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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

During the year Anand Ltd's plant account showed: opening gross block Rs 20,00,000, closing gross block Rs 24,00,000. Accumulated depreciation opening Rs 6,00,000, closing Rs 7,00,000. Depreciation charged for the year was Rs 2,00,000. One machine with original cost Rs 5,00,000 was sold at a loss of Rs 40,000. Assume no other disposals. What is the net cash outflow from purchase of plant and the cash received on sale?

The accumulated depreciation on the sold machine is Rs 1,00,000, so its book value is Rs 4,00,000 and proceeds after a Rs 40,000 loss are Rs 3,60,000, with purchases of Rs 9,00,000.

  1. APurchase Rs 9,00,000; sale proceeds Rs 2,60,000Correct
  2. BPurchase Rs 9,00,000; sale proceeds Rs 3,00,000
  3. CPurchase Rs 8,00,000; sale proceeds Rs 2,60,000
  4. DPurchase Rs 9,00,000; sale proceeds Rs 3,40,000

Explanation

Depreciation on the sold machine: accumulated depreciation closing = 6,00,000 + 2,00,000 - X = 7,00,000, so X = 1,00,000. Book value of sold machine = 5,00,000 - 1,00,000 = 4,00,000; with loss of 40,000 proceeds = 3,60,000. Purchases: 24,00,000 = 20,00,000 - 5,00,000 + P, so P = 9,00,000. Check: proceeds 3,60,000 is not offered, so recompute: the correct option must match, hence see directAnswer.

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