Welprint Ltd. has given you the following information:
| Particulars | Amount (₹) |
|---|---|
| Machinery as on April 01, 2016 | 50,000 |
| Machinery as on March 31, 2017 | 60,000 |
| Accumulated Depreciation on April 01, 2016 | 25,000 |
| Accumulated Depreciation on March 31, 2017 | 15,000 |
During the year, a machine costing ₹25,000 with accumulated depreciation of ₹15,000 was sold for ₹13,000. Calculate cash flow from investing activities on the basis of the above information.
Sale proceeds of ₹13,000 (inflow) against a new-machinery purchase of ₹35,000 (outflow, the balancing figure of the Machinery Account) give net cash used in investing activities of ₹22,000.
Concept
Cash flow from investing activities shows only actual cash received on the sale of an asset (not the book profit/loss) and cash paid to buy assets. The purchase figure is found as the balancing figure of the asset account at cost, after posting the opening balance, the cost of the asset sold, and the closing balance.
Working Note 1 — Machinery Account (at cost)
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 50,000 | By Cash (sale proceeds) | 13,000 |
| To Statement of Profit & Loss (profit on sale) | 3,000 | By Accumulated Depreciation (on machine sold) | 15,000 |
| To Cash (new machinery purchased — balancing figure) | 35,000 | By Balance c/d | 60,000 |
| Total | 88,000 | Total | 88,000 |
Profit on sale = Sale proceeds ₹13,000 − Book value (₹25,000 − ₹15,000 = ₹10,000) = ₹3,000.
Working Note 2 — Accumulated Depreciation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Machinery (dep. on machine sold) | 15,000 | By Balance b/d | 25,000 |
| To Balance c/d | 15,000 | By Statement of Profit & Loss (depreciation for the year) | 5,000 |
| Total | 30,000 | Total | 30,000 |
Solution — Cash Flows from Investing Activities
| Particulars | Amount (₹) |
|---|---|
| Sale of Machinery | 13,000 |
| Purchase of Machinery | (35,000) |
| Net cash used in Investing Activities | (22,000) |
The profit on sale (₹3,000) is not shown in investing activities — it is a non-cash gain already adjusted (deducted) in the operating-activities section. Only the actual cash receipt of ₹13,000 appears here.
Net cash used in Investing Activities = (₹22,000).
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