Match List-I with List-IIList-I(A) Acquisition of Machinery by Issue…

Match List-I with List-II

List-I

(A) Acquisition of Machinery by Issue of Equity Shares

(B) Purchase of Machinery for cash

(D) Repayment of Bank Loan

List-II

(I) Investing Activities

(II) Non-cash Item

(III) Financing Activities

(IV) Operating Activities

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A) - (II), (B) - (I), (C) - (IV), (D) - (III)

A cash flow statement shows only movements of cash, classed as operating, investing or financing. A transaction without cash is left out altogether.

(A) Acquisition of Machinery by Issue of Equity Shares — this matches (II) Non-cash Item. No cash is paid or received, so it is excluded from the cash flow statement.

(B) Purchase of Machinery for cash — this matches (I) Investing Activities. Cash paid to acquire a fixed asset is an investing outflow.

(C) Amortisation of Goodwill — this matches (IV) Operating Activities. It is a non-cash charge in the Statement of Profit and Loss, so it is added back to net profit while working out cash flow from operating activities.

(D) Repayment of Bank Loan — this matches (III) Financing Activities. Repaying a long-term borrowing changes the firm’s borrowed funds, so it is a financing outflow.

NCERT (2026-27 edition):
Treatment of Some Peculiar Items – “… Non-cash Transactions As per AS-3, investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement. Examples of such transactions are – acquisition of machinery by issue of equity shares or redemption of debentures by issue of equity shares.”

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.”

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “Indirect method of ascertaining cash flow from operating activities begins with the amount of net profit/loss. This is so because statement of profit and loss incorporates the effects of all operating activities of an enterprise. However, Statement of Profit and Loss is prepared on accrual basis (and not on cash basis). Moreover, it also includes certain non-operating items such as interest paid, profit/loss on sale of fixed assets, etc.) and non-cash items (such as depreciation, goodwill written-off, divident declared, etc. Therefore, it becomes necessary to adjust the amount of net profit/loss as shown by Statement of Profit and Loss for arriving at cash flows from operating activities.”

NCERT (2026-27 edition):
Cash from Financing Activities – “As the name suggests, financing activities relate to long-term funds or capital of an enterprise, e.g., cash proceeds from issue of equity shares, debentures, raising long-term bank loans, repayment of bank loan, etc.”