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Hallo,
I am trying to explain to myself why in finding cash flow from investing activities when disposing of an asset we add the cost of a disposal, e.g. finding the cash using the following:
= Asset at cost at end of yr – asset at cost at beg of yr + disposals at cost = Purchases
Why if we sell/dispose of an asset (here it’s at cost, so does itt matter if it’s a gain or loss?) which is supposedly a cash inflow do we add to what is cash outflow (i.e. the rest of equation – assets at cost)?
Thank you for some clarifying!
I do not really understand what you are asking.
If we dispose of an asset, then the cash proceeds are an inflow of cash under the heading of investing activities.
If we acquire an asset, then the amount paid is an outflow of cash under the heading of investing activities.If you are given the cost and given the disposal proceeds, then there is no problem.
There certainly can be questions where you are asked to calculate what the cost of acquisitions is, but this is not in itself a cash flow problem – it is a test on non-current assets in general and you need to write up a t-account for the non-current assets and find the missing figure.
Hallo,
I confused myself thinking of the word disposal as a type of inflow, and here they only talk about costs and the cost of the disposal and not as proceeds of disposal, so this is what I funnily oversaw.
Thank you for the answer!
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