HCL Ltd paid ₹ 30,000 as instalment for machinery purchased on credit which included interest of ₹ 5,000. How will this payment be presented while preparing cash flow statement ?
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There are two components of repayment. One is principal loan amount and interest amount. Here, 25,000 is principal repayment and 5,000 is interest amount. Interest amount have been charged to the profit and loss account. As it is a non-operating item, it will be added back to net profit before taxes in cash flow from operating.
The total of 30,000 will be shown under cash flow from financing activities.
Extracts from cash flow statement:
Cash flow from operating activities:
Net profit before taxes
Add: Non-operating item (Interest on loan) 5,000
...
Cash flow from financial activities
Repayment of loan........................25,000
Interest paid on loan...................... 5,000
Hope this helps you understand, ask for any doubt.
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