CFA CFA Level 1 QUESTION on Cash flow from Investing

# QUESTION on Cash flow from Investing

• Author
Posts
• Grand2015
Participant
• CFA Level 1
1

Here is the question: During 2012, Company X sold a tee shit making machine for a gain of \$50,000. The machinery had an original cost of \$250,000 and its accumulated depreciation was \$100,000.

I was thinking CFI would just be the 50k because that is the cash received but the book value of 150k (250k – 100k) is also included so the CFI = 200k. Can you explain why book value is included if it is not cash?

Participant
• CFA Level 1
4

In my opinion, if the Net Book Value is 150k and you sell it for 50k, You receive a cash flow from investments of 50k that increases your Cash Asset in 50K but the decrease in the Property Plant and Equipment Asset is 150k, so the total decrease in assets is 100k. That should be reflected as a loss of 100k (non monetary loss) that will decrease the Net Income in 100k so it will be reflected in the Equity of the balance sheet. That will close the loop.

• policedog
Participant
• Undecided
1

CFI should be cash received from the sale – what is the actual sale price? Does ‘gain of \$50,000’ mean \$250,000 + \$50,000 = \$300,000, or \$250,000 – \$100,000 + \$50,000 = \$200,000?