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

Delta plc's non-current asset carrying amount at the start of the year was $200,000 and at the end $230,000. Depreciation charged was $25,000 and there were no revaluations. An asset with a carrying amount of $15,000 was sold for $11,000. In the reconciliation of profit before tax to cash generated from operations, which adjustment is needed for the disposal?

Add back a loss on disposal of $4,000. The asset's carrying amount of $15,000 less proceeds of $11,000 gives a loss that reduced profit without any operating cash outflow; the $11,000 proceeds appear within investing activities instead.

  1. AAdd back a loss on disposal of $4,000Correct
  2. BDeduct a loss on disposal of $4,000
  3. CAdd back a loss on disposal of $15,000
  4. DDeduct proceeds of $11,000

Explanation

Loss = carrying amount 15,000 - proceeds 11,000 = 4,000. The loss reduced profit but is not an operating cash outflow, so it is added back. The proceeds of $11,000 are shown as an investing inflow, not in operations. Deducting the loss would double-count the reduction.

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