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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Kaveri Textiles Ltd purchased machinery for Rs 40 lakh. It paid Rs 10 lakh in cash and issued equity shares of Rs 30 lakh to the supplier in full settlement of the balance. In the cash flow statement prepared under AS 3, how should this transaction be treated?

Only the Rs 10 lakh paid in cash appears as an investing outflow. The Rs 30 lakh settled by issuing shares involves no cash or cash equivalents, so AS 3 excludes it from the statement and requires it to be disclosed separately as a non-cash transaction.

  1. ACash outflow of Rs 40 lakh in investing activities
  2. BCash outflow of Rs 10 lakh in investing activities and inflow of Rs 30 lakh in financing activities
  3. CCash outflow of Rs 10 lakh in investing activities, and the Rs 30 lakh share issue is excluded and disclosed elsewhere as a non-cash transactionCorrect
  4. DCash outflow of Rs 30 lakh in financing activities

Explanation

AS 3 requires investing and financing transactions that do not involve cash or cash equivalents to be excluded from the cash flow statement and disclosed separately. Only the Rs 10 lakh cash paid is an investing outflow. Showing Rs 40 lakh or a Rs 30 lakh inflow would wrongly include a non-cash item.

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