Question

In a statement of cash flows, if used equipment is sold at a loss, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment:

A. With no addition or subtraction
B. Less the loss
C. (doesn't matter)
D. (doesn't matter)

Answer 1

Answer:

(B) less the loss

Explanation:

The statement of cash flows records the cash element of transactions irrespective of their nature, be it operational, investing or financing.

Thus when an asset is sold at a loss, the cash received from the sale of the asset is recorded in the statement of cash flow.

The cash received = carrying amount less the loss on the sale.

Other elements of the sale will be recorded as follows:

• Loss on sale will be recognized in the profit/loss account

• The carrying amount will be deducted from total equipment in the statement of financial position
• The accumulated depreciation related to the equipment will also be deducted from total accumulated depreciation of all equipment.