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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Kaveri Textiles Ltd purchased machinery for Rs 12,00,000 and paid Rs 9,00,000 in cash, the balance being payable to the supplier in 90 days. It also sold an old vehicle (book value Rs 2,00,000) for Rs 2,50,000 cash. Ignoring other items, what is the net cash flow from investing activities as per AS 3?

The net investing cash flow is an outflow of Rs 6,50,000. Only the Rs 9,00,000 actually paid for machinery counts, since the credit balance is non-cash, and the Rs 2,50,000 cash received on the vehicle sale is an inflow, giving a net outflow of Rs 6,50,000.

  1. ANet outflow of Rs 6,50,000Correct
  2. BNet outflow of Rs 9,50,000
  3. CNet inflow of Rs 2,50,000
  4. DNet outflow of Rs 7,00,000

Explanation

Only cash flows are reported. Cash paid for machinery is Rs 9,00,000 (outflow); the unpaid Rs 3,00,000 is a non-cash item. Sale proceeds Rs 2,50,000 are an inflow. Net = 2,50,000 - 9,00,000 = outflow Rs 6,50,000. Using Rs 12,00,000 would give Rs 9,50,000, which wrongly includes the credit portion.

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