From the following information calculate inflow or outflow from investing activity.
Opening Balance of Investment - ₹5,00,000
Closing Balance of Investment - ₹10,00,000
Half of the investments held at the beginning of the year were sold at 20% Profit.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹4,50,000 Outflow.
Opening Balance - 5,00,000
Half of investment is sold = 5,00,000 x 1/2
= ₹2,50,000
Profit on sale of investment = 20%
Profit = 2,50,000 x 20/100
= ₹50,000
Sale of investment = 3,00,000 (2,50,000 value + 50,000 profit)
Thus, Inflow of cash by sale = ₹3,00,000
Closing Balance = 10,00,000
Purchase of investment = closing balance- opening balance + Cost of Sale of investments
= 10,00,000 - 5,00,000 + 2,50,000
= 7,50,000 (outflow as it is purchased during the year)
Net Outflow of cash = 7,50,000 (outflow by purchased investments) - 3,00,000 (inflow by sale of investment)
= ₹4,50,000