Question

Long Answer Question

Explain the major Cash Inflow and outflows from investing activities.

Answer 1

Investing activities are those activities that are related to sales and purchases of long-term fixed assets like, land and building, plant and machinery, furniture, etc. These fixed assets are not held for resale. The activities like sale and purchase of investments that are not included in the cash equivalents are also included in Investing activities. Any income arising from such investments (assets) are regarded a part of investing activities.

As per the AS3, the major cash inflows and outflows from investing activities are as follows:

1. Cash payments to acquire fixed assets (including intangibles like, goodwill). These payments include capitalised cost of research and development and self constructed fixed assets.
2. Cash receipts from disposal of fixed assets (including intangible assets).
3. Cash payments to acquire shares, warrants, or debt instruments of other enterprises and interest in joint venture (other than payments of those instruments consider as cash equivalents and are held for the trading purposes).
4. Cash receipts from disposal of shares, warrants or debt instruments of other enterprises and interest from joint ventures (other than receipts from those held for trading purposes).
5. Cash advances and loans made to third parties (other than advances, and loans made by financial enterprises). These will be treated as cash flows from the operating activities.
6. Cash receipts from repayment of advances and loans made to third parties (other than advances and loans of financial enterprises). These will be treated as

cash flows from operating activities.

1. Cash receipts from insurance company for any property involved in accident.
2. Any income arising from fixed assets or investments like interest, dividend, rent etc. In case of financial enterprises interest and dividend is treated as operating activities.

Direct Method

Cash Flow Statement

	Particulars		Amount Rs	Amount Rs
	Net Cash Flow from (used in) Operating Activities		**	**
B.	Cash Flow from Investing Activities		**
	Sale of Fixed Assets		**
	Sale of long-term Investments		**
	Interest Received		**
	Dividend Received		**
	Rent Received		**
		Less: Purchase of Fixed Assets	**
		Less: Purchase of long-term Investments	**
	Net Cash Flow from Investing Activities		**	**

 Indirect Method

Cash Flow Statement

Particulars		Amount Rs	Amount Rs
Net Cash Flow from Operating Activities			***
Cash Flow from Investing Activities		**
Sale of Fixed Assets		**
Sale of Long-term Investments		**
Interest Received		**
Dividend Received		**
Rent Received		**
	Less: Purchase of Fixed Assets	**
	Less: Purchase of long term Investment	**
Net Cash Flow from Investing Activities		**	**

Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.