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CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I

Verano Inc. had opening net property, plant and equipment (PP&E) of 1,000 and closing net PP&E of 1,150. Depreciation expense was 120. During the year it sold equipment with a carrying amount of 40 at a gain of 15, and there were no other disposals or revaluations. Capital expenditure for the year is closest to:

Capital expenditure is about 310. Rearranging the PP&E roll-forward, closing 1,150 equals opening 1,000 plus capex minus depreciation of 120 minus the 40 carrying amount of the equipment sold, so capex equals 150 plus 120 plus 40.

  1. A195
  2. B270Correct
  3. C310

Explanation

Closing = opening + capex - depreciation - carrying amount of disposals. 1,150 = 1,000 + capex - 120 - 40, so capex = 310. Sale proceeds are 55 but the balance sheet is reduced by the carrying amount, 40. Using proceeds of 55 gives 325; ignoring disposals gives 270; treating the gain wrongly gives 195.

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