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Hello John,
I would like to ask you why the proceeds of sale of property are subtracted in the statement of cash flow.
Thank you
Proceeds from sale are a cash inflow and are added (not subtracted) under the heading ‘cash flows from investing activities’.
(Are you sure you are not confusing it with the profit on sale? This is deducted from the profit in arriving at the ‘cash flow from operating activities’ because it is not a cash flow.)
Have you watched our free lecture on Statements of cash flows? Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
Why profit on sale is not cash flow?
I own a asset at cost 100, depreciated for 50. I sell it for 70, thus I have a surplus of 20.
Why 20 is not cash flow?
I looked everywhere but I don’t understand the logic behind. I have just learned it by heart.
Thank you very much indeed.
You must watch our free lectures – I cannot type out the whole lecture here!!
The cash receipt is 70, and this is shown as a cash flow from investing activities.
The 20 profit on sale is not extra cash! Just like depreciation, it is not a cash flow but just an accounting entry that would have appeared in the Statement of profit or loss. The only reason for making a profit or loss on sale is because the depreciation that has been charged in the past has turned out to be too much or too little.
You should not learn things just by heart because the examiner deliberately tests that you understand what you are doing rather than that you have just learned rules.
Dear Sir,
I had a question with regards to profit on disposal of asset.
If the profits were credited to Income statement then the debit effect should be reflected in asset account.
Why the same has not been debited before arriving at the total acquisitions made during the year.
Thanks & Regards,
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