(b) Ram was good at making designs. He started making designer garments. He bought a
sewing machine for Rs 50,000, spent Rs 20,000 on its renewal. He purchased fabric for Rs
3,50,000 in cash and sold designer garments for Rs. 4,80,000 in cash. Find out net Cash Flow
from investing and operating activities.
Answers
Answer:
Explanation:
To caclculate cash flow from operating activities(cffoa) you need to first fine Net Profit
Gross profit =sales -purchases
=480,000-350,000
=130,000
There are Operating expenses, renewal of machinery = 20,000
Net Profit =Gross Profit - Renewal of machinery= 110,000
Cash Flow From Operating activities=
Net Profit................................. 110,000
as there are no other items
cffoa =110,000
Cash Flow From Investing Activities =
- Purchase of sewing machine = (50,000)
Renewal of machinery is an operating expense and was adjusted in net profit so we just leave it
So CFFIA =(50,000)
Net Cash Flow from Investing and Operating Activities =110,000-50,000
=60,000 Ans
The net cash flow from investing and operating activities is 60,000
Given:
Price of the Sewing machine = Rs. 50,000
Money spent on renewal = Rs. 20,000
Price of fabric = Rs. 3,50,000
The selling price of garments = Rs. 4,80,000
To Find:
The net cash flow from investing and operating activities
Solution:
Calculating the net cash flow from operating activities -
The selling price of garments - Price of fabric - Renewal expense
= 4,80,000 - 3,50,000 - 20,000
= 1,30,000 - 20,000
= 1,10,000.
This represents the difference among the money received from selling the designer clothing and the money spent on buying the fabric and replacing the sewing machine.
Calculating the net cash flow from both investing and operating activities is-
= Cost of sewing machine + Amount from operating activities
= -50,000 + 1,10,000
= 60,000.
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