Question

ABC Ltd. has Machinery written down value of which on 1st April, 2025 was ₹ 8,60,000 and on 31st March, 2026 was ₹ 9,50,000. Depreciation for the year was ₹ 40,000. In the beginning of the year, a part of machinery was sold for ₹ 25,000, which had a written down value of ₹ 20,000.

1. Cash Flow from Investing Activities is ______.
   1. ₹ 1,25,000
   2. ₹ (1,25,000)
   3. ₹ 2,50,000
   4. ₹ (2,50,000)
2. Gain (profit) on sale of Machinery is ______.
   1. ₹ 6,000
   2. ₹ 5,000
   3. ₹ 10,000
   4. ₹ 12,000
3. Purchase of Machinery is ______.
   1. ₹ 1,50,000
   2. ₹ 3,00,000
   3. ₹ 4,50,000
   4. ₹ 50,000

Answer 1

1. Cash Flow from Investing Activities is ₹ (1,25,000.

Explanation:
Cash flow from investing activities evaluates cash inflows from selling assets and outflows from purchasing assets. Here, selling a part of the machinery brings in an inflow of ₹ 25,000, while buying new machinery results in an outflow of ₹ 1,50,000.
\[\text{Net Cash Flow} = \text{Sale Inflow (₹25,000)} - \text{Purchase Outflow (₹1,50,000)} = {₹(1,25,000)}\]

2. Gain (profit) on sale of Machinery is ₹ 5,000.

Explanation:
Profit or loss is calculated by comparing the sale proceeds with the Written Down Value (WDV) of the machinery sold.
$$\text{Gain (Profit)} = \text{Sale Proceeds} - \text{WDV of Machinery Sold}$$
$$\text{Gain} = ₹25,000 - ₹20,000 = {₹5,000}$$

3. Purchase of Machinery is ₹ 1,50,000.

Explanation:
The value of machinery purchased during the year is determined by balancing the Machinery Account using the given opening, closing, and transactional values.
$$\text{Purchases (Balancing Figure)} = (\text{Closing WDV} + \text{Depreciation} + \text{Sale Value}) - (\text{Opening WDV} + \text{Gain on Sale})$$
$$\text{Purchases} = (₹9,50,000 + ₹40,000 + ₹25,000) - (₹8,60,000 + ₹5,000)$$
$$\text{Purchases} = ₹10,15,000 - ₹8,65,000 = {₹1,50,000}$$