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
Machinery is a fixed asset, and cash paid to acquire a fixed asset is an investing activity. Payment by cheque reduces the bank balance, so the whole ₹3,50,000 is a cash outflow.
Why the other options are incorrect
Option (2) Investing activity and inflow ₹3,50,000 — Incorrect. Cash goes out of the firm when it pays for machinery; an inflow would arise on the sale of machinery.
Option (3) Investing activity and no flow — Incorrect. A cheque is a cash payment. There would be no flow only if the machinery were acquired without cash, for example by issuing shares.
Option (4) Operating activity and outflow ₹3,50,000 — Incorrect. Buying a fixed asset is not part of the main revenue-producing operations, so it is not an operating activity.
NCERT (2026-27 edition): NCERT (2026-27 edition):
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