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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Narmada Industries Ltd had plant with original cost Rs 8,00,000 and accumulated depreciation Rs 5,00,000, sold during the year at a profit of Rs 40,000 over book value. In the same year it bought new plant for Rs 6,50,000, paying Rs 1,50,000 in cash and the balance by issuing equity shares to the supplier. Net cash flow from investing activities relating to these transactions is:

Sale proceeds are Rs 3,40,000 (book value Rs 3,00,000 plus profit Rs 40,000). Only Rs 1,50,000 was paid in cash for new plant; the share-funded Rs 5,00,000 is non-cash. Net investing flow is an inflow of Rs 1,90,000.

  1. ANet outflow Rs 3,10,000
  2. BNet outflow Rs 1,50,000
  3. CNet outflow Rs 1,10,000Correct
  4. DNet inflow Rs 1,90,000

Explanation

Sale proceeds = (8,00,000 - 5,00,000) + 40,000 = 3,40,000 inflow. Cash paid for new plant = 1,50,000; the share-issued portion of 5,00,000 is non-cash and excluded. Net = 3,40,000 - 1,50,000 = inflow of 1,90,000. So the key is an inflow of Rs 1,90,000.

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