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Hi John
For proposal 3:
The additional value from selling the NCA of $2m is added to Retained Earnings. However it says they used the cash to reduce their debt.
Could you please explain why they added the $2m to RE as I assumed they sold it all for $27m and used all this to pay off the debt, so nothing would be going to RE.
I may be missing something crucial here but I can’t think of why 🙁
Thanks in advance
If you sell a non-current asset, then the profit on sale always increases the profit (and therefore the retained earnings).
This is separate from the cash received from the sale – they can do what they want with the cash.
Thanks for explaining!
I knew it was something so basic and simple, but my brain just couldn’t accept the truths!
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