Which of the following is a cash flow from investing activities? a. Purchase of plant and...

Which of the following is a cash flow from investing activities?

a. Purchase of plant and equipment

b. Cash payment of dividends to shareholders

c. Cash from sale of products

d. Rent received from industrial property owned.

Solutions

Expert Solution

A Cash Flow Statement shows the inflow and outflow of cash and cash equivalents of an entity at a given period of time. It is divided into 3 broad categories-

Cash flow from Operating Activities- Shows generation and utilization of cash for operational activities of a business.
Cash flow from Investing Activities-Shows generation and utilization of cash in various investment opportunities.
Cash flow from Financing Activities- Shows generation and utilization of cash in the various items of capital structure in the business.

a. Purchase of plant and equipment- CORRECT- This is a Cash flow from Investing Activities. Since purchase of plant and equipment help in generating revenue by giving economic benefits, hence it is an item of investment.

b. Cash payment of dividends to shareholders- INCORRECT-This is a cash flow under Financing Activities. Any payment for debt or equity is for the purpose of financing of a business.

c. Cash from sale of products- INCORRECT- This is a Cash flow from Operating Activities. Sale of products is an operating activity for the business.

d. Rent received from industrial property owned.-INCORRECT- This falls under the head of Cash flow from Operations. Rental Income is a non operating activity which is adjusted against NetProfit to arrive at cash flow from Operations.

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