Cash Flow from Investing

[SriHanuman]

In thee Schwezer example 2015 exam pg 120.
BS:
2015 2014
Land 35000 40000
IS:
Gain from Land Sale 10000
While calulating Cash from land sale why is the decrease in land cost added ??? : decrease in asset + gain on land sale =5k+10k =15k
and What if the price of land had increased to 45k??

 

[Flashback]

By Indirect method which you used above each Asset item decrease is the cash flow increase while Liabilities increase means CF increase and vice versa.
In general, it can be easy to understand by folllowing rule + an asset (f.ex.purchase) - cash flow (spent) and - an asset (f.ex.sold) + cash flow (earned).
If your asset price change was positive in current year compared to previous year (45 K in this example) your cash flow would change in opposite direction, thus you will realize -5K instead +5K on BS change.

 

[SriHanuman]

Flashback wrote:
By Indirect method which you used above each Asset item decrease is the cash flow increase while Liabilities increase means CF increase and vice versa.
In general, it can be easy to understand by folllowing rule + an asset (f.ex.purchase) - cash flow (spent) and - an asset (f.ex.sold) + cash flow (earned).
If your asset price change was positive in current year compared to previous year (45 K in this example) your cash flow would change in opposite direction, thus you will realize -5K instead +5K on BS change.

Thnx for the reply…
So incase of an increase in land price to 45k from 40 k and gain of 10k ….what will be my gross cost of land sold?? is it going to be 15k

 

[Flashback]

So, increase in BS item from 40K to 45K will be CF reduction for -5K and P/L item gain of 10K will be increase of CF.
increase in asset + gain on land sale =-5k+10k =5k

 

[SriHanuman]

Flashback wrote:
So, increase in BS item from 40K to 45K will be CF reduction for -5K and P/L item gain of 10K will be increase of CF.
increase in asset + gain on land sale =-5k+10k =5k

Applying this logic to the first scenario when land price decreases to 35k from 40k we get CF incr of 5k and gain of 10k so the gross cost of land sold is 15k but it is should be 5k according to soln … what am i missing??

 

[SriHanuman]

SriHanuman wrote:

Flashback wrote:
So, increase in BS item from 40K to 45K will be CF reduction for -5K and P/L item gain of 10K will be increase of CF.
increase in asset + gain on land sale =-5k+10k =5k

Applying this logic to the first scenario when land price decreases to 35k from 40k we get CF incr of 5k and gain of 10k so the gross cost of land sold is 15k = 10k +5k….. but it is should be 5k according to soln … what am i missing??

 

[Flashback]

SriHanuman wrote:

Flashback wrote:
So, increase in BS item from 40K to 45K will be CF reduction for -5K and P/L item gain of 10K will be increase of CF.
increase in asset + gain on land sale =-5k+10k =5k

Applying this logic to the first scenario when land price decreases to 35k from 40k we get CF incr of 5k and gain of 10k so the gross cost of land sold is 15k but it is should be 5k according to soln … what am i missing??

Assume simply that durig year you got inflows and outflows which is real situation at each company in the world. In this example, you have made some purchase particles of land and selling another particles. Each BS and P/L change in this activity reflects on CF.