Hi guys, I am not sure how to differentiate these two below. (a) Cash received from sale of company building = Investing cash flows (b) Profit on sale of building = Operations cash flows I gather it from Schweser 07 Book 3 pg 62. They both seems the same to me. Also, according to the answer, profit on sale of building is considered as a use of cash but isn’t it a decrease in asset, ie. source of cash? Kindly guide me along. Thanks a million.
Its not that complicated . profit on the sale of a building is already included in the net income but the sale proceeds are investing cash flows (the sale proceeds consists of book value + profit).Therefore if you do not deduct the profit from the net income you would count that profit 2 times. So for CFO deducting the profit is an outflow but it gets included when you consider the sale of building as a CFI I hope that I was clear enough if not let me know The key is profit vs sale proceeds
I see. Thanks florinpop. So am I right to say that if profit isn’t deducted from CFO, the profit would be double counted both in CFO and CFI?
That’s correct arty.
Arty, Unless the company is in the business of selling buldings why would the sale of such be registered under CachFlow from OPERATIONS? My understanding is that any gains/losses from selling a building would be added/reduced after the line …