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Dear Tutor
I am not sure how to treat the inventory in the answer. the andwer has movement on inventory and loss on inventory, which net off the $6m.
is the movement of inventory not $165-$126? I thought the loss $6 has already included in the movement. if not, how do we know should + or -? in this question, the current YE inventory is lower than prior year, inventory is decreased, there is a loss in inventory, so should “-“. if there is an increase in inventory, and a loss too, for the loss, we still use “-“, but if there is a gain, it should be “+”, is it correct?
in the answer states,”likewise cash paid to acquire PPE is an inesting cash flow rather than an operating one”. if we see the question states there is a purchase of PPE, we should add on CFI, deducted on CFO.is it correct?
many thanks
You might be overthinking this one. The net change in the balance sheet has got to end up in the cash flow somehow. The movement on inventory is 39. Strictly speaking six of this relates to a revaluation because of the movement of the exchange rate. However almost all candidates ignored this and you end up with the same total. Either way it has to be 39! 33 relates to the change in inventory and six relates to the exchange loss which is added back.
Every cash flow question has always been different but if they had included an investing activity in operating activities you would need to move it.
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