The net profits made during the year are Rs. 50,000. Machine purchased during the year was for Rs 40,000 and non current investment sold were for Rs 1,00,000. Then during the year the cash flow from investing activities will be equal to:
The net profits made during the year are Rs. 50,000. Machine purchased during the year was for Rs 40,000 and non current investment sold were for Rs 1,00,000. Then during the year the cash flow from investing activities will be equal to:
Solution
Cash flow from investing activities includes transactions related to purchase and sale of fixed assets and investments.
Calculation of Cash Flow from Investing Activities:
Cash inflow from sale of non-current investments = Rs. 1,00,000
Cash outflow for purchase of machine = Rs. (40,000)
Net cash flow from investing activities = Rs. 1,00,000 - Rs. 40,000 = Rs. 60,000
The net profit of Rs. 50,000 is not considered here as it relates to operating activities, not investing activities. When an investment is sold, it brings cash into the business (inflow), while purchase of machinery results in cash going out (outflow). The net effect gives us the cash flow from investing activities.
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