From the following information, find out Cash Flow from Investing Activities PARTICULARS CLOSING BALANCE (Rs.) OPENING BALANCE (Rs.) Machinery at Cost Accumulated Depreciation Patents 4,20,000 1,10,000 1,60,000 4,00,000 1,00,000 2,80,00 Additional Information: 1. During the year, a machine costing Rs.40,000 with its accumulated depreciation of Rs.24,000 was sold for Rs.20,000. 2. Patents were written off to the extent of Rs.40,000 and some patents were sold at a profit of Rs.20,000.
Question
From the following information, find out Cash Flow from Investing Activities PARTICULARS CLOSING BALANCE (Rs.) OPENING BALANCE (Rs.) Machinery at Cost Accumulated Depreciation Patents 4,20,000 1,10,000 1,60,000 4,00,000 1,00,000 2,80,00 Additional Information:
- During the year, a machine costing Rs.40,000 with its accumulated depreciation of Rs.24,000 was sold for Rs.20,000.
- Patents were written off to the extent of Rs.40,000 and some patents were sold at a profit of Rs.20,000.
Solution
To calculate the Cash Flow from Investing Activities, we need to consider the changes in non-current assets (long-term assets) and any gains or losses from the sale of these assets.
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Calculate the change in Machinery at Cost: The closing balance is Rs. 4,20,000 and the opening balance is Rs. 4,00,000. So, the change is Rs. 4,20,000 - Rs. 4,00,000 = Rs. 20,000. This means Rs. 20,000 was invested in machinery during the year.
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Calculate the change in Patents: The closing balance is Rs. 1,60,000 and the opening balance is Rs. 2,80,000. So, the change is Rs. 1,60,000 - Rs. 2,80,000 = - Rs. 1,20,000. This means Rs. 1,20,000 was recovered from patents during the year.
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Consider the sale of the machine: The machine was sold for Rs. 20,000. However, the machine's cost was Rs. 40,000 and its accumulated depreciation was Rs. 24,000. So, the book value of the machine was Rs. 40,000 - Rs. 24,000 = Rs. 16,000. Therefore, there was a gain of Rs. 20,000 - Rs. 16,000 = Rs. 4,000 from the sale of the machine.
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Consider the write-off and sale of patents: Patents were written off to the extent of Rs. 40,000 and some patents were sold at a profit of Rs. 20,000. So, the net gain from patents is Rs. 20,000 - Rs. 40,000 = - Rs. 20,000.
Finally, add up all these amounts to get the Cash Flow from Investing Activities:
Rs. 20,000 (investment in machinery) - Rs. 1,20,000 (recovery from patents) + Rs. 4,000 (gain from sale of machine) - Rs. 20,000 (net loss from patents) = - Rs. 1,16,000.
So, the Cash Flow from Investing Activities is - Rs. 1,16,000. This negative amount indicates a net outflow of cash for investing activities during the year.
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