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hi, Mike
If in the context of the preparation of a statement of cash flows the following information is relevant. PPE net book value at 31 March 2013 $910,000, PPE net book value at 1 April, 2012 $720,000, new assets acquired at a cost of $500,000 of which $100,000 was allowed against an asset disposed of that had a net book value of $80,000 at the date of disposal. During the year PPE was revalued by $150,000.
what would be cash flow from investing activities?
is it purchase, depreciation of PPE: 380,000
proceeds from sale of PPE: 100,000
total: 480,000 (add back)?No!
It’s:
Depreciation add back of 380 in operating activities
Deduct profit on disposal 20 in operating activities
Cash paid for purchases 400 in investing activities
OK?
then I took the whole point wrong :((
so, what would be the T account calculation for that (investment activity only)?dr:
b/f 720,000
purchase 500,000
revaluation 150,000
total: 1,370cr:
c/f 910,000
nbv of sales 80,000
dpn 380,000
total: 1,370it balances, so, where’s cash flow here?
so? how do we find cash if, say, depreciation of 380,000 was given? please, the whole calculation with T account, not by just deducting 100 from 500 – it’s calculation for this particular case, and I want to figure out the overall algorithm.
You’ve got it right there! You know how much the purchases were (given) and you’re told that 100 of that 500 purchases was proceeds of a trade in, so the rest MUST have been cash
OK?
not ok, no. why would we always have different calculations for different cases? why no pro-form? so, what would be accounting records for this case at all? may be that’d be helping?
Open up T accounts for PPE and for Disposals and put in the figures.
Beware with the 500 purchases debit entry in the PPE account …. split that 500 into 100 (narrative disposal account) and 400 (narrative “cash”)
Try that and let me know if it’s still no better
And, no, the is no way to have a standard! What would be the point? It isn’t always the same in practice and surely the idea of exam questions is to determine whether you understand the concepts
Sir its (400) or 400. I got (400)
purchase (500)
sales 100cash from inves (400)
ok, I see now, it’s
dr:
b/f 720,000
purchase (as in allowance) 100,000
purchase (as in cash) 400,000
revaluation 150,000
total: 1,370cr:
c/f 910,000
nbv of sales 80,000
dpn 380,000
total: 1,370>>the is no way to have a standard! What would be the point?
to always know how to calculate and not to have to guess each and every time – that would be the point.sorry, sir, I’m just a bit on edge before the exam…
or we probably better do it this way (in case depreciation’s given):
dr:
b/f 720,000
revaluation 150,000
therefore: cash (as in purchase) 500,000
total: 1,370cr:
c/f 910,000
nbv of disposal 80,000
dpn 380,000
total: 1,370purchase (500,000)
proceeds from disposal 100,000
net cash flow from investing activities (400,000)also, when we know the purchase price, we can calculate depreciation, and vice versa
seems I’m beginning to get it! 🙂
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