Cash Flow

Hello,

I’m afraid the correct answer is C $210,000 outflow

1. Purchases of non-current assets -240
2. Sales proceeds of non-current assets 30

TOTAL CASH FLOW -210

If you have original costs then ignore depreciation and net book value.
Firstly add back on the orignal cost of any sold PPE. Which was 90,000.
So total cost of PPE went from 600,000 to 750,000 + 90,000
So 240,000 must have been purchased, so this is outflow.
Inflow is simply the proceeds from sales = 30,000
so I get Answer C as well, = 210,000 outflow.

You can ignore depreciation in this question simply because it has nothing to do with actual cash in and out. And you have the original cost values. Accumulated depreciation is not a cash expense, no cash is moving out of your bank account. Use this figure only if you have to to calculate original costs (afaik).

Remember when you are calculating cash flows you are usually working from the final figures given in the income statement and balance sheet. Sometimes these give you too much information, so you need to know what to ignore, or how to work backwards to get a cashflow figure.

Like when you calculate cash generated from operations using the indirect method, you start with the net profit figure from the income statement and then add depreciation back on to this.. Why? because when considering profit for the income statement we take depreciation into account so depreciation decreases profit, but we haven’t acutally lost any cash, so for cashflow purposes we add it back on.

Cash flow chapter is not that hard, but it is the time to go back and revise and make sure you know the previous topics (like depreciation) that come up.