Advanced Accounting · AS 3 Cash Flow Statement

Investing and Financing Activities Calculations (AS 3) for CA Intermediate

Updated 4 October 2026 · Fact-checked

Investing activities cover buying and selling fixed assets and investments, loans given, and interest and dividends received. Financing activities cover share capital, borrowings, interest paid and dividends paid. To solve, rebuild each account from the balance sheet, find the cash portion only, show gross receipts and payments, and keep profit or loss on sale out.

Understand Investing and Financing Activities Calculations

A cash flow statement under AS 3 sorts cash movements into three groups: operating, investing and financing. This page covers the last two. The question is always the same: what cash actually moved, and in which group does it belong?

Investing activities are the purchase and sale of long-term assets and other investments not treated as cash equivalents. They include payments for fixed assets (including capitalised development cost and self-constructed assets), receipts from selling fixed assets, purchase and sale of shares or debentures of other enterprises, and loans given to others and their repayment. For a non-financial company, interest received and dividend received are also shown here.

Financing activities change the size and make-up of owners' capital and borrowings. They include cash from issuing shares, payments on buyback or redemption, cash from new borrowings and repayment of borrowings. For a non-financial company, interest paid and dividend paid are shown here. For financial enterprises, interest and dividends are usually treated as operating.

Two rules protect your marks. First, show the gross sale proceeds of an asset, not the profit or loss. The profit or loss is a non-cash adjustment in the operating section (deducted if profit, added back if loss). Second, ignore non-cash transactions such as bonus shares, conversion of debentures into shares, or assets acquired on finance lease. They do not appear in the statement and are disclosed separately.

In exams you rarely get the cash figure directly. You get opening and closing balance sheets and some notes. So you rebuild each asset or liability account, find the missing cash figure, and place it under the right heading.

Key rules to remember

Purchase of fixed assets (net block method): Purchase = Closing net block − Opening net block + Depreciation for the year + Book value of assets sold; Use this when only net block is given. Adjust for revaluation or non-cash additions if the question mentions them.
Purchase of fixed assets (gross block method): Purchase = Closing gross block − Opening gross block + Original cost of assets sold; Use this when gross block and accumulated depreciation are given separately. Exclude revaluation increases.
Cash from sale of fixed assets: Sale proceeds = Book value of asset sold + Profit on sale (or − Loss on sale); Show proceeds in investing. Remove the profit or loss in the operating section.
Purchase or sale of investments: Purchases = Closing − Opening + Cost of investments sold. Sale proceeds = Cost of investments sold + Profit (or − Loss); Non-current investments of other enterprises are investing items. Adjust for any bonus shares received, which are not cash.
Cash from issue of shares: Cash = Increase in share capital + Increase in securities premium − Bonus shares issued − Shares issued for non-cash consideration; Also adjust for share issue expenses written off against premium if paid in cash.
Net borrowings: Cash from borrowings = Closing − Opening + Repayments (for proceeds). Repayment = Opening + New borrowing − Closing; Ignore debentures converted into shares and loans taken for non-cash assets.
Interest and dividend classification (non-financial company): Interest received and dividend received → Investing. Interest paid and dividend paid → Financing; Interest paid means the total paid in the year, including interest that is capitalised. Show dividend actually paid in cash, not the amount declared.
Net cash from the section: Net cash from investing (or financing) = Total inflows − Total outflows; A negative figure is shown in brackets as net cash used in the activity.

How to solve Investing and Financing Activities Calculations questions

Use this routine for any question on investing or financing cash flows. Do each account on a separate working note so you can earn step marks even if one figure is wrong.

1Read the notes first. Mark non-cash items (bonus shares, conversion, lease, revaluation) and any profit or loss on sale.
2List the balance sheet items that belong to investing (fixed assets, capital work-in-progress, non-current investments, loans given) and financing (share capital, premium, borrowings).
3For each item, rebuild the account: opening + additions − deductions = closing. Solve for the missing cash figure.
4For fixed assets, add back depreciation and the book value of assets sold, then calculate purchases. Calculate sale proceeds from book value plus profit or minus loss.
5For interest and dividend, compute the cash amount. Adjust the expense or income for accruals and amounts outstanding at the start and end. Dividend paid is the amount paid, not the amount proposed at year end.
6Classify each cash figure as inflow or outflow. Treat interest and dividend received as investing and interest and dividend paid as financing (non-financial company).
7Present each section with clear line items, show outflows in brackets and total each section. Attach the working notes.

Quickest way: T-account shortcut with a three-column check

When to use it: Use this when the paper gives comparative balance sheets and you have under ten minutes for the investing and financing parts.

Draw a small T-account for each investing and financing item. Fill opening and closing first, then known adjustments.
Put the balancing figure on the correct side. That figure is your cash purchase, sale, issue or repayment.
Write each answer straight into the statement under its heading, with a sign.
Scan once for traps: bonus shares, conversion of debentures, profit or loss on sale, accrued interest, and dividend declared versus paid.
For MCQs, eliminate options that include profit on sale in investing, show dividend paid in operating (for a non-financial company), or include non-cash items. Often only one option survives. Wrong answers carry no penalty, so always attempt every MCQ.

Common mistakes in Investing and Financing Activities Calculations

Showing only the profit or loss on sale of a fixed asset in investing activities
Students link the sale with the profit and loss account entry.
Fix: Show the full sale proceeds in investing. Adjust the profit or loss in operating activities (deduct profit, add back loss) when starting from net profit.
Using the closing minus opening change in fixed assets as cash purchase
It looks like the cash spent, but it ignores depreciation and disposals.
Fix: Rebuild the asset account. Add depreciation and the book value of sold assets to the net change to get the purchases.
Treating bonus shares or debenture conversion as a financing inflow
The share capital increases, so it feels like cash was raised.
Fix: Deduct bonus issue and conversion from the change in capital. These are non-cash and are excluded from the statement.
Putting dividend paid in operating activities
Dividends sit in the profit and loss appropriation, so students link them with profit.
Fix: For a non-financial company, dividend paid is a financing outflow. Show the cash paid during the year, usually the previous year's final dividend plus any interim dividend.
Deducting the interest expense in financing without checking accruals or capitalised interest
Students copy the profit and loss figure.
Fix: Interest paid = interest expense (including capitalised interest) + opening accrued − closing accrued. Show the total paid in financing.
Showing interest and dividend received in operating activities for an ordinary company
They are income in the profit and loss account.
Fix: For non-financial enterprises, show them in investing and remove them from operating profit adjustments.

Worked examples

Example 1

From the books of Sunrise Ltd. for the year ended 31 March 2027: net block of fixed assets was ₹10,00,000 on 1 April 2026 and ₹11,50,000 on 31 March 2027. Depreciation charged was ₹1,20,000. A machine with book value ₹90,000 was sold at a profit of ₹20,000. Non-current investments rose from ₹2,00,000 to ₹2,50,000, all by cash purchase. Interest received was ₹15,000 and dividend received was ₹8,000. Compute cash flow from investing activities.

Show the solution

Fixed asset purchases = 11,50,000 − 10,00,000 + 1,20,000 + 90,000 = ₹3,60,000 outflow.
Sale proceeds of machine = book value 90,000 + profit 20,000 = ₹1,10,000 inflow. The profit of ₹20,000 is not shown here but deducted in operating activities.
Purchase of investments = 2,50,000 − 2,00,000 = ₹50,000 outflow, since none were sold.
Interest received ₹15,000 and dividend received ₹8,000 are inflows in investing for a non-financial company.
Net = −3,60,000 + 1,10,000 − 50,000 + 15,000 + 8,000 = −₹2,77,000.

Answer: Net cash used in investing activities = ₹(2,77,000). Items: purchase of fixed assets (3,60,000); sale proceeds 1,10,000; purchase of investments (50,000); interest received 15,000; dividend received 8,000.

Example 2

Extracts for Sunrise Ltd. for the year ended 31 March 2027: equity share capital rose from ₹10,00,000 to ₹14,00,000, including ₹1,00,000 bonus shares issued out of reserves. Securities premium rose from ₹1,00,000 to ₹1,60,000, wholly from fresh issue for cash. Long-term borrowings were ₹6,00,000 at the start and ₹5,00,000 at the end. Loans of ₹2,00,000 were repaid during the year. Interest expense was ₹54,000, all paid in cash. Final dividend of ₹80,000 for the previous year was paid after approval at the AGM. Compute cash flow from financing activities.

Show the solution

Cash from shares = increase in capital 4,00,000 − bonus 1,00,000 = 3,00,000. Add securities premium 60,000. Total = ₹3,60,000 inflow.
New borrowings = closing 5,00,000 − opening 6,00,000 + repayment 2,00,000 = ₹1,00,000 inflow.
Repayment of borrowings = ₹2,00,000 outflow.
Interest paid ₹54,000 is a financing outflow for a non-financial company.
Dividend paid ₹80,000 is a financing outflow, shown as paid in cash.
Net = 3,60,000 + 1,00,000 − 2,00,000 − 54,000 − 80,000 = ₹1,26,000.

Answer: Net cash from financing activities = ₹1,26,000. The bonus issue of ₹1,00,000 is a non-cash item and is excluded.

Exam tips

Always attach working notes for fixed assets, investments, shares and interest. Even if a final figure is wrong, ICAI-style marking gives credit for correct steps.
Read the question for a hidden non-cash item (bonus, conversion, lease, revaluation). The question often includes one to test you.
Check whether the company is a financial enterprise. If it is, interest and dividends are usually operating, not investing or financing.
In MCQs, look at the sign and the group together. Two options often differ only in whether profit on sale is included or excluded. There is no negative marking, so never leave an MCQ blank.
Write the heading wording clearly: Cash flows from investing activities, then each item, then Net cash used in or from investing activities.

Practice questions from AS 3 Cash Flow Statement

Investing and Financing Activities Calculations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Investing and Financing Activities Calculations: frequently asked questions

How is dividend paid treated in a cash flow statement under AS 3?

For a non-financial company, dividend paid is a financing outflow. Show the amount actually paid in the year, usually the previous year's final dividend paid after approval plus any interim dividend. Do not show dividend proposed at year end.

How do I treat profit or loss on sale of fixed assets in the cash flow statement?

Show the total sale proceeds as an investing inflow. Remove the profit or loss from operating activities: deduct a profit and add back a loss when you start from net profit. This avoids counting the same gain twice.

Are interest received and interest paid in the same section?

No, not for a non-financial company. Interest and dividend received go in investing activities. Interest paid goes in financing activities, including interest that is capitalised. Financial enterprises generally treat them as operating.

Do bonus shares appear in the cash flow statement?

No. A bonus issue involves no cash. Deduct it from the increase in share capital when you compute cash raised from share issue, and disclose it separately if needed.