearly.

Particulars                                    31st March 2020(₹)           31st March 2019(₹) 

Investments in shares of micro ltd       1800000                                800000
12% long term investment                    150000                                 500000
Plant and machinery                              600000                                 400000
Goodwill                                                  120000                                  40,000 

Additional Information:

1. 9% Dividend was received from Miko limited.
2. A Machine of book value 35,000 (depreciation provided there on 15000) was sold for 40000
 Depreciation charged during the year was 55,000.

Ans. (848000)

Calculation of Cash flows From Investing Activities:
Particulars Amount( ₹)

Sale of plant and machinery 40000
Purchase of plant and machinery (290000)
Sale of long term investments 350000
Interest received on investment 60000
Investment in shares of Miko limited (1000000)
Dividend received from Miko limited 72000
Goodwill purchased (80,000)

________________________________________________________

Net cash used in investing activities (848000)
________________________________________________________

Working Notes:

1.

Plant and machinery account

Particulars Amount( ₹) Particulars Amount( ₹)

To Balance b/d 400000 By Bank a/c(sale) 40000
To Statement of P/L 5,000 By Depreciation 55000
To Banka/c (purchase)(bal. fig.) 290000 By Balance c/d 600000
_____________________________________________________________________
695000 695000
_____________________________________________________________________


2. It is assumed that new investment in shares of Miko limited were made and Long term Investments was sold on 31st March 2020.
In that case, interest on Long term Investment received = 12% of ₹ 5 lakh = ₹ 60000.

Dividend received on share the Miko limited = 9% of ₹ 8 lakh = ₹ 72000.



















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