AccountancyCBSE Class 12 · Cash Flow Statement

Cash Flow from Investing and Financing Activities: Class 12 Workings and Solved Sums

Updated 15 October 2026 · Fact-checked

Investing activities record cash paid to buy and received from selling fixed assets and long-term investments, plus interest and dividends received by a non-financial company. Financing activities record cash from issuing shares or debentures and borrowing, and cash paid to redeem or repay them, plus interest and dividends paid. Hidden figures come from the asset accounts.

Understand Cash Flow from Investing and Financing Activities

Investing activities (non-financial company).

Purchase of fixed assets (PPE, intangibles) and non-current investments: outflow.
Sale of fixed assets and investments: inflow at the sale proceeds (the profit or loss on sale is removed in operating activities).
Interest and dividend received: inflow.

Finding hidden purchases or sales: prepare the account.

Asset at net value: Opening + Purchases − Depreciation − Book value of asset sold = Closing. So Purchases = Closing + Depreciation + Book value sold − Opening.
Asset at cost with accumulated depreciation: Purchases = Closing cost + Cost of asset sold − Opening cost; Depreciation for the year = Closing accumulated depreciation + Accumulated depreciation on asset sold − Opening accumulated depreciation.
Sale proceeds = Book value sold ± profit or loss on sale.

Financing activities.

Issue of shares: inflow = increase in share capital + increase in securities premium (exclude bonus shares and shares issued to vendors: non-cash).
Issue of debentures or loans: inflow; redemption of debentures, buy-back, repayment of loans: outflow (including any premium paid).
Interest paid on debentures and loans: outflow (added back in operating activities).
Dividend paid (previous year's proposed and interim): outflow.
Changes in bank overdraft and cash credit (short-term borrowings): financing.

Non-cash transactions (bonus shares, conversion of debentures into shares, assets acquired for shares or debentures) are excluded from both sections.

Final assembly. Net increase in cash = operating + investing + financing; add opening cash and cash equivalents to get the closing balance, which must agree with the balance sheet.

Cash Flow from Investing and Financing Activities: key facts

Purchase of asset (net values): Closing + Depreciation + Book value sold − Opening
Purchase of asset (at cost): Closing cost + Cost of asset sold − Opening cost
Depreciation (accumulated depreciation account): Closing acc. dep. + Acc. dep. on asset sold − Opening acc. dep.
Sale proceeds: Book value sold + profit (or − loss) on sale
Cash from issue of shares: Increase in share capital + increase in securities premium − bonus/non-cash issues

How to answer Cash Flow from Investing and Financing Activities questions

In a 6-mark question, prepare the asset and liability accounts in working notes; the investing and financing sections then read straight off them.

1Prepare each fixed asset account (and accumulated depreciation if given) to find purchases, depreciation and book value sold.
2Record sale proceeds as inflows; send profit or loss on sale to operating activities.
3Prepare investment accounts the same way.
4For share capital, securities premium, debentures and loans, separate cash and non-cash changes.
5Add interest and dividend paid to financing; interest and dividend received to investing (non-financial firm).
6Total each section; check net change against opening and closing cash and cash equivalents.

Cash Flow from Investing and Financing Activities in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Reading investing and financing together

Suppose Hearthstone Bakers Ltd (a fictional company) raises ₹5,00,000 by issuing equity shares, repays an old bank loan of ₹1,00,000, buys a new industrial oven for ₹3,50,000 and sells its old oven for ₹20,000 during the year.

Calculate net cash from investing and financing activities and explain what the company is doing.

Try it first, then show the solutionSolution

Investing: −3,50,000 + 20,000 = −₹3,30,000.
Financing: +5,00,000 − 1,00,000 = +₹4,00,000.
Financing more than covers the investment.

Answer: Investing −₹3,30,000; financing +₹4,00,000. The company is expanding capacity, paid for by new owners' money rather than borrowing, and has even reduced its debt.

Memory hook: Investing shows what was built; financing shows who paid for it.

Tricks to remember Cash Flow from Investing and Financing Activities

Short memory aids. Say each one aloud once, then use it on a question the same day.

C + D + S − O
Purchases = Closing + Depreciation + Sold (book value) − Opening.
Use it when: Finding hidden purchases.
Proceeds, not profit
Show the whole sale proceeds in investing; remove the profit in operating.
Use it when: Sale of assets.
Capital + Premium = Cash
Cash from a share issue is the rise in capital plus the rise in premium, after removing bonus issues.
Use it when: Financing inflows.

Cash Flow from Investing and Financing Activities: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Sale of machinery at a loss · 1 mark · MCQBoard level

Machinery with a book value of ₹40,000 was sold at a loss of ₹5,000. The amount shown under investing activities is:
(a) ₹40,000 inflow
(b) ₹35,000 inflow
(c) ₹5,000 outflow
(d) ₹45,000 inflow

Try it first, then show the solutionSolution

Sale proceeds = 40,000 − 5,000 = 35,000, an inflow.

Answer: (b) ₹35,000 inflow

Example 2: Hidden purchase of machinery · 3 marks · Short answerBoard level

Machinery (net): opening ₹4,00,000, closing ₹5,00,000. Depreciation for the year ₹60,000. A machine with a book value of ₹30,000 was sold for ₹25,000. Calculate cash used for purchases and net cash from investing activities. (3 marks)

Try it first, then show the solutionSolution

Purchases = 5,00,000 + 60,000 + 30,000 − 4,00,000 = ₹1,90,000.
Sale proceeds ₹25,000 (loss ₹5,000 added back in operating).
Net investing = −1,90,000 + 25,000 = −₹1,65,000.

Answer: Purchases ₹1,90,000; net cash used in investing ₹1,65,000.

Example 3: Machinery at cost with accumulated depreciation · 4 marks · Short answerHarder board level

Machinery at cost: opening ₹6,00,000, closing ₹7,50,000. Accumulated depreciation: opening ₹1,50,000, closing ₹1,80,000. A machine costing ₹50,000 (accumulated depreciation ₹30,000) was sold for ₹15,000. Find purchases, depreciation for the year and profit or loss on sale. (4 marks)

Try it first, then show the solutionSolution

Purchases = 7,50,000 + 50,000 − 6,00,000 = ₹2,00,000.
Depreciation = 1,80,000 + 30,000 − 1,50,000 = ₹60,000.
Book value sold = 50,000 − 30,000 = 20,000; sold for 15,000: loss ₹5,000.

Answer: Purchases ₹2,00,000; depreciation ₹60,000; loss on sale ₹5,000 (investing inflow ₹15,000).

Example 4: Financing activities · 3 marks · Short answerHarder board level

Equity share capital rose from ₹5,00,000 to ₹7,00,000 and securities premium from ₹20,000 to ₹40,000 (all for cash). 10% debentures fell from ₹3,00,000 to ₹2,00,000 (redeemed at par). Debenture interest paid ₹25,000; dividend paid ₹40,000. Calculate net cash from financing activities. (3 marks)

Try it first, then show the solutionSolution

Issue of shares = 2,00,000 + 20,000 = +2,20,000.
Redemption −1,00,000; interest −25,000; dividend −40,000.
Net = 2,20,000 − 1,65,000 = +₹55,000.

Answer: Net cash from financing activities = ₹55,000.

Example 5: Bonus shares, investments and land · 6 marks · Long answerHOTS / competency

From these changes (opening → closing), calculate net cash from investing and financing activities: Equity share capital ₹4,00,000 → ₹6,00,000 (bonus shares of ₹1,00,000 issued from General Reserve; rest for cash); Long-term loan ₹2,00,000 → ₹1,50,000; Non-current investments ₹1,00,000 → ₹60,000 (sold at a profit of ₹8,000); Land ₹3,00,000 → ₹4,20,000. Also: interest paid on loan ₹18,000; interest received ₹6,000; dividend paid ₹30,000. (6 marks)

Try it first, then show the solutionSolution

Cash issue of shares = 2,00,000 − 1,00,000 (bonus, non-cash) = 1,00,000.
Financing: +1,00,000 − 50,000 (loan repaid) − 18,000 − 30,000 = +₹2,000.
Investments sold: book value 40,000 + profit 8,000 = 48,000 inflow.
Land purchased: 1,20,000 outflow; interest received +6,000.
Investing: 48,000 − 1,20,000 + 6,000 = −₹66,000.

Answer: Net cash used in investing ₹66,000; net cash from financing ₹2,000.

Example 6: Debentures issued to a vendor · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): Machinery bought by issuing debentures to the vendor is shown as an outflow under investing and an inflow under financing activities.
Reason (R): The transaction involves no cash or cash equivalents.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Non-cash transactions are excluded from the Cash Flow Statement; A is false, R is true.

Answer: (d) A is false, but R is true.

Where students lose marks in Cash Flow from Investing and Financing Activities

The slips examiners see most often, and what to write instead.

Mistake: Taking the change in asset balance as purchases
Ignoring depreciation and sales.
Wrong working
Purchases = 5,00,000 − 4,00,000 = 1,00,000.
Right working
Purchases = 5,00,000 + 60,000 + 30,000 − 4,00,000 = 1,90,000.
Do this: Prepare the asset account.
Usually costs: 1-2 marks.
Mistake: Showing book value instead of sale proceeds
Using the figure from the account.
Wrong working
Sale of machinery +30,000.
Right working
Sale of machinery +25,000 (proceeds).
Do this: Investing shows cash actually received.
Usually costs: 1 mark.
Mistake: Counting bonus shares as cash raised
Using the whole rise in share capital.
Wrong working
Issue of shares +2,00,000.
Right working
Issue of shares +1,00,000; bonus 1,00,000 excluded.
Do this: Remove non-cash issues.
Usually costs: 1 mark.
Mistake: Forgetting securities premium on a share issue
Looking only at share capital.
Wrong working
Issue of shares +2,00,000.
Right working
+2,00,000 + 20,000 premium = 2,20,000.
Do this: Cash = capital + premium.
Usually costs: 1 mark.

Exam tips

Put asset accounts in working notes; examiners award marks for them.
Label each line clearly: 'Purchase of machinery', 'Proceeds from sale of investments'.
Close with: net increase/decrease + opening cash = closing cash.
Investing and financing sections make up the other half of the 6-mark Cash Flow Statement.

Practice questions on Cash Flow from Investing and Financing Activities

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
For a manufacturing company, interest paid on debentures is shown as:
(a) operating outflow
(b) investing outflow
(c) financing outflow
(d) not shown
Hint
Cost of borrowed funds.
Answer
(c) financing outflow
Q2 · 1 mark · MCQBoard level
Preference shares of ₹1,00,000 were redeemed at a premium of 10%. The financing outflow is:
(a) ₹1,00,000
(b) ₹1,10,000
(c) ₹10,000
(d) ₹90,000
Hint
Cash paid includes premium.
Answer
(b) ₹1,10,000
Q3 · 3 marks · Short answerBoard level
Non-current investments: opening ₹80,000, closing ₹1,20,000. Investments costing ₹30,000 were sold for ₹35,000. Calculate purchases of investments and net cash from investing activities. (3 marks)
Hint
Purchases = closing + sold − opening.
Answer
Purchases = 1,20,000 + 30,000 − 80,000 = ₹70,000. Net = −70,000 + 35,000 = −₹35,000 (profit ₹5,000 deducted in operating).
Q4 · 1 mark · Very short answerHarder board level
Debentures fell from ₹4,00,000 to ₹2,50,000 (redeemed at par); debenture interest paid was ₹36,000. Show the financing items. (1 mark)
Hint
Two outflows.
Answer
Redemption of debentures (1,50,000); interest paid (36,000); total outflow ₹1,86,000.
Q5 · 3 marks · Short answerHarder board level
Machinery (net): opening ₹3,00,000, closing ₹3,60,000; depreciation ₹40,000; a machine with book value ₹25,000 was sold for ₹30,000. Calculate purchases and net cash from investing. (3 marks)
Hint
C + D + S − O.
Answer
Purchases = 3,60,000 + 40,000 + 25,000 − 3,00,000 = ₹1,25,000. Net investing = −1,25,000 + 30,000 = −₹95,000 (profit ₹5,000 deducted in operating).
Q6 · 1 mark · Very short answerHarder board level
Share capital rose from ₹6,00,000 to ₹8,00,000 and securities premium from ₹50,000 to ₹80,000, all for cash. Calculate cash from the issue. (1 mark)
Hint
Add both increases.
Answer
2,00,000 + 30,000 = ₹2,30,000.
Q7 · 3 marks · Short answerHarder board level
Goodwill rose from ₹50,000 to ₹80,000 (purchased) and patents fell from ₹40,000 to ₹30,000 (written off). Show their treatment in the Cash Flow Statement. (3 marks)
Hint
One cash, one non-cash.
Answer
Purchase of goodwill ₹30,000: investing outflow. Patents written off ₹10,000: non-cash, added back in operating activities.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Proceeds from sale of investments at a profit are shown at the full sale value under investing activities.
Reason (R): The profit on sale is deducted from net profit in operating activities to avoid double counting.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Where does the profit go?
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q9 · 3 marks · Short answerHOTS / competency
Machinery (net): opening ₹2,00,000; purchased ₹80,000; depreciation ₹30,000; closing ₹2,30,000. A machine was sold at a loss of ₹4,000. Find the sale proceeds. (3 marks)
Hint
Book value sold is the balancing figure.
Answer
Book value sold = 2,00,000 + 80,000 − 30,000 − 2,30,000 = ₹20,000; proceeds = 20,000 − 4,000 = ₹16,000.
Q10 · 3 marks · Short answerHOTS / competency
Why is interest paid on debentures added back in operating activities and then shown again under financing? Is it counted twice? (3 marks)
Hint
Moving, not duplicating.
Answer
No. Interest was deducted in arriving at profit; adding it back removes it from operating activities, and showing it under financing places the cash outflow where AS 3 classifies it. It is counted once, in the right section.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Formula for purchases of an asset at net values?Show answer
Closing + depreciation + book value sold − opening.
2.Where are bonus shares shown?Show answer
Nowhere; non-cash transaction.
3.Cash from issue of shares of ₹1,00,000 at 20% premium?Show answer
₹1,20,000.
4.Dividend received by a manufacturer: section?Show answer
Investing.
5.Repayment of bank overdraft: section?Show answer
Financing (short-term borrowing).

Cash Flow from Investing and Financing Activities: frequently asked questions

How do I find machinery purchased during the year?

Prepare the machinery account: purchases = closing + depreciation + book value of machinery sold − opening (or use cost and accumulated depreciation accounts).

What goes into financing activities?

Issue and redemption of shares and debentures, borrowings and repayments (including short-term), interest paid and dividend paid, for a non-financial company.

Is depreciation shown in investing activities?

No. Depreciation is non-cash; it is added back in operating activities.

How do I check my Cash Flow Statement?

Opening cash and cash equivalents plus the net change from all three activities must equal the closing balance in the balance sheet.