AccountsISC Class 12 · Cash Flow Statement

Investing and Financing Activities and the Full Cash Flow Statement: ISC Class 12 Accounts

Updated 17 October 2026 · Draft, not yet fact-checked

Investing activities cover cash paid and received for PPE, intangible assets, investments of other companies and loans given, with the interest and dividend received on them. Financing activities cover shares and debentures issued or redeemed, borrowings taken or repaid, interest and dividend paid, and issue expenses. The net of operating, investing and financing activities equals the change in cash and cash equivalents.

Add the net cash from all three activities to opening cash to get closing cash; green items are inflows, red items are outflows.

Illustration drawn for QuestionBuddy.

Understand Investing and Financing Activities and the Full Cash Flow Statement

Investing activities (syllabus list). Cash purchase and cash sale of Property, Plant and Equipment and intangible assets; purchase and sale of shares, debentures or long-term investments of other companies; loans and advances given (short-term or long-term) and their repayment; interest and dividend received on investments, and interest received on loans given.

Financing activities (syllabus list). Issue of shares at par and premium; issue of debentures at par, premium and discount; redemption of preference shares and debentures at par; interest paid on long-term and short-term borrowings; dividend, interim and final, paid on shares; long-term and short-term borrowings (bank overdraft, cash credit, short-term loan) taken or repaid; share issue expenses and underwriting commission paid.

Deriving the figures from Balance Sheets

Purchase of PPE = Closing net PPE − Opening net PPE + Depreciation for the year + Book value of assets sold. (From the PPE account: Opening + Purchases − Depreciation − Book value of sales = Closing.)
Sale proceeds = Book value of the asset sold + Profit on sale (or − Loss on sale).
Investments: Sale proceeds = Book value + profit − loss; purchases = closing − opening + book value sold.
Shares issued = Increase in share capital + Securities premium received. Securities premium may be used as the Companies Act, 2013 permits, for example to write off share issue expenses; the cash paid for those expenses is a financing outflow even though it never passes through the Statement of Profit and Loss.
Debentures issued at a discount: cash received = nominal value − discount. At a premium: nominal + premium. Redemption at par: nominal value paid.
Dividend paid = the previous year's proposed dividend (assumed approved in the AGM), plus interim dividend. Interest paid is the finance cost charged, adjusted for accrued interest if the question gives it.
Bank overdraft, cash credit and short-term loans are financing: a rise is an inflow and a fall is an outflow. They are not netted against the bank balance.

Assembling the statement. Operating section (previous topic page), then investing, then financing; add the three nets, add opening cash and cash equivalents, and check that the total equals the closing figure in the Balance Sheet. Show working notes for NPBT, PPE, and any account you build.

Excluded. Extraordinary items, refund of tax and Capital Reserve transactions are not required, and only manufacturing companies are covered.

Investing and Financing Activities and the Full Cash Flow Statement: key facts

Purchase of PPE: Closing net PPE
less Opening net PPE
add Depreciation
add Book value of assets sold; Cash purchases only.
Proceeds of sale: Book value
add Profit on sale
less Loss on sale; Investing inflow.
Shares issued: Increase in share capital | add Securities premium received; Financing inflow.
Debentures issued: Nominal value
less Discount
add Premium; Financing inflow of the cash received.
Net change in cash and cash equivalents: Operating + Investing + Financing
add Opening balance
equals Closing balance; Agree with the Balance Sheet.

How to answer Investing and Financing Activities and the Full Cash Flow Statement questions

Rebuild each long-term account to find the cash figure that is missing.

1Build the PPE and investments accounts to find purchases and sales.
2Compare share capital, securities premium and debentures year on year for issues and redemptions.
3List interest paid and dividend paid, and any change in short-term borrowings.
4Present investing, then financing, with inflows positive and outflows in brackets.
5Add the three nets and agree to the change in cash and cash equivalents.

Investing and Financing Activities and the Full Cash Flow Statement 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.

Funding a purchase

Suppose a toy company bought a new moulding machine for ₹3,00,000. It raised the money by issuing 25,000 shares of ₹10 at ₹12 each and paid ₹6,000 as share issue expenses out of the securities premium.

What are the investing and financing cash flows, ignoring other items?

Try it first, then show the solutionSolution

Financing inflow from shares = 25,000 × 12 = ₹3,00,000.
Financing outflow for issue expenses = ₹6,000, so net financing = ₹2,94,000.
Investing outflow = ₹3,00,000.

Answer: Investing outflow ₹3,00,000; net financing inflow ₹2,94,000; net effect on cash = −₹6,000.

Memory hook: Raise in financing, spend in investing, and track the cost of raising.

Tricks to remember Investing and Financing Activities and the Full Cash Flow Statement

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

Buy-sell-lend is Investing
Buying or selling long-term assets and investments, and lending money.
Use it when: Investing section.
Raise-repay-reward is Financing
Raise capital, repay capital, reward providers (interest and dividend paid).
Use it when: Financing section.
Rebuild the account
Opening + purchases − depreciation − book value sold = closing.
Use it when: Finding PPE purchases.

Investing and Financing Activities and the Full Cash Flow Statement: solved examples

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

Example 1: Issue of shares at a premium · 1 mark · MCQBoard level

A company issues 50,000 equity shares of ₹10 each at ₹12 per share, fully paid. The cash flow in the Cash Flow Statement is:
(a) ₹5,00,000, investing
(b) ₹6,00,000, financing
(c) ₹1,00,000, financing
(d) ₹6,00,000, operating

Try it first, then show the solutionSolution

Cash received = 50,000 × 12 = ₹6,00,000, including the premium.
Issue of shares is a financing activity.

Answer: (b) ₹6,00,000, financing

Example 2: Purchase of PPE · 3 marks · Short answerBoard level

Net PPE was ₹4,00,000 at the beginning and ₹5,50,000 at the end of the year. Depreciation for the year was ₹60,000, and no asset was sold. Calculate the cash outflow on purchase of PPE and state the activity. (3 marks)

Try it first, then show the solutionSolution

Purchases = 5,50,000 − 4,00,000 + 60,000 = ₹2,10,000.
It is an investing outflow.

Answer: ₹2,10,000 outflow under investing activities.

Example 3: Full Cash Flow Statement · 6 marks · Long answerHarder board level

Prepare the Cash Flow Statement of Kestrel Ltd. for the year ended 31st March 2026 from the Balance Sheets below and: depreciation ₹70,000; machinery with a book value of ₹40,000 sold at a loss of ₹6,000; investments with a book value of ₹20,000 sold at a profit of ₹5,000; interest on debentures ₹20,000 paid and charged; transfer to General Reserve ₹20,000; the previous year's proposed dividend of ₹30,000 paid; tax paid ₹35,000; 10% debentures of ₹50,000 redeemed at par; equity shares of ₹1,00,000 issued at a premium of ₹20,000.

Particulars	31 March 2025 (₹)	31 March 2026 (₹)
Equity and Liabilities
Equity share capital	6,00,000	7,00,000
General Reserve	80,000	1,00,000
Securities Premium	0	20,000
Surplus (Statement of P&L)	70,000	1,20,000
10% Debentures	2,00,000	1,50,000
Trade payables	1,00,000	1,15,000
Provision for tax	40,000	50,000
Total	10,90,000	12,55,000
Assets
Property, plant and equipment	5,00,000	6,60,000
Non-current investments	1,00,000	80,000
Inventories	1,80,000	2,20,000
Trade receivables	1,50,000	1,70,000
Cash and cash equivalents	1,60,000	1,25,000
Total	10,90,000	12,55,000

(6 marks)

Try it first, then show the solutionSolution

Working note 1, NPBT: provision made = 50,000 − 40,000 + 35,000 = 45,000; NPBT = (1,20,000 − 70,000) + 20,000 + 30,000 + 45,000 = ₹1,45,000.
Working note 2, PPE purchases = 6,60,000 − 5,00,000 + 70,000 + 40,000 = ₹2,70,000.
Operating profit before working capital changes = 1,45,000 + 70,000 + 6,000 + 20,000 − 5,000 = ₹2,36,000; working capital changes = −40,000 − 20,000 + 15,000 = −₹45,000; cash generated = ₹1,91,000; net operating = 1,91,000 − 35,000 = ₹1,56,000.
Investing = −2,70,000 + 34,000 + 25,000 = −₹2,11,000. Financing = 1,20,000 − 50,000 − 20,000 − 30,000 = ₹20,000.
Net change = 1,56,000 − 2,11,000 + 20,000 = −₹35,000; 1,60,000 − 35,000 = ₹1,25,000, which agrees with the Balance Sheet.

Answer:

Particulars	₹
A. Operating activities
Net profit before tax (Working Note 1)	1,45,000
Add: Depreciation	70,000
Add: Loss on sale of machinery	6,000
Add: Interest on debentures	20,000
Less: Profit on sale of investments	(5,000)
Operating profit before working capital changes	2,36,000
Increase in inventories	(40,000)
Increase in trade receivables	(20,000)
Increase in trade payables	15,000
Cash generated from operations	1,91,000
Less: Tax paid	(35,000)
Net cash from operating activities	1,56,000
B. Investing activities
Purchase of PPE (Working Note 2)	(2,70,000)
Sale of machinery	34,000
Sale of non-current investments (20,000 + 5,000)	25,000
Net cash used in investing activities	(2,11,000)
C. Financing activities
Issue of equity shares at a premium (1,00,000 + 20,000)	1,20,000
Redemption of 10% debentures at par	(50,000)
Interest paid on debentures	(20,000)
Dividend paid	(30,000)
Net cash from financing activities	20,000
Net decrease in cash and cash equivalents (A + B + C)	(35,000)
Add: Opening cash and cash equivalents	1,60,000
Closing cash and cash equivalents	1,25,000

Example 4: Financing section with debentures at a discount · 3 marks · Short answerHarder board level

During the year a company issued 10% debentures of ₹1,00,000 at a discount of 5%, redeemed old debentures of ₹40,000 at par and paid interest of ₹8,000 on debentures. Calculate the net cash from financing activities for these items. (3 marks)

Try it first, then show the solutionSolution

Cash received on issue = 1,00,000 − 5,000 = ₹95,000.
Redemption at par = −₹40,000; interest paid = −₹8,000.
Net = 95,000 − 40,000 − 8,000 = ₹47,000.

Answer: Net cash from financing = ₹47,000.

Example 5: Issue expenses written off against securities premium · 3 marks · Short answerHOTS / competency

A company issued 10,000 equity shares of ₹10 each at ₹12. It paid share issue expenses of ₹6,000 and adjusted them against the securities premium. Opening securities premium was nil. Find the closing securities premium, the net financing cash flow, and explain why the expenses are not an operating item. (3 marks)

Try it first, then show the solutionSolution

Cash raised = 10,000 × 12 = ₹1,20,000; premium = 10,000 × 2 = ₹20,000.
Closing securities premium = 20,000 − 6,000 = ₹14,000.
Net financing = 1,20,000 − 6,000 = ₹1,14,000.
The expenses were charged to securities premium, not to the Statement of Profit and Loss, so they are not in the net profit; the syllabus lists them under financing.

Answer: Closing securities premium ₹14,000; net financing inflow ₹1,14,000; the expenses belong to financing, not operating activities.

Where students lose marks in Investing and Financing Activities and the Full Cash Flow Statement

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

Mistake: Showing issue of shares at par value only
Ignoring the premium.
Wrong working
Issue of shares 1,00,000
Right working
Issue of shares at a premium 1,20,000
Do this: Add securities premium received.
Usually costs: 1 mark.
Mistake: Forgetting depreciation when finding purchases
Using only the change in net PPE.
Wrong working
6,60,000 − 5,00,000 = 1,60,000
Right working
1,60,000 + 70,000 + 40,000 = 2,70,000
Do this: Rebuild the PPE account.
Usually costs: 2 marks.
Mistake: Netting bank overdraft with the bank balance
Treating overdraft as negative cash.
Wrong working
CCE = 1,20,000 − 80,000
Right working
CCE = 1,20,000; overdraft change shown in financing
Do this: The syllabus lists overdraft under financing.
Usually costs: 2 marks.
Mistake: Showing redemption at a premium or including the premium in cash flow
Applying general rules the syllabus does not test.
Wrong working
Redemption 55,000
Right working
Redemption at par 50,000
Do this: Redemption of shares and debentures is at par in this syllabus.
Usually costs: 1 mark.

Exam tips

Write the working notes beneath the statement and refer to them by number.
Check that the final closing figure agrees with the Balance Sheet; if not, recheck PPE purchases first.
Use brackets for all outflows.
Add the sales proceeds of investments, not their book value.

Practice questions on Investing and Financing Activities and the Full Cash Flow Statement

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
The sale proceeds of machinery with a book value of ₹40,000 sold at a loss of ₹6,000 are:
(a) ₹46,000
(b) ₹34,000
(c) ₹40,000
(d) ₹6,000
Hint
Book value minus loss.
Answer
(b) ₹34,000
Q2 · 3 marks · Short answerBoard level
Net PPE was ₹3,20,000 at the start and ₹4,10,000 at the end. Depreciation was ₹50,000 and an asset with a book value of ₹30,000 was sold. Calculate the cash paid on purchase of PPE. (3 marks)
Hint
Closing − Opening + depreciation + book value sold.
Answer
4,10,000 − 3,20,000 + 50,000 + 30,000 = ₹1,70,000 outflow in investing.
Q3 · 3 marks · Short answerHarder board level
A company issued 10% debentures of ₹2,00,000 at a premium of 5%, redeemed preference shares of ₹1,00,000 at par, paid interest of ₹16,000 and dividend of ₹20,000. Prepare the financing section and find the net cash from financing activities. (3 marks)
Hint
Debentures at a premium bring in more cash.
Answer
Debentures issued 2,10,000; redemption (1,00,000); interest (16,000); dividend (20,000). Net cash from financing = ₹74,000.
Q4 · 6 marks · Long answerHarder board level
Prepare the Cash Flow Statement of Mosaic Ltd. for 2025-26 from these Balance Sheets as at 31st March 2025 and 2026. Equity share capital ₹5,00,000, ₹6,00,000; Securities Premium ₹20,000, ₹30,000; Surplus ₹90,000, ₹1,35,000; 12% Debentures ₹1,50,000, ₹1,00,000; Trade payables ₹70,000, ₹85,000; Provision for tax ₹30,000, ₹36,000; Bank overdraft ₹40,000, ₹25,000. PPE ₹4,50,000, ₹5,40,000; Non-current investments ₹1,00,000, ₹1,50,000; Inventories ₹1,30,000, ₹1,45,000; Trade receivables ₹1,20,000, ₹1,50,000; Cash and cash equivalents ₹1,00,000, ₹26,000. Additional information: depreciation ₹60,000 (no PPE sold); interest ₹18,000 paid on debentures; interest of ₹6,000 received on investments; previous year's proposed dividend ₹20,000 paid; tax paid ₹28,000; debentures redeemed at par. (6 marks)
Hint
Start with the NPBT working note.
Answer
Provision made = 34,000. NPBT = 45,000 + 20,000 + 34,000 = ₹99,000. Operating profit before working capital changes = 99,000 + 60,000 + 18,000 − 6,000 = ₹1,71,000; working capital changes = −15,000 − 30,000 + 15,000 = −₹30,000; less tax paid 28,000: net operating = ₹1,13,000. Investing: PPE purchase (1,50,000), investments purchased (50,000), interest received 6,000 = −₹1,94,000. Financing: shares 1,10,000; debentures redeemed (50,000); overdraft repaid (15,000); interest (18,000); dividend (20,000) = ₹7,000. Net change = −₹74,000; closing = 1,00,000 − 74,000 = ₹26,000 (agrees).
Q5 · 3 marks · Short answerHOTS / competency
Opening: bank balance ₹90,000, bank overdraft ₹50,000. Closing: bank balance ₹1,20,000, bank overdraft ₹80,000. A student nets them and reports no change in cash. Per the ISC classification, find the change in cash and cash equivalents, the financing effect of the overdraft, and say what the other activities add up to. (3 marks)
Hint
Overdraft is a short-term borrowing.
Answer
Cash and cash equivalents rise from ₹90,000 to ₹1,20,000 (increase ₹30,000). The overdraft rise of ₹30,000 is a financing inflow, so all other cash flows together net to zero.

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.Purchase of PPE formula?Show answer
Closing net PPE − Opening + Depreciation + Book value of assets sold.
2.Issue of shares at a premium: how much cash?Show answer
Par value plus premium.
3.Is bank overdraft in cash equivalents?Show answer
No; it is a short-term borrowing under financing.
4.Redemption of debentures: at what value?Show answer
At par.
5.Interest received on investments: which activity?Show answer
Investing.

Investing and Financing Activities and the Full Cash Flow Statement: frequently asked questions

How do I know the PPE sold had a loss?

The question gives the book value and the loss or profit; proceeds = book value − loss or + profit.

Is dividend paid always the previous year's proposed dividend?

Unless the question states otherwise, plus any interim dividend paid in the year.

Where do share issue expenses go?

Financing outflow, even when written off against securities premium.

What if the closing cash does not agree?

Recheck the PPE purchases, the NPBT working note and the signs in the working capital changes.