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Cash flow

Nilesh More (Executive) (72 Points)

17 April 2012

Hi ,

Could u help in cash flow statement?

Deposit amount paid to land owner. This is which activity , financing , operation of investment.

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7 Replies

prateek aanchalia (CA) (859 Points)
Replied 17 April 2012

it is related to Investing Activity.

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ashish gupta ( student) (1922 Points)
Replied 17 April 2012

i agree with prateek

Ankita Benegal (CA Final) (66 Points)
Replied 17 April 2012

Deposit amount paid to land owner-will be operating activity if it is a recurring expense and directly relatable to production.
if this is meant for investing and for earnign a dividend/income as an other source,it shd be an investing activity.

CA Darshak Shah (Practicing CA) (1889 Points)
Replied 17 April 2012

I agree with Miss Ankita Benegal..

SamTK (Chartered Accountant) (194 Points)
Replied 17 April 2012

It would depend on the activity the depositor undertakes. If the depositor is a real estate investor, the deposited funds would be regarded as an Operating Activity.

Whereas, if the depositor, like Ankita mentioned, doesn't incur such an expense on a recurring basis, it will be an Investing acitivty.

It could also be a financing activity, in the extreme case in which, the amount deposited to the land owner takes the form of a loan.

Hence, while making a cash flow statement, one has to bear in mind that each activity is subjective with respect to the context of the transaction. You need to analyze it based on what you've been provided with in the question.

Generally, though, it would be an Investing activity if nothing else has been mentioned in the question.

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sidharth shankar (Student) (154 Points)
Replied 17 April 2012

Actually it depends upon the purpose for which such payment has been made....

If nothing else has been mentioned regarding such payment it will be treated as Investing Activity, assuming that the payment is made for purchase of such land......

Kishore Dichwalkar (PRACTICING CHARTERED ACCOUNTANT) (45 Points)
Replied 17 April 2012

Treatment of Deposit paid to land owner in cash flow statement depends on the nature of transaction involved. If we assume that the deposit is paid for rental premises and the agreement period is more than a year or so then it will be shown as Investing Activity. If the period of agreement is less than a year then it can also be considered as current asset. Here I assume the deposit is paid to land owner for use of land. It is also possible that deposit is paid to land owner towards future purchase of the land from him and the person paying deposit is dealer in land, then it can be considered as financing activity if the intention of the party is to buy the land subsequently.