Which of the following will be shown under the investing activities

A company lists any investments made with cash on its cash flow statement. This section represents the amount of cash used or generated from investment-related activities in a specific period.

Items reported on a cash flow statement for investing activities include purchases of long-term assets such as property, plant and equipment (PP&E), investments in marketable securities such as stocks and bonds, as well as acquisitions of other businesses.

Other items to include are a sale of a division, proceeds from the sale of PP&E, and proceeds from the sale of marketable securities and other businesses.

Some companies will have items not mentioned above, so it’s important to look at the balance sheet of a company to determine the line items.

Which of the following will be shown under the investing activities

The Coca-Cola Company – Cash Flow from Investing Activities Extract

Key Learning Products

  • Cash flow from investing activities represent the amount of cash used or generated from investment-related activities (purchase of PP&E etc.)
  • A positive cash flow indicates the company is divesting, a negative number indicates the company is investing heavily in its asset base to help generate growth in revenue
  • The net cash flow includes the sum of all investing related activities for the accounting period

Formula

Cash Flow from Investing Activities = (Purchase)/Sale of Long-Term Assets (Capex) + (Purchase)/Sale of Other Businesses (M&A) + (Purchase)/Sale of Marketable Securities

Example

Company XYZ had the following transactions for year-ending 20X7:

Which of the following will be shown under the investing activities

The above example would reflect in the investing activities of a cash flow statement as:

Which of the following will be shown under the investing activities

Points to Note

  • Purchases of the crane, a division of another company and marketable securities are an outflow of cash and must be recorded using a negative sign
  • Sales of the manufacturing machine and marketable securities is an inflow of cash

What Not to Include in Investing Activities

  • Debt, equity or other forms of financing
  • Interest payments or dividends
  • Income or expenses related to regular business operations
  • Depreciation and amortization expenses on non-current assets

Why is Cash Flow from Investing Activities Important?

Although a company may report a negative cash flow in investing activities, it doesn’t necessarily mean that it’s going to have a negative impact on the business.

In the short-term, the company has faced a negative impact on cash flow due to the purchase of property, plant and equipment, but in the long-term the assets could help generate growth in a company’s revenue.

In summary, investing activities provide an insight into how effectively the company is keeping its asset base up to date, and investing for future growth.

The objective of IAS 7 is to require the presentation of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows during the period according to operating, investing, and financing activities.

Fundamental principle in IAS 7

All entities that prepare financial statements in conformity with IFRSs are required to present a statement of cash flows. [IAS 7.1]

The statement of cash flows analyses changes in cash and cash equivalents during a period. Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value. Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Equity investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemption date). Bank overdrafts which are repayable on demand and which form an integral part of an entity's cash management are also included as a component of cash and cash equivalents. [IAS 7.7-8]



Chapter 7:   Funds Analysis, Cash Flow Analysis, and Financial Planning

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1. According to the accounting profession, which of the following would be considered a cash-flow item from an "investing" activity?cash inflow from interest income.
cash inflow from dividend income.
cash outflow to acquire fixed assets.
all of the above.
2. According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "financing" activity?cash outflow to the government for taxes.
cash outflow to shareholders as dividends.
cash outflow to lenders as interest.
cash outflow to purchase bonds issued by another company.
3. If the following are balance sheet changes:
         $5,005 decrease in accounts receivable
         $7,000 decrease in cash
        $12,012 decrease in notes payable
        $10,001 increase in accounts payable
a "use" of funds would be the:$7,000 decrease in cash.
$5,005 decrease in accounts receivable.
$10,001 increase in accounts payable.
$12,012 decrease in notes payable.
4. On an accounting statement of cash flows an "increase(decrease) in cash and cash equivalents" appears asa cash flow from operating activities.
a cash flow from investing activities.
a cash flow from financing activities.
none of the above.
5. Uses of funds include a (an):decrease in cash.
increase in any liability.
increase in fixed assets.
tax refund.
6. Which of the following would be included in a cash budget?depreciation charges.
dividends.
goodwill.
patent amortization.
7. An examination of the sources and uses of funds statement is part of:a forecasting technique.
a funds flow analysis.
a ratio analysis.
calculations for preparing the balance sheet.
8. Which of the following is NOT a cash outflow for the firm?depreciation.
dividends.
interest payments.
taxes.
9. Which of the following would be considered a use of funds?a decrease in accounts receivable.
a decrease in cash.
an increase in account payable.
an increase in cash.
10. The cash flow statement in the United States is most likely to appear usinga "supplementary method."
a "direct method."
an "indirect method."
a "flow of funds method."
11. For a profitable firm, total sources of funds will always          total uses of funds.be equal to
be greater than
be less than
have no consistent relationship to

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Which of the following is included in the investing activities?

Investing activities include purchases of physical assets, investments in securities, or the sale of securities or assets. Negative cash flow from investing activities might not be a bad sign if management is investing in the long-term health of the company.

Which of the following appears in the investing activities section of the statement of cash flows?

Which of the following appears in the investing activities section of the statement of cash flows? Explanation: Purchasing land (a long-lived asset) for cash is an investing activity.

Which of the following is an example of an investing activity Mcq?

Explanation: The sale of fixed assets, interest received, and the dividend received all come under the investing activities of the cash flow.