DFS - Reconciliation of operating profit

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
HI<BR>Can anyone give me a easy way to remember why when you reconcile the operating profit to net cash flow, the profit on the sale of a fixed asset is deducted and not added.<BR><BR>Also anyone got any good crib notes for SSAP's and FRS<BR><BR>Many thanks<BR>Eva<BR>e-mail:Eva@gossan.fsnet.co.uk

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    DFS - Reconciliation of operating profit

    Something I remember vaguely - add what's bad...... and obviously deduct good????????? I think........
  • System
    System Posts: 100,534 🤖 Admin 🤖
    DFS - Reconciliation of operating profit

    Hi Eva.<BR><BR>When you are looking at your operating profit - you are looking at just that, i.e. profit from 'operating' or 'trading'. If you make a profit on the sale of a fixed asset that is nothing to do with your everyday trading, and so needs to be taken out.<BR><BR>Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    DFS - Reconciliation of operating profit

    Hi<BR><BR>Many thanks for your help.<BR><BR>Can anyone help on some crib notes for SSAP and FRS<BR><BR>Thanks again <BR>Eva
  • System
    System Posts: 100,534 🤖 Admin 🤖
    DFS - Reconciliation of operating profit

    The reason profit on the sale of fixed asset is deducted from operating profit from a cash flow perspective is because this element of the operating profit is not "cash". The profit before the disposal is therefore uplifted by the value of the profit made on the fixed asset disposal. Eg. profit before disposal = £1000, profit on disposal = £500 giving a final operating profit of £1,500.<BR><BR>Reconciliation of net cash flow from operating activities means you have to strip out the non-cash items included in calculating your operating profit. Therefore, as a profit/loss is effectively a "balancing paper entry" this has to be removed from the profit to give an operating "cash" profit. Hence profits on disposal of assets are deducted from the operating profit and instead the cash proceeds included in the section Capital Expenditure/Disposals within the actual cash flow statement.<BR><BR>Hope this helps.

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