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MikeLittle.
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- February 20, 2017 at 3:17 am #373232
Hi sir, for september 2016 exam , question 11 of section A , why is the answer C . ‘Purchase of Property,plant and equipment’ is always under the heading Investing activities right ?
February 20, 2017 at 7:49 am #373271‘Purchase of Property,plant and equipment’ is always under the heading Investing activities right ?’
But why is that relevant to your question?
The options are:
A The company has good working capital management
B Net cash generated from financing activities has been used to fund the additions to non-current assets
C Net cash generated from operating activities has been used to fund the additions to non-current assets
D Existing non-current assets have been sold to cover the cost of the additions to non-current assets
Given that flows from financing activities are negative and flows from operating activities are positive, they cannot both be applicable to fund the additions to non-current assets
So your choice boils down to either B or C and since financing activities is an outflow (probably repaying debt) and operating activities is a positive inflow, the correct option can only be option C
OK?
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