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Hi, I am working my way through the statement of cash flows for my upcoming exam and came across the following question and do not understand the quoted answer.
Could you help me, please? Thanks a million!The following balances appear in the statement of financial position of Elba Ltd.
2012: Non-current assets at cost $1,250,000; Revaluation reserve $240,000
2013: Non-current assets at cost $1,096,000; Revaluation reserve $140,000
During the year non-current assets with a cost of $150,000 were disposed of. What figure would appear in the statement of cash flows for purchases of non-current assets?
Select one:
a. $104,000
b. $304,000
c. $150,000
d. $204,000Hi Jenny
Thanks for re-posting this … but did you check, like I asked you to to see that you had given me all relevant information?
As it is, the figures that you have given make not much sense at all and even if I impair the assets by the $100,000 and take that impairment to the Revaluation Reserve, the best I can come up with is $96,000 spent on purchases … and, sadly, that’s not one of the options
Again I’m going to ask you to check your figures and maybe also let me know the apparently correct option so that I may try to find a route backwards from that answer to the figures you have given me
Thanks so much for the quick response. This is all the information given.
Apparently, the correct answer is d. 204000, which I don’t understand.I think this is based on the following calculation:
opening 1,250
closing (1,096)
disposal 150
decrease revaluation (100)
=Purchase 204I didn’t get an explanation, only “The correct answer is: $204,000”
But, this doesn’t make sense to me!? I got $96,000 (1,250-150-100-1,096)
I agree with you at $96,000
The $150,000 disposal appears, from what you have said, to be debited to the TNCA account but surely as a disposal it should be credited
That’s the only way that I can arrive at $204,000
That $150,000 on the ‘incorrect’ side leads to a difference of $300,000 so the apparent answer of $204,000 is amended by $300,000 to arrive at our $96,000
But now here’s thing! For the answer to be $204,000 that amount must appear on the CREDIT side of the TNCA T account and that really does not make any sense at all now!
Jenny, accept that it’s a mistake on the part of the publisher and move on
OK?
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