We are asked to compute FCEE which demands the calculatiion of FCInv
We are given the balance sheet excerpt for that
20X3 20X4 20X5 20X6
Fixed assets 82 78.1
and the depreciation for 2006 is 12
Now it would occur to be these FCInv is -3.9
but they have added depreciation expense to this, treating fixed assets entry as if it was reported net of accumulated depreciation, and calculated FCInv as 8.1
What went wrong here? are the Fixed assets reported net of accumulated depreciation. So, is the entry in the balance sheet for the fixed assets actually net fixed asssets?
When they they give section of balance sheet like thhis in the exam and ask us to calculate the FCInv do we treat the fixed assets entry as net entry or historical entry?
This is a tricky problem, since usually they either give you both Net and Gross PP&E/fixed assets or show depreciation as a line item (rather than a separate note).
However, I believe when it just says “Fixed Assets,” you treat them as net (i.e. add depreciation to the change in fixed assets to get the change in gross fixed assets/FCInv).
The other clue in this case is that working captial + fixed assets add up to total assets on the balance sheet. That means that “fixed assets” must include depreciation.
I would say net as well. I remember the first example in the text stated Fixed Assets and I got confused if it was Gross or Net. Below it stated accumulated depreciation so it had to be Gross in the text.
Here without accumulated deprecatino i would say it would be Net