Hi guys,
Does anyone know if there is something missing from the below forumla from Kaplan. I’m attempting to answer one of their EOC questions and if I apply this formula I get the wrong answer when calculating FCInv after sale of an asset.
Question details - Begin gross assets = 90, ending gross assets = 136 , Begin accum dep = 30, ending accum dep = 40
Asset with intial book value of 19 was sold for 10, book value at time of sale was 2.
Formula I used and sourced from Kaplan was -
FCinv = Ending Gross PPE - Beginning Gross PPE - gain on sale, however when applying this I do not get the right answer, any ideas why?? Thanks again
Is there a tax adjustment for the gain on the sale?
I encountered the same problem while solving it. recall that Gain/Losses on sale of Assets have two effects (one in Income statement and second in Balancesheet under Fixed Assets).
FCI = ending gross Assets - Beginning gross Assets - gain on sale of Assets = 136-90-10=36
Adjust NI as well bcoz we have added gain from sale of asset in NI = 50-10=40
Now, Apply formula :
40+10(dep)-36-4+0=10
^Correcting above statement : (recall that Gain/Losses on sale of Assets have two effects (one in Income statement and second in CF statement under CFI ).
Awesome! That makes sense now, thanks very much SS…
