Summary Cash Flow - Investing Activities

STATEMENT OF CASH FLOWS (IAS 7) – INVESTING ACTIVITIES
- Under investing activities we include:

• Purchase of assets (Example: Land, buildings, equipment, vehicles etc.)
• Proceeds from the sale of assets (Example: Land, buildings, equipment, vehicles etc.)
• (Increase) / Decrease in investments (Example: 10% Fixed deposit at ABBA Bank)
VERY IMPORTANT NB!!! The above words in brackets “()” indicate it is an OUTFLOW of funds.
The words WITHOUT the brackets indicate that it is an INFLOW of funds.
1. (Purchase) / Sale of land:

- When you PURCHASE land, then you need to PAY money from out of your bank account for
the land. This is an OUTFLOW of funds, as money goes out of your bank account.
- We you SELL land, then you RECEIVE money from the person who is buying the land from
you. The money for the sale of the land increases your bank balance. Therefore, it is an
INFLOW of funds to your bank account.
- Example 1 – PURCHASE of land:
An entity has a 31 December year-end. An extract of the Statement of Financial Position

(SOFP) shows the following balances for 2018 and 2019:
(VERY IMPORTANT NB!!! The previous financial year (2018) is our opening balance and the
2019 is our closing balance).
2019 2018
R R
Non-current assets XXX XXX

Land and buildings 800 000 500 000
Equipment at carrying amount XXX XXX
10% Fixed deposit: ABC Bank XXX XXX
Equity and reserves XXX XXX

Ordinary no par value shares XXX XXX
Revalaution surplus 1 100 000 -
Retained eranings XXX XXX
An extract of the Statement of profit or loss and other comprehensive income (SOPLOCI)
shows the following balances for 2019:
Note 2019
R
Profit before interest and tax XXX

Finance costs (XXX)
Profit before tax XXX
Income tax expense (XXX)
Profit for the year XXX
Other comprehensive income:
Revaluation of land and buildings 1 100 000
Total comprehensive income for the year XXX
An extract of the additional information of the Statement of cash flow question states the
following:
1. Land and buildings was revaluated for the first time by a sworn appraiser during the current
financial year.
Required:
What is the amount paid for the purchase of the new land for the year ended 31 December
2019?
Answer:
The amount paid for the purchase of the new land is R200 000. (It is an Outflow of funds
as you bought it and had to pay for it from out of your bank account).
Calculation:
Land and buildings

Land and buildings
Balance b/f 500 000 Balance c/f 800 000
Revaluation 100 000
Bank (purchased) 200 000
800 000 800 000
VERY IMPOARTANT NB!!! – If “Bank” is on the Debit side as per above T-account, then it
is a purchase (If “Bank” was on the Credit side of the T-account, then it would have been a
sale (proceeds) of land).
The purchase of the land will be shown as follows in the Statement of cash flow (Direct and
indirect method):
Cash flow from investing activities XXX
(Increase) / Decrease in investments (XXX) / XXX
Purchase of land (200 000)
Proceeds (sale) of assets XXX
Purchase of assets (XXX)
- Example 2 – SALE of land:

2019 2018
R R

Land and buildings 700 000 600 000
Equipment at carrying amount XXX XXX
Equity and reserves XXX XXX

Ordinary no par value shares XXX XXX
Revalaution surplus 1 150 000 -
Retained eranings XXX XXX
Note 2019
R

Finance costs (XXX)
Revaluation of land and buildings 1 150 000
following:
1. Land and buildings was revaluated for the first time by a sworn appraiser during the current
financial year.
Required:
What is the amount received for the sale of land for the year ended 31 December 2019?
Answer:
The amount received for the sale of land is R50 000. (It is an Inflow of funds as you sold
land and the money was paid into your bank account).
Calculation:
Land and buildings

Land and buildings
Balance b/f 600 000 Balance c/f 700 000
Revaluation 150 000 Bank (sale) 50 000
750 000 750 000
VERY IMPOARTANT NB!!! – If “Bank” is on the Credit side as per above T-account, then it
is a sale (proceeds) (If “Bank” was on the Debit side of the T-account, then it would have
been a purchase of land).
The Sale of the land will be shown as follows in the Statement of cash flow (Direct and indirect
method):

Proceeds on the sale of land 50 000
Proceeds on the sale of assets XXX
2. (Increase) / Deacrease in investments (for example: Fixed deposits):

- An INCREASE in fixed deposits indicates that you have transferred money FROM OUT of
your bank account to the investment. That’s why the investment increased. The money went
out of your bank account; therefore, it is an OUTFLOW of funds.
A DECREASE in fixed deposits indicates that you have transferred money TO YOUR bank
account from out of the investment. That’s why the investment decreased. The money went
into of your bank account; therefore, it is an INFLOW of funds.
- Example 1 - DECREASE in investments (for exampele: fixed deposits):

2019 2018
R R

Land and buildings XXX XXX
Proerty, plant and equipment XXX XXX
10% Fixed deposit: ABC Bank 95 000 130 000
Required:
What is the movement in investments (10 % Fixed deposit: ABC Bank) for the year ended
31 December 2019?
Answer:
Decrease in investments of R35 000 (R95 000 – R130 000) from 2018 to 2019. (Inflow of
funds).
It’s an inflow of funds because we TRANSFERRED money from out of the investment to
our bank account. That’s why the investment decreased from 2018 to 2019. The money was
transferred into our bank account; therefore it is an INFLOW of funds.
The decrease in investments will be shown as follows in the Statement of cash flow (Direct
and indirect method):

Decrease in investments 35 000
Proceeds on the sale of land XXX
- Example 2 - INCREASE in investments (for example: fixed deposits):

2019 2018
R R

Proerty, plant and equipment XXX XXX
10% Fixed deposit: ABC Bank 140 000 120 000
Required:
What is the movement in investments (10 % Fixed deposit: ABC Bank) for the year ended
31 December 2019?
Answer:
Increase in investments of R20 000 (R140 000 – R120 000) from 2018 to 2019. (Outflow of
funds).
It’s an outflow of funds because we TRANSFERRED money TO the investment from OUT
OF our bank account. That’s why the investment increased from 2018 to 2019. The money
was transferred from out of our bank account; therefore, it is an OUTFLOW of funds.
The increase in investments will be shown as follows in the Statement of cash flow (Direct
and indirect method):

Increase in investments (20 000)
Proceeds on the sale of land XXX
3. (Purchase) / Sale of assets (Vehicles, equipment, machinery etc.):

- When you PURCHASE assets, then you need to PAY money from out of your bank account for
the land. This is an OUTFLOW of funds, as money goes out of your bank account.
- We you SELL assets, then you RECEIVE money from the person who is buying the land from
you. The money for the sale of the land increases your bank balance. Therefore, it is an
INFLOW of funds to your bank account.
Example:

2019 2018
R R

Equipment at carrying amount 280 500 240 000
2019
R
Revenue XXX
Cost of sales (XXX)
Gross profit XXX
Other income XXX
Administartion expenses (XXX)
Distribution expenses (Depreciation of R34 600 on equipment included) (XXX)
Other expenses (XXX)
Finance costs (XXX)
Revaluation of land and buildings XXX
following:
1. The carrying amount of the equipment is made up as follows:
2019 2018
R R
Equipment 432 900 423 000
Accrued expenses (152 400) (183 000)
280 500 240 000
Equipment with a cost price of R80 000 and accumulated depreciation of R65 200 was sold
during the current financial year for a profit of R5 200. New equipment was also bought during
the year.
Required:
1. What is the amount paid for the purchase of the new equipment for the year ended
31 December 2019?
2. What is the proceeds received from the sale of the equipment for the year ended
31 December 2019?
Answer:
1. The amount paid for the purchase of the new equipment is R89 900 (Outflow of funds,
because we paid for the equipment. The money went out of our bank account).
Calculation:
Equipment
Equipment @ book value
Balance b/f 240 000 Depreciation 34 600
Bank (purchased) 89 900 Equipment sold 14 800 (80 000 - 65 200)
Balance c/f 280 500
329 900 329 900
2. The proceeds on the sale of the equipment is R20 000 (Inflow of funds, because we sold
equipment and received the money. The money went into of our bank account).
Calculation:
Carrying amount of equipment sold: R80 000 cost minus R65 200 accumulated depreciation
R14 800.
It was sold for a PROFIT of R5 200. Thus, we must ADD R5 200 to the carrying amount to get
the amount received (selling price) of the equipment.
Thus, the proceeds (selling price) of the equipment is R20 000 (R14 800 carrying amount +
R5 200 profit on sale of equipment).
(Lecturer note: If we sold the equipment for a LOSS, then we would have DEDUCTED the loss
amount from the carrying amount. So, easily said: Profit we ADD and loss we DEDUCT from
carrying amount).
The purchase of the equipment AND the proceeds on the equipment sold will be shown as
follows in the Statement of cash flow (Direct and indirect method):

Proceeds on sale of land XXX
Proceeds on sale of equipment 20 000
Purchase of equipment (89 900)

Summary Cash Flow - Investing Activities

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Summary Cash Flow - Investing Activities

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STATEMENT OF CASH FLOWS (IAS 7) – INVESTING ACTIVITIES

- Under investing activities we include:

1. (Purchase) / Sale of land:

- Example 1 – PURCHASE of land:

An entity has a 31 December year-end. An extract of the Statement of Financial Position

Non-current assets XXX XXX

Equity and reserves XXX XXX

Profit before interest and tax XXX

Land and buildings

- Example 2 – SALE of land:

An entity has a 31 December year-end. An extract of the Statement of Financial Position

Non-current assets XXX XXX

Equity and reserves XXX XXX

Profit before interest and tax XXX

Land and buildings

750 000 750 000

Cash flow from investing activities XXX

2. (Increase) / Deacrease in investments (for example: Fixed deposits):

An entity has a 31 December year-end. An extract of the Statement of Financial Position

Non-current assets XXX XXX

Cash flow from investing activities XXX

An entity has a 31 December year-end. An extract of the Statement of Financial Position

Non-current assets XXX XXX

Cash flow from investing activities XXX

3. (Purchase) / Sale of assets (Vehicles, equipment, machinery etc.):

An entity has a 31 December year-end. An extract of the Statement of Financial Position

Non-current assets XXX XXX

1. The carrying amount of the equipment is made up as follows:

Cash flow from investing activities XXX

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