Question : If the amount of goodwill at the beginning of the year is Rs.40,000 and Rs.48,000 at the end of the year then while preparing cash flow statement its effect on cash flow will be :
Option 1: Cash (Used) Payment in Investing Activity Rs.8,000
Option 2: Cash Received from Operaing activity Rs.8,000
Option 3: Cash (Used) Payment in Operating Activity Rs.8,000
Option 4: Cash (Used) Payment in Financing Activity Rs.8,000
Correct Answer: Cash (Used) Payment in Investing Activity Rs.8,000
Solution : Balance of goodwill at the beginning of the year is Rs.40,000 and at the end of the year Rs.48,000 Hence there is a purchase of Goodwill of Rs.8,000 and the purchase of goodwill is always Investing activity.
Hence the correct answer is option 1.
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