## Cash Flow from Investing and Financing Activities

### Investing Activities

These involve acquisition and disposal of long-term assets and investments.

Inflows:

Sale proceeds of fixed assets (use T-account to find actual proceeds, not book value)
Sale proceeds of investments
Interest income received (if classified as investing)
Dividend income received (if classified as investing)

Outflows:

Cash paid to purchase fixed assets
Cash paid to purchase investments

> Watch for hidden purchases: When an asset is partly purchased on credit, only the cash paid portion appears in Investing. The credit portion is a non-cash transaction (disclosed separately per AS 3 Para 35).

---

### Financing Activities

These result in changes in the size and composition of owners' capital and borrowings.

Inflows:

Proceeds from issue of equity / preference shares
Proceeds from issue of debentures / long-term loans

Outflows:

Redemption of preference shares (face value)
Premium paid on redemption of preference shares
Redemption of debentures (face value)
Premium paid on redemption of debentures
Dividends paid (use Dividend Payable T-account to find actual cash paid)
Interest on debentures paid (moved here from Operating — see indirect method)
Loan repayments

---

### Dividend and Interest — Classification

Item	Permissible Classification
Dividend paid	Financing (common in India)
Interest paid	Financing (common) or Operating
Dividend received	Investing or Operating
Interest received	Investing or Operating

For CA Inter problems, follow the classification given/implied in the question.

---

### Format

```

B. Cash Flow from Investing Activities

Sale of fixed assets X

Sale of investments X

Interest / dividend received X

Purchase of fixed assets (X)

Purchase of investments (X)

Net Cash from Investing Activities (B) X

C. Cash Flow from Financing Activities

Issue of shares X

Issue of debentures / loans X

Redemption of pref. shares (X)

Premium on redemption (X)

Redemption of debentures (X)

Dividend paid (X)

Interest on debentures paid (X)

Loan repaid (X)

Net Cash from Financing Activities (C) X

Net increase in Cash (A + B + C) X

Opening Cash and Cash Equivalents X

Closing Cash and Cash Equivalents X

```

Worked example

### Example 1

Investing Activities — Illustration 19

Item	₹
Sale proceeds of plant	1,00,000
Sale proceeds of investments	1,20,000
Purchase of plant (balancing figure from T-account)	(8,56,000)
Net Cash from Investing Activities	(6,36,000)

Note: Purchase of plant is a hidden (balancing) figure derived from the PPE T-account — not directly given in the question.

### Example 2

Financing Activities — Illustration 19

Item	₹
Issue of equity shares	4,00,000
Redemption of preference shares	(1,20,000)
Premium on redemption of pref. shares	(6,000)
Redemption of debentures	(1,20,000)
Premium on redemption of debentures	(6,000)
Dividend paid	(1,20,000)
Interest on debentures paid	(36,000)
Net Cash from Financing Activities	(1,08,000)

### Example 3

Finding Dividend Paid Using T-Account

Dividend Payable A/c:

```

Dr Cr

Paid (cash) = ? | Opening balance X

| Declared this year X

Closing balance X |

```

Dividend Paid = Opening + Declared − Closing

This separates declared (shown in P&L/reserves) from paid (actual cash outflow in Financing).

⚠️ Common exam mistakes

Showing sale proceeds of an asset as 'book value' instead of actual sale proceeds — always use the T-account to find the cash received
Including both premium on redemption AND the face value redemption as a single figure — they must be shown separately or the sum shown clearly
Classifying dividend paid under Operating Activities — under standard Indian exam practice it goes to Financing
Forgetting to include loan repayments or new borrowings — these are financing activities often overlooked when focus is on share capital
Netting off issue proceeds against redemption — inflows and outflows should generally be shown gross

Bare-Act text Paragraphs 7–8 · AS 3 (Revised) — Cash Flow Statements, ICAI · click to expand

Financing activities are activities that result in changes in the size and composition of the owners' capital (including preference share capital in the case of a company) and borrowings of the enterprise. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

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