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ACCA Applied Knowledge · Financial Accounting · Statement of cash flows (excluding partnerships)

Beta Co sold a machine with a carrying amount of $45,000 and recognised a profit on disposal of $8,000 in profit or loss. What amount is shown as cash flow from investing activities in respect of the sale, and how is the profit treated in the reconciliation of profit before tax to cash generated from operations?

The sale proceeds are $53,000 (carrying amount of $45,000 plus the $8,000 profit), shown as an investing inflow. The $8,000 profit is deducted from profit before tax in the operating reconciliation because the cash is reported under investing activities instead.

  1. AInflow $53,000; profit deducted from profit before taxCorrect
  2. BInflow $45,000; profit added to profit before tax
  3. CInflow $53,000; profit added to profit before tax
  4. DInflow $37,000; profit deducted from profit before tax

Explanation

Proceeds = carrying amount 45,000 + profit 8,000 = 53,000, an investing inflow. The profit is non-cash in operating activities, so it is deducted from profit before tax to avoid double counting. Adding it, or using 37,000 (carrying amount less profit), reflects sign errors.

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