A company acquires a new delivery truck costing Rs. 8,00,000 by issuing 8,000 fully paid equity shares of Rs. 10 each. How should this transaction be disclosed in the cash flow statement?
Answer
Disclosed as a non‑cash investing and financing activity in a separate note to the cash flow statement
The correct answer is Disclosed as a non‑cash investing and financing activity in a separate note to the cash flow statement — According to cash flow reporting standards, they are not shown in the cash inflow/outflow sections but are disclosed separately, usually in a footnote or a separate schedule.
Step-by-step solution
- Recognise that the acquisition is made by issuing shares, so no cash changes hands.
- Such transactions are classified as non‑cash investing and financing activities.
- According to cash flow reporting standards, they are not shown in the cash inflow/outflow sections but are disclosed separately, usually in a footnote or a separate schedule.
Common mistake: Recording the transaction as a cash outflow under investing activities
Concept tested: Non‑cash investing & financing activities
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