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kseniaru

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tT
发表于 2011-7-13 15:09 | 只看该作者

Extinguishing Debt - Effects on Cash flow statement

net, understand, financing, reported, income
"When presenting the cash flow statement using the indirect method, the gain or loss is eliminated from net income in arriving at cash flow from operations and the reacquisition price is reported as an outflow from financing."

Anyone understand why this is true for the indirect method?

 

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ogoluwa

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发表于 2011-7-13 15:09 | 只看该作者
Two important points here: 1) The indirect method calculates cash flow from operations, and a sale of equipment is cash flow from investing. 2) Gain/loss takes into account non-cash charges like depreciation, as it is simply sale price- NBV. We don't care about net book value as we're tracking cash, so we want to measure the sale price, as that is the cash received.

Therefore the gain/loss on sales of equipment is simply added back to net income to remove it from the CFO calculation. The proceeds from the sale of equipment will be measured in cash flow from investing.

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