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Hi John,
for question 30 of the mock exam, which refers to cash flows, I was a bit confused that-
1) depreciation charges are included and added (i did not think depreciation is a cash flow, and an *inflow* of cash if charged)
2) sale of an asset means a cash *outflow*i would appreciate if you could help me with my confusion
thank you!
Every time you attempt the exam, the questions are selected at random from a large bank of questions. So I am not sure which exam you are referring to (question 30 will be different every time you do the test).
However, depreciation is added to the profit in order to arrive at the cash flow from operations (it will have been charged as an expense in arriving at the profit, but is not a cash flow).
Sale of an asset is not a cash outflow – the sale proceeds appear as an inflow under the heading cash flows from operating activities.
However the profit on sale is not a cash flow. It will have been included in the calculation of profit and therefore needs removing from the profit in order to get the cash flow from operations.I don’t know whether or not you have watched my free lecture on Statement of Cash Flows – if not then I do suggest that you do.
Hi John
thank you for the clarification. this helps a lot.
I have not watched it but I will. I had only just started using this site for revision of f3 but have only recently realised how beneficial it is for complete study. You explain things very well.
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