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Statement of Cash Flows Example 1
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I Dont fully understand and get at 5:30 why 20 000 is being used for disposals thank you
Forget it I understand it now
Another question when tax amount is charged to income stt. doesn’t this mean it’s our expense? so it’s going to be on the debit side of tax payable acc?
The double entry is debit tax expense account and credit tax payable account (liability).
The expense appears in the income statement, the liability appears in the statement of financial position.
if expense is showing in income stt. it doesn’t necessarily mean that expense has been incurred and we have paid the amount for it.. is it so??
The expense has been incurred, but it does not necessarily mean that the same amount has been paid – we might have paid less (and so there is an amount still owing in the balance sheet) or we might have paid more (in which case there is a prepayment in the balance sheet).
Right. but here in the question it’s not mentioned if it’s our liability…??
The amount of 39,000 in the income statement is the expense for the year.
From the Statements of Financial Position we know the amounts owing at the end of each year.
We can therefore calculate how much was actually paid during the year.
thanks for the explanation.. you guys are doing a great job!!
why are recording profit ($10000) on disposal of nca in operating activities when we are recording the whole amount under investing activities ($30000)??
We are not recording the profit on disposal in operating activities. We are removing it from the profit in order to get the ‘cash’ profit.
Under investing activities we are showing the actual cash received.
can you elaborate please
When a non-current asset is sold there will be a profit or loss on sale. In this example there was a profit. The profit will appear in the income statement and is therefore included in the operating profit. However the profit is not the same as the cash received and we are trying to prepare a cash statement.
So we take the profit out of the operating profit (because it is not a cash amount) and show the actual cash received separately under cash flows from investing activities.
thanks alot for your help
When calculating operating activities:
Operating profit 101
Depreciation 40
Profit on sale (10)
____
131
Increase in receivables (9)
Increae in inventories (9)
Increase in payables 28
____
Cash form operations 142 <– Should be 141? (131-9-9+28)
my mistake, inventories were 8.
@lbambalas, i think you mean receivables were 8. Inventories are in fact 9. (90 – 81 = 9)
very well explained!
why is the profit on sale of non current asset being deducted from the Operating profit Under the heading: cashflows from operating activities
@markadi, because it was added to gross profit as other income and since it is due to over provision of depreciation and not actual cash it need be deducted.
this is very very very good
Once again, a very clear video and explanation. There is only one thing I need calrifying to make sure I have this sorted – in the notes, the proforma starts with profit before tax, then makes adjustments for Depreciation, Proceeds on Sale of NCA, and then ADDS IN THE INTEREST EXPENSE.
Is this because in the video you started with operating profit (PBIT), and so if starting with profit before tax, you have to add in the interest expense to get back to the PBIT figure?
I imagine so, but need it confirming.
With kindest regards!
@drrob1983, You are correct. If we start with the profit before tax, then we need to add back the interest expense (which gives the profit before interest and tax). Then lower down we deduct the actual amount of interest paid
lecture was very useful….
thnx
this is great. learning could never be so simplified!
Opentuition, this is really beautiful. I enjoyed it so much. Thanks so so much.
Thanks a million………..
tnx from Bangladesh
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<3
I can’t watch part a. All other lectures are visible.
thx