## Cash Flow from Investing and Financing Activities

### B. Cash Flow from Investing Activities

Includes cash inflows/outflows related to acquisition and disposal of long-term assets and investments.

```

Inflows (+) Outflows (–)

─────────────────────────────────────────────────────

Sale proceeds of fixed assets Purchase of fixed assets

Sale proceeds of investments Purchase of investments

Interest received (on investments) Loans given to third parties

Dividends received Capital expenditure

```

> Critical: Show the full sale proceeds, not the book value or profit. The profit/loss was already reversed from PBT in operating activities.

### C. Cash Flow from Financing Activities

Includes cash flows related to changes in the size and composition of owners' capital and borrowings.

```

Inflows (+) Outflows (–)

─────────────────────────────────────────────────────

Issue of share capital (cash) Redemption of preference shares

Proceeds from long-term borrowings Repayment of debentures/loans

Premium paid on redemption

Dividend paid (actual cash)

Interest paid on debentures/loans

```

> Dividend paid vs declared: Dividend declared in P&L is reversed under operating (non-operating item). The actual cash paid is shown here under financing.

### Reconciliation check

```

Opening Cash & Cash Equivalents (CCE)

+ Net CF from Operating Activities [A]

+ Net CF from Investing Activities [B]

+ Net CF from Financing Activities [C]

= Closing Cash & Cash Equivalents

```

Worked example

### Example 1

Illustration 19 — Investing and Financing Activities

B. Cash Flow from Investing Activities

Item	₹
Sale of Plant (proceeds)	1,00,000
Sale of Investments (proceeds)	1,20,000
Less: Purchase of Plant	(8,56,000)
Net Cash from Investing Activities [B]	(6,36,000)

C. Cash Flow from Financing Activities

Item	₹
Issue of Shares	4,00,000
Less: Redemption of Preference Shares	(1,20,000)
Less: Premium on redemption of Pref shares	(6,000)
Less: Redemption of Debentures	(1,20,000)
Less: Premium on redemption of Debentures	(6,000)
Less: Dividend paid	(1,20,000)
Less: Interest on Debentures paid	(36,000)
Net Cash from Financing Activities [C]	(8,000)

Closing CCE = Opening CCE (10,000) + A (6,44,000) + B (−6,36,000) + C (−8,000) = 10,000

### Example 2

Question 9 — Investing and Financing Activities

B. Cash Flow from Investing Activities

Item	₹
Sale of vehicle (proceeds)	3,000
Sale of land (proceeds)	1,25,000
Sale of investments (proceeds)	58,000
Interest income received on investments	6,500
Less: Purchase of equipment (cash)	(10,500)
Less: Purchase of furniture	(9,000)
Net Cash from Investing Activities [B]	1,73,000

C. Cash Flow from Financing Activities

Item	₹
Issue of Shares	1,80,000
Less: Redemption of Debentures	(3,00,000)
Less: Dividend paid	(5,000)
Less: Interest on Debentures paid	(12,000)
Less: Loan repaid	(15,000)
Net Cash from Financing Activities [C]	(1,52,000)

Closing CCE = Opening CCE (34,500) + A (74,350) + B (1,73,000) + C (−1,52,000) = 1,29,850

⚠️ Common exam mistakes

Showing only the profit/loss on sale of assets under investing — the full proceeds (not net of book value) must be shown.
Including interest paid as an investing activity — under AS 3, interest paid is classified as a financing activity (alternative: operating, but be consistent).
Confusing dividend 'declared' (reversed from PBT in operating) with dividend 'paid' (cash outflow in financing) — these are two separate figures.
Omitting premium on redemption from financing outflows — it is a real cash payment and must appear here even if it was also reversed from PBT in operating.
Netting purchase and sale of fixed assets — AS 3 requires gross disclosure of major cash flows; show inflows and outflows separately.

Bare-Act text Paras 21 & 22 · AS 3 — Cash Flow Statements (ICAI) · click to expand

Cash flows from investing activities represent the extent to which expenditures have been made for resources intended to generate future income and cash flows… An enterprise should report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities.

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Cash Flow Statement (AS 3) — Investing and Financing Activities

Worked example

⚠️ Common exam mistakes