FC inv when asset sold

Hi everyone,

To find the investment in FC during the year we use:

  1. (gross ending PPE - gross beginning PPE) or

  2. (net ending PPE - net beginning PPE) + deprection

But how do we do if part of the PPE was sold during that year?

I had made flashcards (months ago) where I put: Capex - Proceeds from the sale.

I could not find it back in the curriculum so I don’t remember if I got that from an item set solution or from the curriculum.

  1. is this correct ? (Capex - Proceeds from the sale. )

  2. if we add proceeds from sales to FCinv, do we recognize that as a gain in Non cash charges ?

thanks in advance for your help,

-Phil

I have FCIn= gross ppe (Ending year)-Gross ppe (Beginning year )

Gross ppe( ending) = Beginning gross fixed asset + purchases-disposed fixed asset

Capex- proceeds from sale is correct

if we have a gain from the proceeds of FCInv we subtract it from NI.If we get a loss we add it back to the NI

thanks Kirtika.

With BS information given:

FCInv = ending gross PP&E - beginning gross PP&E - gain on sale

FCInv = ending net PP&E - beginning net PP&E + depreciation - gain on sale

where gain on sale = proceeds from sale - book value of asset sold

With IS information given:

FCInv = CAPEX - proceeds from the asset sale

However, for me it is still not clear why I only consider the proceeds from the asset sale (and not the gain) using IS information. Because the gain is based on accrual accounting? Maybe anyone could explain the differences for all formulas with a little example?

Thanks in advance!

Let’s say i own 1mm of equipment at the start of the year, i buy 2mm of equipment during the course of the year and also sell 200k of equipment for a 300k gain (i.e. book value of 200k is sold for 500k proceeds to net 300k profit). So my ending gross PPE is: 1mm starting balance + 2mm purchases - 200k book value sold = 2.8mm

FCInv = gross PPE end of year - gross PPE begining of year - gain on sale = 2.8mm - 1mm - 300k = 1.5mm

CAPEX = 2mm (this is how much equipment i bought during the year)

FCInv = CAPEX - proceeds from asset sale = 2mm - 500k = 1.5mm

This is basically just explaining balance sheet carrying value changes via cash flows.

Thanks ro424! Now I get it.

The “trick” is that the book value of assets sold is already(!) included in the ending gross PP&E and, so, I only have to consider the gain on the assets sold and not the entire proceeds from that sale. Therefore, both equations have—of course–the same result.