From the following particulars of Bharat Gas Limited, calculate Cash Flows from Investing Activities. Also show the workings clearly by preparing the ledger accounts.
Balance Sheet (extract) as on 31 March 2017 and 31 March 2016
| Particulars | Note No. | 31 March 2017 (₹) | 31 March 2016 (₹) |
|---|---|---|---|
| Assets — Non-current Assets | |||
| Fixed assets — Tangible assets | 1 | 12,40,000 | 10,20,000 |
| Fixed assets — Intangible assets | 2 | 4,60,000 | 3,80,000 |
| Non-current investments | 3 | 3,60,000 | 2,60,000 |
Notes to Accounts
| Particulars | 31 March 2017 (₹) | 31 March 2016 (₹) |
|---|---|---|
| 1. Tangible Assets: Machinery | 12,40,000 | 10,20,000 |
| 2. Intangible Assets: Goodwill | 3,00,000 | 1,00,000 |
| Patents | 1,60,000 | 2,80,000 |
| 3. Non-current Investments: 10% long-term investments | 1,60,000 | 60,000 |
| Investment in land | 1,00,000 | 1,00,000 |
| Shares of Amartex Ltd. | 1,00,000 | 1,00,000 |
Additional Information:
- Patents were written off to the extent of ₹40,000 and some patents were sold at a profit of ₹20,000.
- A machine costing ₹1,40,000 (depreciation provided thereon ₹60,000) was sold for ₹50,000. Depreciation charged during the year was ₹1,40,000.
- On March 31, 2016, 10% investments were purchased for ₹1,80,000 and some investments were sold at a profit of ₹20,000. Interest on investment was received on March 31, 2017.
- Amartex Ltd. paid a dividend @ 10% on its shares.
- A plot of land had been purchased for investment purposes and let out for commercial use, and rent received was ₹30,000.
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Start your 14-day free trial to unlock the full solution →The Cash Flow from Investing Activities for Bharat Gas Limited for the year ended 31 March 2017 is a net outflow of ₹5,24,000.
Concept: Cash Flows from Investing Activities
Investing activities cover the purchase and sale of long-term (non-current) assets and investments, together with the investment income they earn - interest, dividends and rent received. Purchases are cash outflows and sales are cash inflows, each shown on a gross basis. To find the hidden purchase and sale figures we reconstruct the ledger account of each non-current asset, using its opening and closing balances plus the additional information (depreciation, amortisation, profit or loss on sale).
Working Notes
Working Note 1 - Machinery Account (at Written Down Value)
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 10,20,000 | By Bank (Sale of machine) | 50,000 |
| To Bank (Purchases - balancing figure) | 4,40,000 | By Statement of P&L (Loss on sale) | 30,000 |
| By Depreciation for the year | 1,40,000 | ||
| By Balance c/d | 12,40,000 | ||
| Total | 14,60,000 | Total | 14,60,000 |
The machine sold had a written-down value of ₹1,40,000 - ₹60,000 = ₹80,000; it was sold for ₹50,000, giving a loss of ₹30,000. Purchase of machinery (balancing figure) = ₹4,40,000 (outflow); sale of machinery = ₹50,000 (inflow).
Working Note 2 - Patents Account (at Written Down Value)
The stem mentions no purchase of patents - only that patents of ₹40,000 were written off and some were sold at a profit of ₹20,000. So the sale proceeds are the balancing figure.
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 2,80,000 | By Statement of P&L (written off) | 40,000 |
| To Statement of P&L (Profit on sale) | 20,000 | By Bank (Sale - balancing figure) | 1,00,000 |
| By Balance c/d | 1,60,000 | ||
| Total | 3,00,000 | Total | 3,00,000 |
Sale of patents = ₹1,00,000 (inflow). (Written-down value of patents sold ₹80,000 + profit ₹20,000 = proceeds ₹1,00,000.)
Working Note 3 - Goodwill Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 1,00,000 | By Balance c/d | 3,00,000 |
| To Bank (Purchase - balancing figure) | 2,00,000 | ||
| Total | 3,00,000 | Total | 3,00,000 |
Purchase of goodwill = ₹2,00,000 (outflow).
Working Note 4 - 10% Long-term Investments Account (at Cost)
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 60,000 | By Bank (Sale - balancing figure) | 1,00,000 |
| To Bank (Purchase) | 1,80,000 | By Balance c/d | 1,60,000 |
| To Statement of P&L (Profit on sale) | 20,000 | ||
| Total | 2,60,000 | Total | 2,60,000 |
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