From the following Information, calculate cash flows from investing and financing activities: Particulars 2016 2017; Machine at cost 5,00,000 9,00,000; Accumulated Depreciation 3,00,000 4,50,000; Equity Shares Capital 28,00,000 35,00,000; Bank Loan 12,50,000 7,50,000. In year 2017, machine costing Rs. 2,00,000 was sold at a profit of Rs. 1,50,000, Depreciation charged on machine during the year 2015 amounted to Rs. 2,50,000.
Cash Flow from Investing Activities
| Particulars | Amount (Rs.) | Amount (Rs.) |
|---|---|---|
| Sale of Machinery | 2,50,000 | |
| Purchase of Machinery | (6,00,000) | |
| Net Cash Used in Investing Activities | (3,50,000) |
Cash Flow from Financing Activities
| Particulars | Amount (Rs.) | Amount (Rs.) |
|---|---|---|
| Issue of Equity Shares | 7,00,000 | |
| Repayment of Bank Loan | (5,00,000) | |
| Net Cash Flow from Financing Activities | 2,00,000 |
Working Notes:
1. Accumulated Depreciation Account Dr. Cr.
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| To Machinery (Sold) | 1,00,000 | By Balance b/d | 3,00,000 |
| To Balance c/d | 4,50,000 | By Depreciation (Provided) | 2,50,000 |
| Total | 5,50,000 | Total | 5,50,000 |
2. Machinery Account Dr. Cr.
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| To Balance b/d | 5,00,000 | By Bank (Sale) | 2,50,000 |
| To Bank (Purchase) | 6,00,000 | By Accumulated Depreciation | 1,00,000 |
| By Machinery (Cost) | 2,00,000 | ||
| By Balance c/d | 9,00,000 | ||
| Total | 11,00,000 | Total | 11,00,000 |
3. Calculation of Sale Proceeds: Book Value of Machine Sold = Cost - Accumulated Depreciation Book Value = Rs. 2,00,000 - Rs. 1,00,000 = Rs. 1,00,000. Sale Proceeds = Book Value + Profit Sale Proceeds = Rs. 1,00,000 + Rs. 1,50,000 = Rs. 2,50,000.
Explanation
The solution calculates cash flows by analyzing the changes in asset and liability balances. For Investing Activities, the Accumulated Depreciation account was used to determine the depreciation on the machine sold (Rs. 1,00,000), which allowed calculation of the sale proceeds (Rs. 2,50,000). The Machinery account determined the purchase of new machinery (Rs. 6,00,000). Financing activities are derived directly from the changes in Equity Share Capital (increase indicates issue) and Bank Loan (decrease indicates repayment). The depreciation amount provided in the text for 'year 2015' is treated as the current year's depreciation to balance the Accumulated Depreciation account.
Solution Steps
Step 1: Prepare Accumulated Depreciation Account to find depreciation on the machine sold. (Opening Balance 3,00,000 + Depreciation Provided 2,50,000 - Closing Balance 4,50,000 = 1,00,000).
Step 2: Calculate Sale Proceeds. Book Value (2,00,000 - 1,00,000) = 1,00,000. Add Profit 1,50,000. Sale Proceeds = 2,50,000.
Step 3: Prepare Machinery Account to find purchases. (Closing Balance 9,00,000 + Cost of Sold Machine 2,00,000 - Opening Balance 5,00,000 = 6,00,000).
Step 4: Calculate Financing Activities. Issue of Shares (35,00,000 - 28,00,000) = 7,00,000 Inflow. Repayment of Loan (12,50,000 - 7,50,000) = 5,00,000 Outflow.