If the amount of goodwill is ₹40,000 at the beginning of a year and ₹48,000 at the end of that year then while preparing cash flow statement its effect on cash flow will be:
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Cash used (Payment) in Investing Activities ₹8,000.
As per AS-3, investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Investing activities relate to purchase and sale of long-term assets or fixed assets such as machinery, furniture, land and building, etc. Transactions related to long-term investment are also investing activities. Cash payments to acquire fixed assets including intangibles and capitalised research and development is an example of Investing activity.
Opening goodwill = 40,000
Closing goodwill = 48,000
Purchase amount = 48,000 - 40,000
= 8,000
As it is purchases so it is an outflow of cash.