A company acquires a new machine costing Rs. 5,00,000 by issuing 5,000 fully paid equity shares of Rs. 10 each. How should this transaction be reported in the cash flow statement?
Answer
Disclosed separately as a non‑cash investing and financing activity
The correct answer is Disclosed separately as a non‑cash investing and financing activity — Hence, the acquisition is shown as a disclosure note titled “Non‑cash investing and financing activities”.
Step-by-step solution
- Identify that no cash is exchanged – the machine is obtained by issuing shares.
- Such transactions are non‑cash investing and financing activities.
- According to IAS 7 / AS 3, non‑cash investing and financing activities are disclosed in a separate schedule, not in the cash flow sections.
- Hence, the acquisition is shown as a disclosure note titled “Non‑cash investing and financing activities”.
Common mistake: Treating the share issue as a cash inflow under financing activities
Concept tested: Non‑cash investing and financing activities
Published · How this solution was prepared and checked
← All Cash Flow Statement questions