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- This topic has 3 replies, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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- November 10, 2023 at 12:45 am #694613
Hello tutor,
I need your help to understand working capital adjustments.
Statement of cash flow is as follows :
Increase in Inventories: -842.40
Increase in trade receivables -379.2
Increase in trade payables 224.20When subsidiary is disposed and inventory’s YE figure decreases in the statement of financial position (we need to take off the inventory on disposed subsidiary from groups BS)why the adjustment of £200.5 is increasing the difference of inventories in statement of cashflow to £1042.9 ?
The same with receivables, subsidiary’s Trade debtors are removed from groups BS hence the difference op-cl balance is smaller, but cashflow adjustment increase cash to £560.5.I cannot logically explain how it works, can you please explain ?
November 10, 2023 at 7:45 am #694619On a sale of sub, the new owner will receive the sub’s inventory , receivables etc.
So, on a sale:
OPENING INVENTORY MINUS INVENTORY OF SUB SOLD +/- CASH PAID/RECEIVED = CLOSING INVENTORY
You may find it useful to watch our cash flow lecture again
🙂
November 10, 2023 at 11:05 pm #694657Thank you for the advice. I watched the lecture and all does make sense now.
Many thanks 🙂
November 11, 2023 at 7:00 am #694660🙂
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