PPE acquired on loan and Capex

CFA Level I FRA
#1

Hi all, first time post here and may be a silly question.

capex can be found in CFI. and also calculate using the following formula,
CAPEX = Ending net PP&E - Beginning Net PP&E + Depreciation

what will happen if the company acquired a land on loan and start repayment many years later??

the company’s PPE on b/s will increase, but how about the impact on CFI?
will the number in CFI be different to the number calculated using the formula?

im a bit confused. thanks.

#2

can someone help please

#3

What do you mean by “land on loan”? You don’t just loan someone your land. You enter into a sale agreement with a promissory note. Or it is a land lease?

#4

Land is never depreciated.

It will be part of your PP&E. ( under the statement of use ). It is capitalised only once

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#5

Sorry… Let me paraphrase my question again,

Not land, just say an equipment,
For example, one company bought an equipment on loan/using credit, so this equipment will be capitalised, but given it’s bought on credit, there is no actual cash flow (the company didnt pay for the equipment on cash). My questions are in this case, will this equipment purchased on credit showing in the cash flow statement? If not, will this transaction be part of capex? thanks!

#6

Thanks for the reply. I understand that the land is not depreciated…

If a company bought the land by using a loan (say down payment only initially), how does this transaction impact the cash flow statement? will the cost of land be included in the capex?

thanks.

#7

Yes. It would be part of CFI as outflow

#8

Properly, the company should show a cash inflow from financing for the amount of the loan and a cash outflow from investing for the price of the equipment.

In practice, many companies would include neither cash flow on their Statement of Cash Flows.

If a company doesn’t include the cash flows as described, a competent analyst will adjust the Statement of Cash Flows to include them.

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