Cash flow statement

Option 1 is appropriate because that will result in net cash outflow of Rs. 90,000.

but net outflow in both the cases will be  Rs90000........

HI SHARAD,

OPTION 2 IS MOST APPROPRIATE. SINCE UNDER THIS OPTION, WE CAN SHOW THE ACTUAL CASH OUTFLOW FOR PURCHASE OF FIXE ASSET RS.90,000. REMAINING RS 10,000 IS JUST LIKE AS CREDIT PERIOD ALLOWED FOR PAYMENT OF FIXED ASSET AND SHOULD NOT BE INCLUDED  IN SUNDRY CREDITORS. SINCE UNDER INDIRECT METHOD, ADJUSTMEMT OF CREDITORS REQUIRED IN ORDER TO GET THE CASH FLOW FROM OPERATING ACTIVITIES. THUS, IF WE INCLUDE IN SUCH CREDITORS PORTION OF PAYABLE ATTIBUTABLE TO FIXED ASSET AND NOT TO WORKING CAPITAL, IT WILL NOT GIVE CORRECT CASH FLOW FROM OPERATING ACTIVITIES.

THUS, 2ND ALTERNATIVE IS MOST APPROPRIATE.

REGARDS,

MANOJ

Originally posted by : Manoj B. Gavali
	HI SHARAD,   OPTION 2 IS MOST APPROPRIATE. SINCE UNDER THIS OPTION, WE CAN SHOW THE ACTUAL CASH OUTFLOW FOR PURCHASE OF FIXE ASSET RS.90,000. REMAINING RS 10,000 IS JUST LIKE AS CREDIT PERIOD ALLOWED FOR PAYMENT OF FIXED ASSET AND SHOULD NOT BE INCLUDED  IN SUNDRY CREDITORS. SINCE UNDER INDIRECT METHOD, ADJUSTMEMT OF CREDITORS REQUIRED IN ORDER TO GET THE CASH FLOW FROM OPERATING ACTIVITIES. THUS, IF WE INCLUDE IN SUCH CREDITORS PORTION OF PAYABLE ATTIBUTABLE TO FIXED ASSET AND NOT TO WORKING CAPITAL, IT WILL NOT GIVE CORRECT CASH FLOW FROM OPERATING ACTIVITIES.   THUS, 2ND ALTERNATIVE IS MOST APPROPRIATE.   REGARDS,   MANOJ

Rightly said by Manoj

manoj is right