Cash flow statement

If a revaluation has occurred, it doesn’t involve a *CASH* inflow or outflow and so doesn’t go in the cash flow statement itself.

But, in cash flow questions, cash flows from additions of PPE is usually a balancing figure. For example, if a question tells you that you have an opening balance on PPE of $10,000 and that an item of PPE has been revalued upwards by $2,000 in the year, and the closing balance is $15,000, then opening balance of $10,000 + $2,000 revaluation = $12,000. Therefore, if the closing balance is $15,000, then the difference $15,000 – $12,000 represents *cash* paid for additions to PPE of $3,000.

So it’s the $3,000 that would go in the cash flow statement, and as maypen says, would go under the heading of investing activities.

you’re welcome!

if the land was held under ias 40 investment property the revaluation would have to be removed from the profit before tax figure under operating activities. if it is held under ias 16 then it is only used to calculate cash pd for purchases because it would be in the oci section of the cahflow. this is just a brief understanding…

@derick90 said:
Hey guys, just asking; why don’t we adjust out Revaluation Gains under the operating Activities as we do for depreciation in the preparation of the Statement of Cash flows?
Thank you.

I think I know the answer. With the indirect method of calculating the cashflow, we start by taking the PBIT figured. We adjust it for non cash items that contribute to that figure (i.e. figures that appear above the PBIT). Depreciation is one such figure. However, if memory serves me, the double entry for revaluation gain is dr property, cr OCI. Therefore, this figure doesn’t need to be taken into account, because it falls below the PBIT figure, so no adjustment is necessary.

Edit: Having said that, if the revaluation gain cancels a previous loss, it would go through the income statement, so I guess that would need to be cancelled out.

@secondstar said:

@derick90
Cash Flow Statement contains only those transactions and events which eventually resulted in movement of cash.
Gain on Revaluation is NOT a cash item at all. In fact it is not a realised gain yet, that’s why its called Unrealised Gain. It will only be realised when the revalued asset is sold. Till then, there’s no movement of cash.

Hope it helps.

But derick90 rightly pointed out that depreciation is not a cash flow either, yet it appears on the indirect cash flow calculation to reach net operating flows. I think I explained why before.

Thank you @neilsolaris

@derick90 said:
Thank you @secondstar .From your explanation i realize a Revaluation Gain on an Asset is not a Statement of Profit or Loss item and that explains why it is not adjusted out from the Operating Activities. But supposing it was impairment suffered by the Asset, would it be adjusted out under the operating Activities?

I think an impairment would need to be adjusted out, unless the impairment was just canceling a previous revaluation gain. Similarly, I think a revaluation gain should be adjusted out of it cancels a previous impairment (i.e. it appears on the income statement). I’m not 100% sure though, so it would be good if someone can clarify it.