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7.3 Cash Flows from Investing & Financing Activities

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ACCA Applied Knowledge — Financial Accounting FA

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1 Chapter 1: Context & Qualitative Characteristics of Financial Reporting

1.1 Scope, Purpose & Governance of Financial Reporting 1.2 Users, Stakeholders & Types of Business Entity 1.3 The IASB Conceptual Framework & Qualitative Characteristics 1.4 Accounting Concepts, Assumptions & Principles

2 Chapter 2: Double-Entry Bookkeeping & Accounting Systems

2.1 The Accounting Equation & Double-Entry Mechanics 2.2 Books of Prime Entry & Source Documents 2.3 Ledger Accounts & Sales / Purchase Tax (VAT) 2.4 Computerized Accounting Systems & Internal Controls

3 Chapter 3: Recording Tangible & Intangible Non-Current Assets

3.1 Capital vs Revenue Expenditure & IAS 16 Acquisition 3.2 Depreciation Methods, Accounting & Changes in Estimate 3.3 Revaluation of Non-Current Assets & Disposals 3.4 Intangible Non-Current Assets & Research & Development (IAS 38)

4 Chapter 4: Accounting for Specific Transactions

4.1 Inventory Valuation, Cost Formulas & Net Realisable Value (IAS 2) 4.2 Irrecoverable Debts & Allowance for Receivables 4.3 Accruals, Prepayments & Payables 4.4 Provisions, Contingent Liabilities & Contingent Assets (IAS 37)

5 Chapter 5: Capital Structure, Trial Balance, Control Accounts & Bank Reconciliations

5.1 Capital Structure, Share Capital, Reserves & Dividends 5.2 Extracting the Trial Balance & Errors Not Affecting Trial Balance 5.3 Control Accounts, Discrepancies & Control Account Reconciliations 5.4 Bank Reconciliations & Correction of Errors via Suspense Account

6 Chapter 6: Preparing Basic Financial Statements

6.1 Statement of Financial Position (IFRS 18) Structure & Preparation 6.2 Statement of Profit or Loss and Other Comprehensive Income (IFRS 18) 6.3 Events After the Reporting Period (IAS 10) 6.4 Incomplete Records Techniques & Single Entry Conversion

7 Chapter 7: Statement of Cash Flows

7.1 Objective, Benefits & Structure of IAS 7 Cash Flows 7.2 Operating Activities: Direct vs Indirect Method Calculations 7.3 Cash Flows from Investing & Financing Activities

8 Chapter 8: Group Accounts

8.1 Group Accounting Concepts: Subsidiaries, Associates & IFRS 10 / IAS 28 8.2 Consolidated Statement of Financial Position: Goodwill & NCI Calculations 8.3 Consolidated Statement of Financial Position: Intra-Group Balances & Unrealised Profits 8.4 Consolidated Statement of Profit or Loss & Associates Equity Accounting

9 Chapter 9: Interpretation of Financial Statements

9.1 Profitability, Return & Margin Ratios 9.2 Liquidity, Working Capital & Working Capital Cycle Ratios 9.3 Solvency, Gearing & Debt Risk Ratios 9.4 Investor Ratios & Limitations of Financial Ratio Analysis

7.3 Cash Flows from Investing & Financing Activities

Key Takeaways Explain This Topic AI

Investing activities include cash flows relating to the acquisition and disposal of long-term assets and other investments.

Cash paid for Property, Plant, and Equipment (PPE) additions is found by reconciling the PPE ledger T-account, factoring in depreciation and revaluations.

Financing activities encompass cash flows relating to changes in the size and composition of equity capital and borrowings.

Cash proceeds from share issues incorporate both the change in nominal share capital and the share premium account.

Dividends paid are calculated using the retained earnings T-account (Opening + Profit for the year - Closing = Dividends Paid) and appear under financing activities.

Last updated: July 2026

Investing and Financing Activities

While operating activities focus on the day-to-day trading cycle, investing and financing activities reflect the long-term capital decisions of the entity. Accurate preparation of these sections frequently requires reconstructing ledger accounts to find missing cash figures.

Investing Activities

Investing activities represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Common line items include:

Cash paid to purchase property, plant, and equipment (PPE) or intangible assets.

Cash proceeds from the sale of PPE.

Interest received and dividends received (though IAS 7 permits these to be classified as operating cash flows in some circumstances, they are typically tested as investing cash flows in ACCA FA).

Reconstructing the PPE Account

To find the cash paid for additions (purchases) of PPE, you must often perform a reconciliation using the net carrying amount of PPE.

  • The standard formula/T-account structure for PPE (Carrying Value) is: Opening Carrying Value
  • Additions (Cash paid - unknown figure to find)
  • Revaluation surplus for the year
  • Depreciation charge for the year
  • Carrying value of disposals
  • = Closing Carrying Value

Example 3: Calculating Cash Paid for PPE An entity has PPE with an opening carrying amount of $500,000 and a closing carrying amount of $620,000. During the year, depreciation was $60,000. Land was revalued upwards by $50,000. Equipment with a carrying value of $30,000 was sold for $40,000. What was the cash paid for new PPE?

  • Reconciliation: Opening balance: $500,000
  • Revaluation: $50,000
  • Depreciation: ($60,000)
  • Disposal carrying value: ($30,000)
  • Subtotal before additions: $460,000

Since the closing balance is $620,000, Additions must be: $620,000 - $460,000 = $160,000. This $160,000 is reported as a cash outflow under investing activities.

Note on Disposal Proceeds: The equipment was sold for $40,000. This full $40,000 represents cash received and is reported as a cash inflow under investing activities. The gain on disposal ($40,000 proceeds - $30,000 carrying value = $10,000) would have been deducted in the operating activities section.

Financing Activities

Financing activities result in changes in the size and composition of the contributed equity and borrowings of the entity.

Key line items include:

Proceeds from issue of share capital.

Proceeds from long-term borrowings.

Repayment of borrowings or lease liabilities.

Dividends paid to shareholders.

Reconstructing Equity Accounts

1. Share Capital and Premium When shares are issued at a premium, the cash received is the sum of the nominal value and the premium. To find the cash proceeds, you must aggregate the changes in both the Share Capital and Share Premium accounts.

Example: Opening Share Capital is $100,000 and Closing is $150,000. Opening Share Premium is $20,000 and Closing is $40,000.

Increase in Share Capital = $50,000.

Increase in Share Premium = $20,000.

Total cash proceeds from share issue = $70,000 (Financing cash inflow).

2. Dividends Paid Dividends are paid out of retained earnings. Often, the exam will not state the dividend paid directly; you must deduce it by reconstructing the Retained Earnings account.

  • The standard formula/T-account structure for Retained Earnings is: Opening Retained Earnings
  • Profit for the year (Profit after tax)
  • Dividends paid (Cash outflow - unknown figure to find)
  • = Closing Retained Earnings
  • Example 4: Calculating Dividends Paid Opening Retained Earnings: $120,000
  • Closing Retained Earnings: $145,000
  • Profit for the year (after tax): $65,000
  • Reconciliation: $120,000 + $65,000 - Dividends Paid = $145,000
  • $185,000 - Dividends Paid = $145,000

Dividends Paid = $40,000.

This $40,000 is reported as a cash outflow under financing activities.

Reconstructing Borrowings

Increases in bank loans represent cash inflows, while decreases represent cash outflows (repayments). It is important to group current and non-current portions of loans if a single loan is split across current and non-current liabilities in the statement of financial position.

Final Reconciliation

Once operating, investing, and financing net cash flows are calculated, they are summed up:

  • Net cash from operating activities
  • Net cash from investing activities
  • Net cash from financing activities
  • = Net increase / (decrease) in cash and cash equivalents

To prove the accuracy of the statement, this net movement is added to the opening balance of cash and cash equivalents. The result MUST perfectly equal the closing balance of cash and cash equivalents from the statement of financial position. If it does not, an error has been made in the calculations.