Question

The balance in Plant & Machinery account and Accumulated depreciation account as on March 31, 2021, and 2022, stood as follows:

	31st March, 2021 (₹)	31st March, 2022 (₹)
Plant & Machinery	48,00,000	65,40,000
Accumulated Depreciation	14,05,000	22,10,000

Plant & machinery costing ₹ 12,80,000, accumulated depreciation thereon ₹ 5,30,000, was sold at a loss of ₹ 2,60,000.

You are required to:

1. Compute the amount of plant and machinery purchased, sold, and depreciation charged for the year.
2. How each of the items related to plant & machinery will be reported in the statement of cash flows.

Answer 1

Cash Flow Statement for the year ended 31st March, 2022
Particulars	Amount (₹)
A. Cash Flow from Investing Activities
Inflow: Sale of Plant & Machinery	4,90,000
Outflow: Purchase of Plant & Machinery	(30,20,000)
Net Cash Used in Investing Activities	(25,30,000)
B. Adjustments in Operating Activities
Add:
Depreciation Charged (Non-Cash Expense)	13,35,000
Loss on Sale of Plant & Machinery	2,60,000

Working Note 1: Calculation of Sale Proceeds from Plant & Machinery:

Given:

• Cost of asset sold = ₹ 12,80,000
• Accumulated depreciation on asset sold = ₹ 5,30,000
• Loss on sale = ₹ 2,60,000

WDV of Asset Sold = ₹ 12,80,000 − ₹ 5,30,000

= ₹ 7,50,000

Sale Proceeds = ₹ 7,50,000 − ₹ 2,60,000 

= ₹ 4,90,000

Working Note 2: Calculation of Depreciation Charged During the Year:

Given:

• Opening Accumulated Depreciation = ₹ 14,05,000
• Closing Accumulated Depreciation = ₹ 22,10,000
• Depreciation on Asset Sold = ₹ 5,30,000

Closing Accumulated Depreciation = Opening Accumulated Depreciation + Depreciation Charged − Depreciation on Asset Sold

22,10,000 = 14,05,000 + Depreciation Charged − 5,30,000

22,10,000 = 8,75,000 + Depreciation Charged

∴ Depreciation Charged = 22,10,000 − 8,75,000

∴ Depreciation Charged = ₹ 13,35,000

Working Note 3: Calculation of Purchase of Plant & Machinery

Given:

• Closing balance of Plant & Machinery = ₹ 65,40,000
• Opening balance of Plant & Machinery = ₹ 48,00,000
• Cost of Plant & Machinery sold = ₹ 12,80,000

Closing Balance = Opening Balance – Cost of Asset Sold + Purchases

₹ 65,40,000 = ₹ 48,00,000 – ₹ 12,80,000 + Purchases

₹ 65,40,000 = ₹ 35,20,000 + Purchases

∴ Purchases = ₹ 65,40,000 – ₹ 35,20,000

∴ Purchases = ₹ 30,20,000