Accountancy Part BCash Flow Statement

If a machinery is purchased, how will it be treated while preparing t…

If a machinery is purchased, how will it be treated while preparing the cash flow statement as per AS-3 (Revised)?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Investing activity

Machinery is a long-term (fixed) asset. Cash paid to acquire it is an investing activity under AS-3, shown as an outflow in the investing section.

NCERT (2026-27 edition):
Cash from Investing Activities – “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.”