DFS Cash Flows

CrazySexyCool

Hi all

Why does the profit on the disposal of a fixed asset get taken away from the profit from ops?

Jimmyboy1888

Hi, which question/paper you doing ?
I would have thought profit would be shown as additional income and a loss shown in the distribtion costs or other expenses ?
Hopefully someone with knowledge can help. Can't get my head round this shism !

Rachey

CrazySexyCool wrote: »

Hi all

Why does the profit on the disposal of a fixed asset get taken away from the profit from ops?

Because in cash flows it deals with just cash. The 'profit' is calculated using the purchase price less depreciation (net book value). If the income from the sale is higher than the NBV then you have made a 'profit'

However, seen as depreciation is a non cash flow item, the 'profit' needs to be removed.

Hope this helps xx

Jimmyboy1888

Thx from me !

Steve Collings

Think of the profit/loss on disposal of non-current assets as a 'paper' entry. In cash flow statement terms (or the statement of cash flows) the profit/loss on disposal is only ever a 'paper' entry - it isn't a realistic loss/profit on disposal. Only ever use the disposal proceeds in a statement of cash flows because this primary statement displays how an entity has generated and spent cash in the reporting period.

Best wishes
Steve

Rachey

Steve Collings wrote: »

Think of the profit/loss on disposal of non-current assets as a 'paper' entry. In cash flow statement terms (or the statement of cash flows) the profit/loss on disposal is only ever a 'paper' entry - it isn't a realistic loss/profit on disposal. Only ever use the disposal proceeds in a statement of cash flows because this primary statement displays how an entity has generated and spent cash in the reporting period.

Best wishes
Steve

I wish I had your way with words Steve! Hopefully the AAT'ers knew what I meant :-)

CrazySexyCool

Thanks everyone! That's been really helpful!