Cash Flow form Investing or Operations?

Hey Guys, I’m running through some questions and have come across a number of contradictions in the Schweser Q Bank, Please could someone tell me what the following would be considered as cash flow from… 1) The SALE PROCEEDS from an asset (Plant and Equipment) and 2) The GAINS from the sale 3) The gains are subtracted from cash flow, so does that mean their added back when a loss is made? Many thanks.

Sales Proceeds = CFI Gain from Sale - Deducted from Net Income while calculating CFO using the Indirect Method. Loss from Sale - Added to Net Income while calculating CFO using the Indirect Method. Understand the reasoning for the Gain/Loss part above, and you will be fine. Indirect method - you start with the Net Income. That includes either the Loss (already deducted) or Gain (Already added). So you remove the effect of that by adding the Loss or removing the gain. Sales Proceeds - is after the Gain/Loss had been taken out. So if you used both the original Net Income and then the Sales proceeds - your gain/loss would be taken TWICE. So you remove that effect.

  1. I believe this should be a CFInv. 2. This is a non-cash item, so does not affect CFS 3. Yes, loss is an add back. The reason for this is because a loss is already deducted from Net Income. But because a loss is a “Non-cash” item, it does not make sense to deduct it , but rather add it back to the net income as there is no cash outflow due to this transaction. On the flip side, Net Income already account for any gains from sales of land already. But again, this is not a cash item, you would deduct it as there is no cash inflow. hope this helps & correct me if i am wrong :stuck_out_tongue:

cpk123 Wrote: ------------------------------------------------------- > Sales Proceeds = CFI > Gain from Sale - Deducted from Net Income while > calculating CFO using the Indirect Method. > > Loss from Sale - Added to Net Income while > calculating CFO using the Indirect Method. > > Understand the reasoning for the Gain/Loss part > above, and you will be fine. > Indirect method - you start with the Net Income. > That includes either the Loss (already deducted) > or Gain (Already added). So you remove the effect > of that by adding the Loss or removing the gain. > > Sales Proceeds - is after the Gain/Loss had been > taken out. So if you used both the original Net > Income and then the Sales proceeds - your > gain/loss would be taken TWICE. So you remove that > effect. +1

Right on, makes perfect sense…thanks for the explanations guys. Much Appreciated