Calculate the resulting cash flow and state the nature of cash flow from the following information:
Acquired machinery for ₹3,50,000 by issuing cheque.
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Investing activity and outflow ₹3,50,000.
The acquisition of machinery for ₹3,50,000 by issuing a cheque results in the Outflow of cash of ₹3,50,000.
Since the company is paying cash by issuing a cheque to acquire machinery, the nature of the cash flow is a cash outflow and the nature of activity associated with the cash flow of ₹3,50,000 for acquiring machinery is an 'Investing Activity'.
Investing activities involve the acquisition and disposal of long-term assets or investments that are not intended for immediate resale. Acquiring machinery falls under this category because it involves investing in a long-term asset that will be used in business operations over an extended period.