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📚 Learn/ Paper 1 — Advanced Accounting/ Indian Accounting Standards (AS 1–29)
Microlesson · 5-min read

AS 3 – Investing Activities: Definition and Examples

## Investing Activities (AS 3)

Definition: Cash flows from the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

### Cash Inflows from Investing Activities

  • Proceeds from sale of PPE, Intangibles, Investment Property
  • Proceeds from sale of investments (shares, debentures, preference shares)
  • Cash receipts from repayment of loans/advances given to third parties
  • Interest income earned on loans/advances given (for non-financial entities)
  • Dividend income received on investments (for non-financial entities)
  • Rent income on investment property

### Cash Outflows from Investing Activities

  • Payments to acquire PPE, Intangibles, Investment Property
  • Payments to acquire investments in shares, debentures, preference shares
  • Loans and advances given to third parties

### Key Principle

> Any income generated from an investing asset (interest on loans given, dividend on investments, rent on investment property) is also classified as an Investing cash flow (for non-financial entities).

### Special Rule: Investment in Subsidiary

> Investment in shares of a subsidiary is always Investing, even if the entity's business involves investing (it can never be classified as Operating).

Worked example

### Example 1

Machine purchase: Paid ₹10L to acquire new machinery → Outflow – Investing.

### Example 2

Loan given to third party: Extended ₹5L loan to a vendor (not employee/supplier) → Outflow – Investing. Six months later, vendor repays ₹5L → Inflow – Investing. Interest of ₹25K received → Inflow – Investing.

### Example 3

Investment in subsidiary shares: Paid ₹20L to acquire 60% stake in a subsidiary company → Outflow – Investing (always, for all entities).

### Example 4

Dividend from investment: Received ₹1L dividend on listed equity shares held as investment (non-financial company) → Inflow – Investing.

⚠️ Common exam mistakes

  • Treating interest income or dividend income as Operating for a non-financial company — these are Investing returns.
  • Classifying loans given to employees or suppliers as Investing — loans to employees/suppliers are Operating (see special rules lesson).
  • Netting purchase and sale of investments — AS 3 requires gross presentation of each separately.
Bare-Act text Para 6 – Definitions · AS 3 – Cash Flow Statements · click to expand
Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
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