From the following information, calculate cash flows from investing and financing activities:

| Particulars | 2016 (₹) | 2017 (₹) |
|---|---:|---:|
| Machine at cost | 5,00,000 | 9,00,000 |
| Accumulated Depreciation | 3,00,000 | 4,50,000 |
| Equity Share Capital | 28,00,000 | 3

Question

From the following information, calculate cash flows from investing and financing activities:

| Particulars | 2016 (₹) | 2017 (₹) |
|---|---:|---:|
| Machine at cost | 5,00,000 | 9,00,000 |
| Accumulated Depreciation | 3,00,000 | 4,50,000 |
| Equity Share Capital | 28,00,000 | 35,00,000 |
| Bank Loan | 12,50,000 | 7,50,000 |

In 2017, a machine costing ₹2,00,000 was sold at a profit of ₹1,50,000. Depreciation charged on machinery during the year amounted to ₹2,50,000.

Accepted Answer

> [!TLDR]
> Investing activities show sale of machinery ₹2,50,000 against purchase ₹6,00,000 = net outflow ₹3,50,000; financing activities show fresh equity ₹7,00,000 against bank-loan repayment ₹5,00,000 = net inflow ₹1,50,000.

### Working Note 1 — Accumulated Depreciation Account

| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---:|---|---:|
| To Machinery (dep. on machine sold — balancing figure) | 1,00,000 | By Balance b/d | 3,00,000 |
| To Balance c/d | 4,50,000 | By Statement of Profit & Loss (depreciation for the year) | 2,50,000 |
| **Total** | **5,50,000** | **Total** | **5,50,000** |

Book value of machine sold = cost ₹2,00,000 − accumulated depreciation ₹1,00,000 = ₹1,00,000; sale proceeds = ₹1,00,000 + ₹1,50,000 profit = **₹2,50,000**.

### Working Note 2 — Machinery Account (at cost)

| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---:|---|---:|
| To Balance b/d | 5,00,000 | By Accumulated Depreciation (on machine sold) | 1,00,000 |
| To Statement of Profit & Loss (profit on sale) | 1,50,000 | By Cash (sale proceeds) | 2,50,000 |
| To Cash (purchase — balancing figure) | 6,00,000 | By Balance c/d | 9,00,000 |
| **Total** | **12,50,000** | **Total** | **12,50,000** |

### Solution — Cash Flows from Investing Activities

| Particulars | Amount (₹) |
|---|---:|
| Sale of Machinery | 2,50,000 |
| Purchase of Machinery | (6,00,000) | …

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

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)

Concept understanding — Cash Flow Calculation

Cash Flow: From Pocket Money to the Cash Flow Statement

Why Cash Flow Matters

The Three Activities of Cash Flow

Accounting Treatment — No Debit/Credit Here

The Proforma of a Cash Flow Statement (as per NCERT)

Working Note 1 — Accumulated Depreciation Account

Working Note 2 — Machinery Account (at cost)

Solution — Cash Flows from Investing Activities

Particulars	2016 (₹)	2017 (₹)
Machine at cost	5,00,000	9,00,000
Accumulated Depreciation	3,00,000	4,50,000
Equity Share Capital	28,00,000	35,00,000
Bank Loan	12,50,000	7,50,000

Particulars	Amount (₹)
Sale of Machinery	2,50,000
Purchase of Machinery	(6,00,000)
Net cash used in Investing Activities	(3,50,000)

Particulars	Amount (₹)	Particulars	Amount (₹)
To Machinery (dep. on machine sold — balancing figure)	1,00,000	By Balance b/d	3,00,000
To Balance c/d	4,50,000	By Statement of Profit & Loss (depreciation for the year)	2,50,000
Total	5,50,000	Total	5,50,000

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	5,00,000	By Accumulated Depreciation (on machine sold)	1,00,000
To Statement of Profit & Loss (profit on sale)	1,50,000	By Cash (sale proceeds)	2,50,000
To Cash (purchase — balancing figure)	6,00,000	By Balance c/d	9,00,000
Total	12,50,000	Total	12,50,000

Working Note 1 — Accumulated Depreciation Account

Working Note 2 — Machinery Account (at cost)

Solution — Cash Flows from Investing Activities

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