From the following particulars, calculate cash flows from investing activities:
| Particulars | Purchased (₹) | Sold (₹) |
|---|---|---|
| Plant | 4,40,000 | 50,000 |
| Investments | 1,80,000 | 1,00,000 |
| Goodwill | 2,00,000 | — |
| Patents | — | 1,00,000 |
Interest received on debentures held as investment ₹60,000. Dividend received on shares held as investment ₹10,000. A plot of land had been purchased for investment purposes and was let out for commercial use, and rent received was ₹30,000.
Concept understanding — Cash Flow Calculation
Cash Flow: From Pocket Money to the Cash Flow Statement
Think of your own pocket money. You get ₹500 from your parents. You spend ₹200 on snacks, ₹100 on a movie ticket, and save ₹200. At the end of the month, your cash in hand has increased by ₹200. That's a cash inflow. If you had spent ₹600 instead, your cash would have decreased by ₹100 — a cash outflow.
Now imagine you run a small business. You sell goods worth ₹10,000, but the customer pays you next month. You also pay rent ₹2,000 in cash today. Your profit might be ₹8,000, but your cash actually went down by ₹2,000. Cash flow is the difference between cash coming in and cash going out during a period. It is not the same as profit.
Why Cash Flow Matters
A business can be profitable on paper yet run out of cash. This is called insolvency — the inability to pay bills when they fall due. Cash flow tells you whether the business has enough liquid money to survive day-to-day operations. The Cash Flow Statement (CFS) is a mandatory financial statement under AS-3 (Accounting Standard 3) for listed companies. It shows why cash changed during the year.
The Three Activities of Cash Flow
The NCERT textbook classifies all cash flows into three buckets:
| Activity | What it includes | Example |
|---|---|---|
| Operating Activities | Main revenue-producing activities | Cash from selling goods, cash paid to suppliers, salaries |
| Investing Activities | Purchase/sale of long-term assets | Buying machinery, selling land, loans given |
| Financing Activities | Changes in equity and borrowings | Issue of shares, repayment of bank loan, dividend paid |
The net increase or decrease in cash during the year = Operating cash flow + Investing cash flow + Financing cash flow. This must match the change in cash balance shown in the Balance Sheet.
Accounting Treatment — No Debit/Credit Here
The Cash Flow Statement is not a journal entry. It is a statement — a report that rearranges information already recorded in the books. You do not debit or credit any account while preparing it. Instead, you analyse the Balance Sheet and Statement of Profit & Loss to identify cash movements.
For example, if the Balance Sheet shows:
- Debtors increased from ₹50,000 to ₹70,000 → cash inflow from debtors is less than sales. So you deduct the increase from operating profit.
- Creditors increased from ₹30,000 to ₹40,000 → you delayed paying suppliers → cash outflow is less than purchases. So you add the increase to operating profit.
The Proforma of a Cash Flow Statement (as per NCERT)
Below is the standard format. All figures are illustrative — do not treat them as real data.
Cash Flow Statement for the year ended 31st March 20XX
| Particulars | Amount (₹) |
|---|---|
| A. Cash Flow from Operating Activities | |
| Net Profit before Tax (from P&L) | 1,00,000 |
| Adjustments for non-cash items: | |
| Add: Depreciation | 20,000 |
| Add: Loss on sale of asset | 5,000 |
| Less: Profit on sale of asset | (3,000) |
| Changes in Working Capital: | |
| Increase in Debtors | (10,000) |
| Decrease in Stock | 8,000 |
| Increase in Creditors | 6,000 |
| Net Cash from Operating Activities | 1,26,000 |
| B. Cash Flow from Investing Activities | |
| Purchase of Machinery | (50,000) |
| Sale of Land | 30,000 |
| Net Cash used in Investing Activities | (20,000) |
| C. Cash Flow from Financing Activities | |
| Issue of Share Capital | 40,000 |
| Repayment of Loan | (15,000) |
| Dividend Paid | (10,000) |
| Net Cash from Financing Activities | 15,000 |
| Net Increase in Cash (A+B+C) | 1,21,000 |
| Add: Opening Cash Balance | 10,000 |
| Closing Cash Balance | 1,31,000 |
Key Formulas You Must Know
While preparing the CFS, you will need these:
- Cash from Operations (Direct Method) = Cash received from customers – Cash paid to suppliers – Cash paid for expenses – Cash paid for taxes
- Cash from Operations (Indirect Method) = Net Profit + Non-cash expenses (depreciation, amortisation) + Loss on sale of assets – Profit on sale of assets + Decrease in current assets – Increase in current assets + Increase in current liabilities – Decrease in current liabilities
- Net Cash Flow = Total Inflows – Total Outflows
A common mistake: treating depreciation as a source of cash. It is not. Depreciation is a non-cash expense — we add it back to net profit because it reduced profit but did not reduce cash. Similarly, profit on sale of asset is subtracted because it increased profit but did not come from operations.
The Bottom Line
The Cash Flow Statement answers one question: Where did the cash come from, and where did it go? It is not about profit — it is about liquidity. For a Class 12 exam, focus on:
- Classifying each transaction into Operating, Investing, or Financing.
- Adjusting net profit for non-cash items and working capital changes.
- Presenting the final statement in the correct format.
Master this, and you will understand the financial health of any business — not just its earnings.
For a non-financial enterprise, interest received, dividend received and rent received on assets held as investments are all investing inflows (AS-3). Every gross purchase (outflow) and gross sale/income (inflow) is shown separately.
Cash Flows from Investing Activities
| Particulars | Amount (₹) |
|---|---|
| Sale of Plant | 50,000 |
| Sale of Investments | 1,00,000 |
| Sale of Patents | 1,00,000 |
| Interest received | 60,000 |
| Dividend received | 10,000 |
| Rent received | 30,000 |
| Purchase of Plant | (4,40,000) |
| Purchase of Investments | (1,80,000) |
| Purchase of Goodwill | (2,00,000) |
| Net cash used in Investing Activities | (4,70,000) |
The NCERT textbook prints this "Do It Yourself" problem without an answer key; the solution above is worked and verified independently.
Total inflows ₹3,50,000 − total outflows ₹8,20,000 = net cash used in Investing Activities ₹4,70,000.
Gross inflows (sales of plant, investments and patents plus interest, dividend and rent received) total ₹3,50,000; gross outflows (purchase of plant, investments and goodwill) total ₹8,20,000 — a net cash outflow of ₹4,70,000 from investing activities.
Concept
Investing activities cover the purchase and sale of long-term assets and investments and the income they earn. For a non-financial enterprise, interest and dividends received on investments, and rent on property held as an investment, are all investing inflows. Gross receipts and gross payments must be shown separately — they are never netted off.
Solution — Cash Flows from Investing Activities
| Particulars | Amount (₹) | Amount (₹) |
|---|---|---|
| Cash Inflows: | ||
| Sale of Plant | 50,000 | |
| Sale of Investments | 1,00,000 | |
| Sale of Patents | 1,00,000 | |
| Interest received on debentures held as investment | 60,000 | |
| Dividend received on shares held as investment | 10,000 | |
| Rent received on land held as investment | 30,000 | |
| Total Cash Inflows (A) | 3,50,000 | |
| Cash Outflows: | ||
| Purchase of Plant | (4,40,000) | |
| Purchase of Investments | (1,80,000) | |
| Purchase of Goodwill | (2,00,000) | |
| Total Cash Outflows (B) | (8,20,000) | |
| Net Cash used in Investing Activities (A − B) | (4,70,000) |
The NCERT textbook prints this "Do It Yourself" problem without an answer key; the solution above is worked and verified independently.
Net cash used in Investing Activities = (₹4,70,000).
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2026Set ANNUAL4 marksQ.Hari & Company earned a profit of ₹ 50,000 in the year ending 31-03-2018. Based on the following information make a cash flow statement from the operations : Particulars | 31-03-2017 (₹) | 31-03-2018 (₹) Stock | 14,000 | 12,000 Trade receivable | 40,000 | 50,000 Prepaid rent | 2,000 | 3,000 Trade payable | 30,000 | 35,000 Outstanding expenses | 4,000 | 3,000
›Reveal solutionSolution
50,000 + 2,000 − 10,000 − 1,000 + 5,000 − 1,000 = Rs. 45,000.
Calculation (2017 → 2018):
Net profit = 50,000
- Stock 14,000 → 12,000 = decrease 2,000 → add 2,000
- Trade Receivable 40,000 → 50,000 = increase 10,000 → less 10,000
- Prepaid Rent 2,000 → 3,000 = increase 1,000 → less 1,000
- Trade Payable 30,000 → 35,000 = increase 5,000 → add 5,000
- Outstanding Expenses 4,000 → 3,000 = decrease 1,000 → less 1,000
Operating cash flow = 50,000 + 2,000 − 10,000 − 1,000 + 5,000 − 1,000 = Rs. 45,000.
✓Final answerRs. 45,000.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2026Set ANNUAL4 marksQ.From the following information, calculate cash flow from operating activities : Particulars | Year 2022 (₹) | Year 2021 (₹) Debtors | 14,000 | 11,000 Outstanding expenses | 3,000 | 1,000 Prepaid expenses | 2,000 | 2,500 Creditors | 14,000 | 16,000 Profit during the year 2017 is ₹ 25,000.
›Reveal solutionSolution
25,000 − 3,000 + 2,000 + 500 − 2,000 = Rs. 22,500.
Calculation (2021 → 2022):
Net profit = 25,000
- Debtors 11,000 → 14,000 = increase 3,000 → less 3,000
- Outstanding Expenses 1,000 → 3,000 = increase 2,000 → add 2,000
- Prepaid Expenses 2,500 → 2,000 = decrease 500 → add 500
- Creditors 16,000 → 14,000 = decrease 2,000 → less 2,000
Operating cash flow = 25,000 − 3,000 + 2,000 + 500 − 2,000 = Rs. 22,500.
✓Final answerRs. 22,500.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2025Set ANNUAL4 marksQ.Calculate cash flow from operating activities from the following information: Particulars | Year 2022 (Rs.) | Year 2021 (Rs.) Debtors | 30,000 | 24,000 Outstanding expenses | 6,000 | 2,000 Prepaid expenses | 4,000 | 5,000 Creditors | 26,000 | 30,000 Profit for the year 2022 is Rs. 50,000.
›Reveal solutionSolution
50,000 − 6,000 + 4,000 + 1,000 − 4,000 = Rs. 45,000.
Calculation (2021 → 2022):
Net profit = 50,000
- Debtors 24,000 → 30,000 = increase 6,000 → less 6,000
- Outstanding Expenses 2,000 → 6,000 = increase 4,000 → add 4,000
- Prepaid Expenses 5,000 → 4,000 = decrease 1,000 → add 1,000
- Creditors 30,000 → 26,000 = decrease 4,000 → less 4,000
Operating cash flow = 50,000 − 6,000 + 4,000 + 1,000 − 4,000 = Rs. 45,000.
✓Final answerRs. 45,000.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2025Set ANNUAL4 marksQ.Calculate cash flow from operating activities from the following information: Particulars | Year 2021 (Rs.) | Year 2020 (Rs.) Balance of Profit and Loss Account | 54,750 | 27,000 Trade receipts | 11,250 | 13,950 Outstanding expenses | 10,200 | 17,850 Patent | - | 18,000 Prepaid expenses | 14,000 | 12,000 Trade payables | 32,000 | 44,000
›Reveal solutionSolution
Profit 27,750 + patents 18,000 + WC adjustments → operating cash flow Rs. 26,800.
Step 1 — profit: P&L 27,000 (2020) → 54,750 (2021) = increase Rs. 27,750.
Step 2 — non-cash: Patent 18,000 → nil = Rs. 18,000 written off, added back.
Step 3 — working-capital changes (2020 → 2021):
- Trade receipts 13,950 → 11,250 = decrease 2,700 → add
- Outstanding Expenses 17,850 → 10,200 = decrease 7,650 → less
- Prepaid Expenses 12,000 → 14,000 = increase 2,000 → less
- Trade payables 44,000 → 32,000 = decrease 12,000 → less
Operating cash flow = 27,750 + 18,000 + 2,700 − 7,650 − 2,000 − 12,000 = Rs. 26,800.
✓Final answerRs. 26,800.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2024Set ANNUAL4 marksQ.Calculate the cash flow from the following operating activities. Particular | 31-03-2007 | 31-03-2008 Profit and Loss A/c. | 1,20,000 | 1,10,000 Debtors | 62,000 | 50,000 Outstanding Rent | 42,000 | 24,000 Prepaid Insurance | 4,000 | 8,000 Creditor | 38,000 | 26,000 Goodwill | 76,000 | 80,000
›Reveal solutionSolution
Loss Rs. 10,000 + working-capital changes = net operating cash OUTFLOW of Rs. 32,000.
Step 1 — profit/loss: P&L 1,20,000 (2007) → 1,10,000 (2008) = decrease Rs. 10,000 (loss).
Step 2 — working-capital changes (2007 → 2008):
- Debtors 62,000 → 50,000 = decrease 12,000 → add 12,000
- Outstanding Rent 42,000 → 24,000 = decrease 18,000 → less 18,000
- Prepaid Insurance 4,000 → 8,000 = increase 4,000 → less 4,000
- Creditors 38,000 → 26,000 = decrease 12,000 → less 12,000
- Goodwill 76,000 → 80,000 = increase 4,000 → investing item, not adjusted in operating.
Operating cash flow = −10,000 + 12,000 − 18,000 − 4,000 − 12,000 = −Rs. 32,000 (outflow).
✓Final answerNet cash OUTFLOW from operating activities = Rs. 32,000.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2024Set ANNUAL4 marksQ.Hari and Company earned Rs. 50,000 as profit on the year ending 31-03-2018. Prepare cash flow statement from the following information on the basis of operating activities. Particulars | 31-03-2017 | 31-03-2018 Stock | 14,000 | 12,000 Trade Received | 40,000 | 50,000 Prepaid Rent | 2,000 | 3,000 Outstanding Expenses | 4,000 | 3,000 Trade Liabilities | 30,000 | 35,000
›Reveal solutionSolution
50,000 + 2,000 − 10,000 − 1,000 − 1,000 + 5,000 = Rs. 45,000.
Calculation (2017 → 2018):
Net profit = 50,000
- Stock 14,000 → 12,000 = decrease 2,000 → add 2,000
- Trade Receivable 40,000 → 50,000 = increase 10,000 → less 10,000
- Prepaid Rent 2,000 → 3,000 = increase 1,000 → less 1,000
- Outstanding Expenses 4,000 → 3,000 = decrease 1,000 → less 1,000
- Trade Liabilities 30,000 → 35,000 = increase 5,000 → add 5,000
Operating cash flow = 50,000 + 2,000 − 10,000 − 1,000 − 1,000 + 5,000 = Rs. 45,000.
✓Final answerRs. 45,000.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2022Set ANNUAL4 marksQ.From the following information, calculate 'Cash Flow from Operating Activities': Particulars | 2019 Amount (Rs.) | 2020 Amount (Rs.) Stock | 60,000 | 50,000 Debtors | 25,000 | 23,000 Creditors | 32,000 | 28,000 Bills Payable | 35,000 | 22,000 Outstanding Expenses | 3,500 | 4,500 Accrued Income | 8,000 | 9,000 Profit & Loss A/c. | 80,000 | 90,000
›Reveal solutionSolution
Profit 10,000 adjusted for working-capital changes → operating cash flow Rs. 5,000.
Step 1 — profit: P&L 80,000 (2019) → 90,000 (2020) = increase of Rs. 10,000.
Step 2 — working-capital changes (2019 → 2020):
- Stock 60,000 → 50,000 = decrease 10,000 → add
- Debtors 25,000 → 23,000 = decrease 2,000 → add
- Creditors 32,000 → 28,000 = decrease 4,000 → less
- Bills Payable 35,000 → 22,000 = decrease 13,000 → less
- Outstanding Expenses 3,500 → 4,500 = increase 1,000 → add
- Accrued Income 8,000 → 9,000 = increase 1,000 → less
Operating cash flow = 10,000 + 10,000 + 2,000 − 4,000 − 13,000 + 1,000 − 1,000 = Rs. 5,000.
✓Final answerRs. 5,000.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2022Set ANNUAL4 marksQ.From the given information, calculate 'Cash Flow from Operating Activities': Particulars | 2020 Amount (Rs.) | 2019 Amount (Rs.) Debtors | 30,000 | 24,000 Outstanding Expenses | 6,000 | 2,000 Creditors | 26,000 | 30,000 Prepaid Expenses | 4,000 | 5,000 Profit during the year 2020 was Rs. 50,000
›Reveal solutionSolution
50,000 − 6,000 + 4,000 − 4,000 + 1,000 = Rs. 45,000.
Calculation (2019 → 2020):
Net profit = 50,000
- Debtors 24,000 → 30,000 = increase 6,000 → less 6,000
- Outstanding Expenses 2,000 → 6,000 = increase 4,000 → add 4,000
- Creditors 30,000 → 26,000 = decrease 4,000 → less 4,000
- Prepaid Expenses 5,000 → 4,000 = decrease 1,000 → add 1,000
Operating cash flow = 50,000 − 6,000 + 4,000 − 4,000 + 1,000 = Rs. 45,000.
✓Final answerRs. 45,000.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2021Set ANNUAL4 marksQ.Calculate Cash Flow from operating activities with the help of the following information : Particulars | 31-3-2018 (₹) | 31-3-2017 (₹) Balance in Statement of Profit and Loss | 54,750 | 27,000 Trade Receivables | 11,250 | 13,950 Outstanding Expenses | 10,200 | 17,850 Patents | – | 18,000 Prepaid Expenses | 14,000 | 12,000 Trade Payables | 32,000 | 44,000
›Reveal solutionSolution
Profit 27,750 + patents 18,000 + WC adjustments = operating cash flow Rs. 26,800.
Step 1 — profit for the year: P&L balance 27,000 (2017) → 54,750 (2018) = increase of Rs. 27,750.
Step 2 — add non-cash item: Patents fell 18,000 → nil = Rs. 18,000 written off, added back.
Step 3 — working-capital changes (2017 → 2018):
- Trade Receivables 13,950 → 11,250 = decrease 2,700 → add 2,700
- Outstanding Expenses 17,850 → 10,200 = decrease 7,650 (liability down) → less 7,650
- Prepaid Expenses 12,000 → 14,000 = increase 2,000 (asset up) → less 2,000
- Trade Payables 44,000 → 32,000 = decrease 12,000 (liability down) → less 12,000
Cash from Operating Activities = 27,750 + 18,000 + 2,700 − 7,650 − 2,000 − 12,000 = Rs. 26,800.
✓Final answerRs. 26,800.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2021Set ANNUAL4 marksQ.From the following information, calculate cash from operating activities : Particulars | Year 2020 (₹) | Year 2019 (₹) Debtors | 15,000 | 12,000 Outstanding Expenses | 3,000 | 1,000 Prepaid Expenses | 2,000 | 2,500 Creditors | 13,000 | 15,000 Profit during the year 2020 is ₹ 25,000
›Reveal solutionSolution
25,000 − 3,000 + 2,000 + 500 − 2,000 = Rs. 22,500.
Calculation (indirect method), 2019 → 2020:
Net profit = 25,000
- Debtors 12,000 → 15,000 = increase 3,000 → less 3,000
- Outstanding Expenses 1,000 → 3,000 = increase 2,000 → add 2,000
- Prepaid Expenses 2,500 → 2,000 = decrease 500 → add 500
- Creditors 15,000 → 13,000 = decrease 2,000 → less 2,000
Cash from Operating Activities = 25,000 − 3,000 + 2,000 + 500 − 2,000 = Rs. 22,500.
✓Final answerRs. 22,500.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2020Set ANNUAL4 marksQ.From the following information, calculate Cash Flow from operating activities: Particulars | Year 2017 (Rs.) | Year 2016 (Rs.) Debtors | 15,000 | 12,000 Outstanding Expenses | 3,000 | 1,000 Prepaid Expenses | 2,000 | 2,500 Creditors | 13,000 | 15,000 Profit during the year 2017 was Rs. 25,000.
›Reveal solutionSolution
Operating cash flow = 25,000 − 3,000 + 2,000 + 500 − 2,000 = Rs. 23,500.
Calculation (indirect method):
Net profit for the year = 25,000
Adjustments for changes in working capital (2016 → 2017):
- Debtors increased 12,000 → 15,000 = +3,000 → less 3,000
- Outstanding Expenses increased 1,000 → 3,000 = +2,000 → add 2,000
- Prepaid Expenses decreased 2,500 → 2,000 = −500 → add 500
- Creditors decreased 15,000 → 13,000 = −2,000 → less 2,000
Cash from Operating Activities = 25,000 − 3,000 + 2,000 + 500 − 2,000 = Rs. 23,500.
✓Final answerRs. 23,500.
- CGBSE Chhattisgarh Higher Secondary Class 12 (Commerce) 2020Set ANNUAL4 marksQ.Calculate Cash Flow Statement from the following information: Particulars | 31-3-2017 (Rs.) | 31-3-2018 (Rs.) Profit and Loss A/c. | 1,20,000 | 1,10,000 Debtors | 62,000 | 50,000 Outstanding Rent | 42,000 | 24,000 Prepaid Insurance | 4,000 | 8,000 Creditors | 38,000 | 26,000 Goodwill | 76,000 | 80,000
›Reveal solutionSolution
Loss Rs. 10,000 adjusted for working-capital changes gives a net operating cash OUTFLOW of Rs. 32,000.
Step 1 — profit/loss for the year: P&L A/c balance 1,20,000 (31-3-2017) → 1,10,000 (31-3-2018): a decrease of Rs. 10,000, i.e. a loss of Rs. 10,000.
Step 2 — adjust working-capital changes (2017 → 2018):
- Debtors 62,000 → 50,000 = decrease 12,000 (current asset down) → add 12,000
- Outstanding Rent 42,000 → 24,000 = decrease 18,000 (current liability down) → less 18,000
- Prepaid Insurance 4,000 → 8,000 = increase 4,000 (current asset up) → less 4,000
- Creditors 38,000 → 26,000 = decrease 12,000 (current liability down) → less 12,000
- Goodwill 76,000 → 80,000 = increase 4,000 — purchase/addition of an intangible asset; an investing item, not adjusted in operating activities.
Cash from Operating Activities = (−10,000) + 12,000 − 18,000 − 4,000 − 12,000 = −Rs. 32,000 (net outflow).
✓Final answerNet cash OUTFLOW from operating activities = Rs. 32,000.
🎓Unlock everything free for 14 days
- ✓Full step-by-step solutions
- ✓Concept-first explanations
- ✓Methods, shortcuts & mistakes
- ✓PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.