Question

From the following particulars Bharat Gas Limited, calculate cash flows from investing activities. Also show the workings clearly preparing the ledger accounts.

Balance Sheet of Bharat Gas Limited.
as on…………….
$\begin{array}{cccccc}\text{Capital and Liabilities}& 2010\text{(Rs.)}& 2011\text{(Rs.)}& \text{Assets}& 2010\text{(Rs.)}& 2011\text{(Rs.)}\\ & & & \text{Goodwill}& 1,00,000& 3,00,000\\ & & & \text{Patents}& 2,80,000& 1,60,000\\ & & & \text{Machinery}& 10,20,000& 12,40,000\\ & & & \text{10}\%\text{Long Term Investment}& 60,000& 1,60,000\\ & & & \text{Investment in Land}& 1,00,000& 1,00,000\\ & & & \text{Shares of Amartax Ltd.}& 1,00,000& 1,00,000\end{array}$

Additional Information:
(a) Patents were written-off to the extent of Rs. 40,000 and some patents were sold at a profit of Rs. 20,000.
(b) A machine costing Rs. 1,40,000 (depreciation provided thereon Rs. 60,000) was sold for Rs. 50,000. Depreciations charged during the year was Rs 1,40,000.
(c) On March 31, 2007, $10\%$ investments were purchased for Rs. 1,80,000 and some investments were sold at a profit of Rs. 20,000. Interest on investment was received on March 31, 2011.
(d) Amartax Ltd paid dividend @ $10\%$ on its shares.
(e) A plot of land had been purchased for investment purposes and let out for commercial use and rent received Rs. 30,000.

Answer 1

Cash Flow from Investing Activities
$\begin{array}{ccc}\text{Particulars}& \text{Amt. (Rs.)}& \text{Amt. (Rs.)}\\ \text{Cash Inflow}& & \\ \text{Proceeds from Sale of Patents}& 1,00,000& \\ \text{Proceeds from of Machinery}& 50,000& \\ \text{Proceeds from Sale of 10}\%\text{Long-term Investment}& 1,00,000& \\ \text{Interest received on 10}\%\text{Long-term Investment}& 6,000& \\ \text{Dividend Receivad from Amartax Ltd.}& 10,000& \\ \text{Rent Received}& \underset{–}{30,000}& 2,96,000\\ \text{Cash Outflow}& & \\ \text{Purchase of Goodwill}& 2,00,000& \\ \text{Purchase of Machinery}& 4,40,000& \\ \text{Purchase of 10}\%\text{Long-term Investment.}& \underset{–}{1,80,000}& \underset{–}{8,20,000}\\ \text{Net Cash used in Investing Activities}& & \underset{–}{5,24,000}\end{array}$

Dr. Patents Account Cr.
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}& \text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}\\ & \text{Balance b/d}& & 2,80,000& & \text{Profit and}& & \\ & & & & & \text{Loss (Written off)}& & 40,000\\ & \text{Profit and Loss}& & 20,000& & \text{Bank (Sale)}& & \\ & \text{(Profit on Sale)}& & & & \text{(Balancing figure)}& & 1,00,000\\ & & & \underset{–}{}& & \text{Balance c/d}& & \underset{–}{1,60,000}\\ & & & \underset{–}{3,00,000}& & & & \underset{–}{3,00,000}\end{array}$

Dr. Machinery Account Cr.
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}& \text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}\\ & \text{Balance b/d}& & 10,20,000& & \text{Depreciation}& & 1,40,000\\ & \text{Bank (Purchase)}& & 4,40,000& & \text{Bank (Sale)}& & 50,000\\ & \text{(Balancing Figure)}& & & & & & \\ & & & & & \text{Profit and Loss}& & \\ & & & & & \text{(Loss on Sale)}& & 30,000\\ & & & & & \text{Balance c/d}& & \underset{–}{12,40,000}\\ & & & \overline{\underset{–}{14,60,000}}& & & & \underset{–}{14,60,000}\end{array}$

Working Note:
Machine costing Rs 1,40,000 less depreciation Rs 60,000, present value Rs 80,000 sold for Rs 50,000 i.e., loss on sale Rs 30,000.



Dr. $10\%$ Long Term Investment Account Cr.
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}& \text{Date}& \text{Particulars}& \text{J.F.}& \text{Amt. (Rs.)}\\ & \text{Balance b/d}& & 60,000& & \text{Bank}& & \\ & & & & & \text{(Balancing)}& & \\ & & & & & \text{Figure)}& & 1,00,000\\ & \text{Bank}& & 1,80,000& & & & \\ & \text{Profit and Loss}& & 20,000& & \text{Balance c/d}& & 1,60,000\\ & \text{(Profit on Sale)}& & & & & & \\ & & & \underset{–}{\overline{2,60,000}}& & & & \underset{–}{\overline{2,60,000}}\end{array}$

Note:
Any income received on investment is a part of investments like dividend, interest or rent received.