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Question

Explain the major cash inflows and outflows from investing activities.


Solution

Investing activities consist of sales and purchase of fixed assets that are long term in nature, like building, land, furniture and plant and machinery etc. It also includes sale and purchase of items that are not cash equivalents. If any income is received from these assets it is regarded as a part of investing activities. The major cash inflows and outflows that are involved in investing activities are:

1. Cash receipts that are obtained when fixed assets are sold off and it includes intangible assets.

2. Acquiring fixed assets which also includes intangibles like goodwill using cash payments, the payments is for the research and development and assets that are self-constructed.

3. Acquiring shares, debt instruments or warrants using cash payments

4. Disposal of shares and warrants that yield cash receipts.

5. Loans and cash advances that are made to third parties (does not includes loans and advances made by financial enterprises.

6. Cash receipts obtained from any insurance company for a property that is involved in accident

7. Cash receipts that are obtained for repayment of loans and cash advances made to third parties.

8. Any type of income that is obtained from fixed assets like interest, dividend and rent (not in case of financial enterprises)

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