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Hello,
There is a question on the net cash from investing activities. The information given is as follows: on the SFP the b/f and c/f balances on investment property are recpectively 400 and 420, its also said that $60 000 was included in profit before tax in respect of income and gains on investment property. In the provided answer the investment property income to be included within the section of investing activities on SCF is 40 (calculated as 60-20). Why its 40 and not 60? How to use a t-account to arrive at 40? B/f 400 +income 60 – C/f 420 = 40 is that correct?
Thanks!
Hi,
We’re looking to look at how much has been spent on purchasing IP in the year or received from selling IP. To do so we will use an IP T-account, which is an asset T-account. The opening balance of 400 will be on the debit side (left) and the closing balance of 420 will be on the credit side (right).
IP is remeasured to FV at the reporting date and gains/losses go through profit or loss. Here we have a gain of 60, which will be a debit entry on the IP T-account (DR IP CR SPL).
We can then balance the T-account and there will be an entry of 40 on the credit side. This is where we need to be careful as if we have credited the IP then the debit will be to the bank, so must have received the cash from the sale of IP. It is therefore a cash inflow.
Hope that clears it up.
Thanks
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