Question

Fine Garments Ltd. is engaged in the export of ready-made garments. The company purchased machinery of ₹ 10,00,000 for the use in packaging of such garments. State giving reason whether the cash flow due to the purchase of machinery will be cash flow from operating activities, investing activities or financing activities?

Answer 1

The machinery was purchased for packaging, which is part of the company’s operating process, but the machinery is a fixed asset. As per accounting standards, the purchase of fixed assets is always classified as an investing activity, regardless of the purpose they serve in the business.