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Numerical Questions · Q6
Q.

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

ParticularsNote No.31 March 2017 (₹)31 March 2016 (₹)
Assets — Non-current Assets
Fixed assets — Tangible assets112,40,00010,20,000
Fixed assets — Intangible assets24,60,0003,80,000
Non-current investments33,60,0002,60,000

Notes to Accounts

Particulars31 March 2017 (₹)31 March 2016 (₹)
1. Tangible Assets: Machinery12,40,00010,20,000
2. Intangible Assets: Goodwill3,00,0001,00,000
Patents1,60,0002,80,000
3. Non-current Investments: 10% long-term investments1,60,00060,000
Investment in land1,00,0001,00,000
Shares of Amartex Ltd.1,00,0001,00,000

Additional Information:

  1. Patents were written off to the extent of ₹40,000 and some patents were sold at a profit of ₹20,000.
  2. 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.
  3. 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.
  4. Amartex Ltd. paid a dividend @ 10% on its shares.
  5. 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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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)

ParticularsAmount (₹)ParticularsAmount (₹)
To Balance b/d10,20,000By Bank (Sale of machine)50,000
To Bank (Purchases - balancing figure)4,40,000By Statement of P&L (Loss on sale)30,000
By Depreciation for the year1,40,000
By Balance c/d12,40,000
Total14,60,000Total14,60,000

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.

ParticularsAmount (₹)ParticularsAmount (₹)
To Balance b/d2,80,000By Statement of P&L (written off)40,000
To Statement of P&L (Profit on sale)20,000By Bank (Sale - balancing figure)1,00,000
By Balance c/d1,60,000
Total3,00,000Total3,00,000

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

ParticularsAmount (₹)ParticularsAmount (₹)
To Balance b/d1,00,000By Balance c/d3,00,000
To Bank (Purchase - balancing figure)2,00,000
Total3,00,000Total3,00,000

Purchase of goodwill = ₹2,00,000 (outflow).

Working Note 4 - 10% Long-term Investments Account (at Cost)

ParticularsAmount (₹)ParticularsAmount (₹)
To Balance b/d60,000By Bank (Sale - balancing figure)1,00,000
To Bank (Purchase)1,80,000By Balance c/d1,60,000
To Statement of P&L (Profit on sale)20,000
Total2,60,000Total2,60,000

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