Broberts Sorry i didn’t saw that, in CFAI books says in NCC, u need to deduct the gain & in FCInv will be deducting entire amout of Cash flow from sale then include the Cash generated from sale of asset here i.e 35000 & not only gain i.e. 15,000. Gain of 15000 will be duducted in NCC .
Plz refer CFAI
Label: Exam "Noncash restructuring charges may also cause an increase in net income in some circumstances—for example when a company reverses part or all of a previous accrual. Gains and losses (e.g., of operating assets) are another noncash item that may increase or decrease net noncash charges. If a company sells a piece of equipment with a book value of €60,000 for €100,000, it reports the €40,000 gain as part of net income. The €40,000 gain is not a cash flow, however, and must be subtracted in arriving at FCFF. Note that the €100,000 is a cash flow and is part of the company’s net investment in fixed capital. A loss reduces net income and thus must be added back in arriving at FCFF. Aside from depreciation, gains and losses are the most commonly seen noncash charges that require an adjustment to net income. " (Institute 205) Institute, CFA. Level II 2013 Volume 4 Equity. John Wiley & Sons (P&T), 7/9/2012. . Label: Exam “Investments in fixed capital represent the outflows of cash to purchase fixed capital necessary to support the company’s current and future operations. These investments are capital expenditures for long-term assets, such as the property, plant, and equipment (PP&E) necessary to support the company’s operations. Necessary capital expenditures may also include intangible assets, such as trademarks. In the case of cash acquisition of another company instead of a direct acquisition of PP&E, the cash purchase amount can also be treated as a capital expenditure that reduces the company’s free cash flow (note that this treatment is conservative because it reduces FCFF). In the case of large acquisitions (and all noncash acquisitions), ana- lysts must take care in evaluating the impact on future free cash flow. If a company receives cash in disposing of any of its fixed capital, the analyst must deduct this cash in calculating investment in fixed capital. For example, suppose we had a sale of equipment for $100,000. This cash inflow would reduce the company’s cash outflows for investments in fixed capital” (Institute 198) Institute, CFA. Level II 2013 Volume 4 Equity. John Wiley & Sons (P&T), 7/9/2012. .
Even I was not clear earlier about that so referred CFAI book today, thought its better to clear now. I have not seen any problems in CFAI books with such an adjustment, so we should not bother this too much, just should know.
You adjust NI for the pre-tax gain in the sale because you will accounting for it when you subtract out FCInv. FCInv will be the difference between the ending and beginning PPE + depreciation - actual $'s taken in from the sale of the asset. (Gross amount, not just the profit or loss)
The response that you quoted is the incorrect way to do it.