Q1. What will be the treatment of increase in “Non-Cash operating net working capital” in order to calculate CFO under indirect method? and WHY? *Non Cash Operating NWC = Receivable + Inventories - Payables Q2. Can anyone explain me the treatment of Property, Plant & Equipment under IFRS when… A. they are valued downwards for the first time? B. they are valued downwards after the upward valuation? C. they are valued upwards for the first time? D. they are valued upwards after the previous devaluation?
hi there, let me give it a shot. a1: you have to subtract/add increases/decreases in nwc as part of the ocf calculation. why? e.g. take increases in A/R… this has boosted your net income, your starting point in the calcs for the indirect method, but you dont have received the cash. thus, subtract it. reverse reasoning for A/P. inventory expenditure (the cash for acquiring the inventory) has not been expensed but capitalised, thus the cash outflows for increases in your inventory are not considered in net income. it follow you have to adjust net income your self to get to a cash measure. the underlying idea really is: add back non-cash flow charges to net income subtract non-cash flow increases in net income a2: not taking depreciation expense in account and assuming your using the revaluation model… -A- write down to fair market value (FMV), adjust NI accordingly. -B- write down to FMV; you have to reverse the effects of previous upward revaluations, first. i.e.: either with a charge to NI (if the previous upward valuation increased NI, because it was itself a reversal of an even earlier devaluation that caused a charge to NI) OR a decrease in the revaluation surplus (equity) if the previous revaluation was taken directly to equity. in either case, if there is a “remainder”, charge it to NI. -C- mark up to FMV, with the increase to be recognised directly in the revaluation surplus (at equity). -D- mark up to FMV. either, if the previous devaluation was charged directly to NI, reverse this charge to NI (by increasing it) OR increase the revaluation surplus. in either case, if there is a “remainder”, recognise it at equity (revaluation surplus). can somebody pls confirm? cheers
>Q1. What will be the treatment of increase in “Non-Cash operating net working capital” in order to calculate CFO under indirect method? and WHY? >*Non Cash Operating NWC = Receivable + Inventories - Payables Any increase in non-cash expense is added back to net income in indirect CFO reporting. You are looking at the cash conversion cycle and this is one measurement of liquidity. Are you thinking of free cash flow for the firm? Thats a different equation. >Can anyone explain me the treatment of Property, Plant & Equipment under IFRS when… >A. they are valued downwards for the first time? >B. they are valued downwards after the upward valuation? >C. they are valued upwards for the first time? >D. they are valued upwards after the previous devaluation? a. Losses on revaluation are reported on income statement after tax line in non-reoccuring income b. imagine the same revaluation would take place, as reported on income statement after tax line in non-reoccuring income c. Gains on revaluation are reported on equity section of balance sheet d. Gains on revaluation are reported on income statement to the extent of previous losses, and then on equity section of balance.
Thanks Chefe… You have explained it well and just the way i was expecting the answers to be given… Cheers! @bizzies4bankers Q1 has nothing to do with the cash conversion cycle or FCFF. I came across this question in QBank. We only had to tell the the effect of increase/decrease in Non Cash Operating NWC. No specific assets and liabilities accounts given. ------- Operating NWC = Cash + Receivables + Inventory - Payables and Non Cash Operating NWC = Receivables + Inventory - Payables