Question

‘Sale of Patents’ will result in:

• A. Cash outflows from investing activities
• B. Cash inflows from investing activities
• C. Cash inflows from financing activities
• D. Cash inflows from operating activities

Hint:

Always classify sale or purchase of patents, equipment, or land under Investing Activities
in the cash flow statement.

Answer 1

The Correct Option is B

Step 1: Patents are intangible fixed assets.
Their sale generates cash, which is classified under investing activities.
Step 2: Let’s evaluate each option:
(A) Cash outflows from investing activities
This would be the case if patents were purchased, not sold.
\(\Rightarrow\) Incorrect.
(B) Cash inflows from investing activities
Selling patents brings in cash from fixed asset disposal.
\(\Rightarrow\) Correct.
(C) Cash inflows from financing activities
Financing involves shares and borrowings, not assets.
\(\Rightarrow\) Incorrect.
(D) Cash inflows from operating activities
Operating activities relate to core operations, not sale of assets.
\(\Rightarrow\) Incorrect.
\(\Rightarrow\) Correct answer is (B) — Cash inflows from investing activities.