Cash Inflow - investing activities

CFA Level I
#1

This is the question of the day from Kaplan, i don’t understand why A is wrong?

Which of the following would be recorded as a cash inflow from investing activities on the statement of cash flow?

a) gain on the sale of long-term assets

b) a period to period decrease in inventory

c) proceeds received from divestiture of a business

Their explanation is :

Choice “a” is incorrect. A gain on the sale of long-term assets is reported on the income statement. This gain is backed out (subtracted) from net income in the operating activities section of the statement of cash flows under the indirect method. The related cash proceeds, however, would be reported as a cash inflow under investing activities.

So from their words a gain on the sale of long-term assets aren’t cash inflow from investing activities but are cash inflow under investing activities

What is the difference ?

Edit: also isn’t CFI calculated same way , under both direct and indirect method?

#2

The gain on the sale isn’t relevent for CFI - the gain has been included in Net Income, so it must be deducted from Net Income in the CFO section.

What the explanation is saying is that, while the GAIN isn’t relevent as far as CFI is concerned (as explained abouve, it’s relevent for CFO), the CASH PROCEEDS from the divestiture ARE relevent for CFI.

#3

Thanx now I get it. Took gains the same as proceeds :smiley:

#4

You’re welcome. FRA can be a B*tch.