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A company is preparing its statement of cash flows for the year ended 31 December 20X2. Relevant extracts from the accounts are as follows.
Statement of profit or loss $
Depreciation 15,000
Profit on sale of non-current assets 40,000
Statement of financial position 20X2 20X1
Plant and machinery – cost 185,000 250,000
Plant and machinery – depreciation 45,000 50,000
Plant and machinery additions during the year were $35,000. What is the cash flow arising from the
sale of non-current assets?
A $40,000
B $100,000
C $120,000
D $135,000The answer is C . Is it possible if you could show me a T account on how this figure is arrived at? Thanks in advance!
I can’t write up a t-account here, but I can tell you what goes where 🙂
Prepare an account for the net book value.
On the debit side:
Balance brought forward. 200,000
Additions 35,000On the credit side:
Depreciation 15,000
Balance carried forward 140,000The missing figure on the credit side is 80,000 and this must be the net book value of the assets sold.
Since there was a profit on the sale of assets of 40,000, they must have been sold for 120,000.
Have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Thank you so much for the answer! May god bless you. And yes i have watched all the lectures , i just got confused a lil bit while attempting this question. I have the exam tomorrow , i hope everything goes well ! 🙂
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