Corporate Accounting and Financial Management · Cash Flows

Cash Flow from Investing and Financing Activities: Format and Calculation

Updated 11 October 2026 · Fact-checked

Investing activities are the acquisition and disposal of long-term assets and investments not in cash equivalents. Financing activities change the size and composition of owners' capital and borrowings. To solve, rebuild each account (fixed assets, investments, capital, loans) to find the actual cash paid or received, then show inflows and outflows separately.

Understand Cash Flow from Investing and Financing Activities

A cash flow statement sorts cash movements into three groups: operating, investing and financing. This page covers the last two.

Investing activities are, in the wording of the standard, "the acquisition and disposal of long-term assets and other investments not included in cash equivalents." Think of buying and selling fixed assets, long-term investments, and lending to others. Under AS 3, para 15 lists cash paid to acquire fixed assets (including intangibles), cash from their disposal, purchase and sale of shares or debt instruments of other enterprises (other than those held for dealing or trading), and loans given to third parties and their repayment.

Financing activities are activities that change the size and composition of owners' capital (including preference share capital under AS 3) and borrowings. Think of issuing shares or debentures, redeeming them, taking and repaying loans, and buying back shares.

The key skill is that the balance sheet shows balances, not cash. You must work out the cash actually paid or received. A rise in fixed assets does not equal cash paid, because depreciation and sales also change the balance. So you rebuild the account and find the missing figure.

Some items need care. When an instalment on a fixed asset bought on deferred payment includes interest and principal, AS 3 (para 10) puts the interest under financing and the loan element under investing. Taxes paid are usually operating, unless you can link the tax cash flow to an investing or financing transaction (Ind AS 7, para 36). Where the format you follow places interest and dividends received or paid is a matter of the standard and question; in the AS 3 illustration, interest and dividends received are shown under investing, and interest and dividends paid under financing. Follow the question's instruction.

Key rules to remember

Purchase of fixed assets: Purchase = Closing gross block − Opening gross block + Cost of assets sold; Use gross values. If only net block is given: Purchase = Closing net block − Opening net block + Depreciation + Book value of assets sold.
Sale proceeds of an asset: Proceeds = Book value + Profit on sale (or − Loss on sale); Profit or loss is removed in operating activities; the proceeds go to investing.
Investments: Purchase = Closing − Opening + Cost of investments sold; Exclude investments that are cash equivalents or held for trading.
Share capital and premium: Cash from issue = Increase in share capital + Increase in securities premium (excluding bonus shares); Bonus shares and shares issued for non-cash consideration involve no cash. Deduct any issue expenses paid in cash.
Borrowings: Cash raised or repaid = Closing loan − Opening loan (adjusted for non-cash changes); Show proceeds and repayments separately where the figures are known.
Dividend paid: Dividend paid = Dividend declared and payable during the year − Increase in dividend payable (or + decrease); Shown under financing. Do not confuse with proposed dividend in the current year's profit appropriation.
Net cash from the activity: Net cash = Inflows − Outflows; Negative means net cash used in that activity.

How to solve Cash Flow from Investing and Financing Activities questions

Use the same routine for any question. Work account by account, not line by line from the balance sheet.

1List the opening and closing balances of all long-term assets, investments, capital, reserves, and loans.
2Read the additional information: sales of assets, depreciation, profit or loss on sale, bonus issue, redemption, and dividend.
3Rebuild the fixed asset account (use gross block and accumulated depreciation if given) and find the purchase and sale proceeds.
4Rebuild the investment account and find purchases and sales. Treat interest and dividend received as the question or format directs.
5Work out financing flows: shares issued for cash with premium, debentures and loans raised or repaid, redemption with premium, and dividends paid.
6Remove non-cash items such as bonus shares, shares issued to vendors, and conversions.
7Show inflows and outflows separately, total each activity, and tick that the totals reconcile with the change in cash and cash equivalents.

Quickest way: T-account shortcut

When to use it: Use when the question gives opening and closing balances with one or two adjustments and time is short.

Draw a quick T-account for each long-term item with opening balance on one side and closing on the other.
Put every known adjustment (depreciation, sale, bonus) in its place.
The balancing figure is the cash purchase, issue or repayment.
Write it directly in the cash flow statement with the correct sign.
Check that the total of all three activities equals the change in cash.

Common mistakes in Cash Flow from Investing and Financing Activities

Taking the increase in fixed assets as the purchase
Students ignore depreciation and assets sold.
Fix: Rebuild the asset account and add back depreciation and the book value of assets sold.
Showing profit on sale of an asset in investing activities
Students mix up profit with proceeds.
Fix: Adjust the profit or loss in operating activities and show only the sale proceeds in investing.
Including bonus shares as a cash inflow
The share capital balance rises, so it looks like an issue.
Fix: Bonus issue is a transfer from reserves. Leave it out of the statement.
Taking dividend declared this year as dividend paid
The profit and loss appropriation shows the amount, and students copy it.
Fix: Dividend paid is the amount actually paid in the year, usually the previous year's final dividend. Check the dividend payable account.
Netting inflows and outflows within a line
Students show only the net change in loans.
Fix: Show proceeds and repayments separately unless the standard allows net reporting, such as short-term borrowings with a maturity of three months or less.
Splitting a deferred payment instalment wrongly
Students show the whole instalment in one place.
Fix: Show interest under financing and the loan element under investing, as AS 3 para 10 directs.

Worked examples

Example 1

Fixed assets (gross) of Sundaram Ltd were ₹8,00,000 at the start and ₹10,50,000 at the end of the year. Assets costing ₹1,20,000 with accumulated depreciation of ₹70,000 were sold at a loss of ₹10,000. Find the purchase of fixed assets and the sale proceeds.

Show the solution

Purchase = Closing gross − Opening gross + Cost of assets sold = 10,50,000 − 8,00,000 + 1,20,000 = ₹3,70,000.
Book value of assets sold = 1,20,000 − 70,000 = ₹50,000.
Proceeds = Book value − Loss = 50,000 − 10,000 = ₹40,000.
Show purchase as an outflow and sale proceeds as an inflow in investing activities.
Net investing cash flow = 40,000 − 3,70,000 = −₹3,30,000.

Answer: Purchase of fixed assets ₹3,70,000 (outflow); sale proceeds ₹40,000 (inflow); net cash used in investing activities ₹3,30,000.

Example 2

Bharat Ltd has these balances: equity share capital ₹10,00,000 (opening) and ₹14,00,000 (closing), including bonus shares of ₹1,00,000; securities premium ₹1,00,000 and ₹1,60,000; 10% debentures ₹5,00,000 and ₹3,00,000; dividend payable ₹80,000 and ₹1,00,000, where dividend declared for the year was ₹2,00,000. Find the net cash from financing activities (ignore interest).

Show the solution

Cash from shares = (14,00,000 − 10,00,000 − 1,00,000 bonus) + (1,60,000 − 1,00,000) = 3,00,000 + 60,000 = ₹3,60,000 inflow.
Debentures redeemed = 5,00,000 − 3,00,000 = ₹2,00,000 outflow.
Dividend paid = Opening payable 80,000 + Declared 2,00,000 − Closing payable 1,00,000 = ₹1,80,000 outflow.
Net = 3,60,000 − 2,00,000 − 1,80,000 = −₹20,000.

Answer: Net cash used in financing activities is ₹20,000.

Exam tips

Always show workings as notes. Marks are often given for the working even if the final figure slips.
Read the additional information line by line. Bonus shares, shares issued to vendors, and conversions are traps.
State your assumption when the question is silent, for example, that interest paid is shown under financing.
Show inflows and outflows in separate lines and bracket the outflows.
Finish by checking that operating, investing and financing totals add up to the change in cash and cash equivalents.

Practice questions from Cash Flows

Cash Flow from Investing and Financing Activities in other exams

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

Cash Flow from Investing and Financing Activities: frequently asked questions

How do I find the purchase of fixed assets in a cash flow statement?

Rebuild the fixed asset account. Purchase equals closing gross block minus opening gross block plus the cost of assets sold. If you have only net block, add depreciation and the book value of assets sold to the change in net block.

Where does dividend paid go in the cash flow statement?

In the AS 3 illustration, dividends paid are shown under financing activities. Show the amount actually paid in the year, not the amount declared or proposed for the current year.

Where is tax paid shown?

Taxes paid are usually classified as operating activities. They are shown under investing or financing only when you can link the tax cash flow to a specific transaction of that kind, as Ind AS 7 para 36 explains.

Is a bonus issue a financing cash flow?

No. A bonus issue is a transfer from reserves to share capital and involves no cash. Leave it out of the cash flow statement.