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Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---
- a)Less 20000 operating activities and add 20,000 in investing activities
- b)Less 22000 operating activities and add 20,000 in investing activities
- c)Less 2000 operating activities and add 22,000 in investing activities
- d)Add 2000 operating activities and Less 22,000 in investing activities
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment w...
Sale of patent is not an operating activity. Profit on sale of patents will be deducted in operating activities and sale price Rs.22,000 will be added in investing activities.
This question is part of UPSC exam. View all Commerce courses
Most Upvoted Answer
Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment w...
C is correct answer 2000 (22000-20000) profit from sale of patent will be deducted from operating activities and 22000 will be added in investing activities because cash from sale of patent is inflow of cash in organization
Community Answer
Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment w...
Explanation:
To understand the treatment of the sale of patents by Vinod Limited, we need to consider the classification of cash flows into operating activities and investing activities as per the indirect method of cash flow statement preparation.
Operating Activities:
Operating activities involve cash flows directly related to the core business operations of the company. These include cash receipts from customers, cash payments to suppliers, employees, and other operating expenses.
Investing Activities:
Investing activities involve cash flows related to the acquisition or disposal of long-term assets or investments. These include the purchase or sale of property, plant, and equipment (PPE), investments in securities, and the sale of patents.
In this case, Vinod Limited sold patents costing Rs.20,000 for Rs.22,000. This means that the company received Rs.22,000 in cash from the sale of patents.
Now let's analyze the options given and determine the correct treatment:
- Option a) Less 20,000 operating activities and add 20,000 in investing activities:
This option suggests that the entire amount of Rs.20,000 should be deducted from operating activities and added to investing activities. However, this is incorrect as the company received Rs.22,000 in cash from the sale, not Rs.20,000.
- Option b) Less 22,000 operating activities and add 20,000 in investing activities:
This option suggests that the entire amount of Rs.22,000 should be deducted from operating activities. However, this is incorrect as the company received Rs.22,000 in cash from the sale, not Rs.20,000. Additionally, no cash flow should be added to investing activities in this case.
- Option c) Less 2,000 operating activities and add 22,000 in investing activities:
This option suggests that the net cash inflow of Rs.2,000 should be deducted from operating activities, representing the gain on the sale of patents. Additionally, the entire amount of Rs.22,000 received from the sale should be added to investing activities. This is the correct treatment as it reflects the actual cash inflow and the gain from the sale.
- Option d) Add 2,000 operating activities and less 22,000 in investing activities:
This option suggests that the net cash inflow of Rs.2,000 should be added to operating activities, which is incorrect. The correct treatment is to deduct the gain from operating activities. Additionally, the entire amount of Rs.22,000 received from the sale should be added to investing activities.
Therefore, the correct answer is option c) Less 2,000 operating activities and add 22,000 in investing activities.
To understand the treatment of the sale of patents by Vinod Limited, we need to consider the classification of cash flows into operating activities and investing activities as per the indirect method of cash flow statement preparation.
Operating Activities:
Operating activities involve cash flows directly related to the core business operations of the company. These include cash receipts from customers, cash payments to suppliers, employees, and other operating expenses.
Investing Activities:
Investing activities involve cash flows related to the acquisition or disposal of long-term assets or investments. These include the purchase or sale of property, plant, and equipment (PPE), investments in securities, and the sale of patents.
In this case, Vinod Limited sold patents costing Rs.20,000 for Rs.22,000. This means that the company received Rs.22,000 in cash from the sale of patents.
Now let's analyze the options given and determine the correct treatment:
- Option a) Less 20,000 operating activities and add 20,000 in investing activities:
This option suggests that the entire amount of Rs.20,000 should be deducted from operating activities and added to investing activities. However, this is incorrect as the company received Rs.22,000 in cash from the sale, not Rs.20,000.
- Option b) Less 22,000 operating activities and add 20,000 in investing activities:
This option suggests that the entire amount of Rs.22,000 should be deducted from operating activities. However, this is incorrect as the company received Rs.22,000 in cash from the sale, not Rs.20,000. Additionally, no cash flow should be added to investing activities in this case.
- Option c) Less 2,000 operating activities and add 22,000 in investing activities:
This option suggests that the net cash inflow of Rs.2,000 should be deducted from operating activities, representing the gain on the sale of patents. Additionally, the entire amount of Rs.22,000 received from the sale should be added to investing activities. This is the correct treatment as it reflects the actual cash inflow and the gain from the sale.
- Option d) Add 2,000 operating activities and less 22,000 in investing activities:
This option suggests that the net cash inflow of Rs.2,000 should be added to operating activities, which is incorrect. The correct treatment is to deduct the gain from operating activities. Additionally, the entire amount of Rs.22,000 received from the sale should be added to investing activities.
Therefore, the correct answer is option c) Less 2,000 operating activities and add 22,000 in investing activities.
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Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer?
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Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer?.
Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Vinod Limited sold patents costing Rs.20,000 in Rs.22,000. Treatment will be ---a)Less 20000 operating activities and add 20,000 in investing activitiesb)Less 22000 operating activities and add 20,000 in investing activitiesc)Less 2000 operating activities and add 22,000 in investing activitiesd)Add 2000 operating activities and Less 22,000 in investing activitiesCorrect answer is option 'C'. Can you explain this answer?.
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