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CMA Intermediate · Financial Management and Business Data Analytics · Cash Flow Statement - Preparation and Analysis

Vikram Engineering Ltd had plant at cost of Rs 12,00,000 with accumulated depreciation of Rs 5,00,000 at the start of the year. During the year it sold a machine (original cost Rs 2,00,000, accumulated depreciation Rs 1,50,000) at a loss of Rs 10,000. Closing plant at cost was Rs 13,00,000. What is the cash outflow on purchase of plant shown under investing activities?

The plant purchase is Rs 3,00,000. Closing cost of 13,00,000 equals opening cost 12,00,000 less the cost of the machine sold 2,00,000 plus purchases, so purchases are 3,00,000. Using only the net increase of Rs 1,00,000 ignores the cost of the disposed machine.

  1. ARs 3,00,000Correct
  2. BRs 1,00,000
  3. CRs 3,10,000
  4. DRs 2,00,000

Explanation

Closing cost = opening 12,00,000 - cost of sold 2,00,000 + purchases. So 13,00,000 = 10,00,000 + purchases, giving purchases of Rs 3,00,000. Rs 1,00,000 is the net change in cost, ignoring the machine sold. The sale proceeds (net book value 50,000 - loss 10,000 = Rs 40,000) are a separate inflow.

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