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spud99

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Guys, if one disposes of an asset at a loss - how is this recorded in CFI? Thanks
 
i'm pretty sure its recorded in CFI. The only reason one needs to add it back in CFO is because it's already done in CFI and hence we need to remove for double counting...can anyone confirm?
 
yes it is, it's just that the amount of loss is irrelevant. The sale price is an investing inflow. And the loss is recorded as watson said.
 
To clarify spud99: The loss/gain is CFO because it's treated basically as profit/loss under operations. The CFI portion consists of removing it from the books. So there would be a subtraction of the book value from CFI and an adjustment for the loss/gain to the CFO.

At least, I think that's the jist of it. Though I am absolutely positive that loss/gains are CFO.
 
basically the exam question was something like...An asset costed $100, it had accumulated deprication of$70, and was sold for $25. How is it recorded in CFI? You're saying it should just be $25 as supposed to $-5?
 
spud, if I am not mistaken, the question was on the effect on CFO and not CFI?
 
we are all talking about the indirect method right...Correct me if iam wrong... the only reason gain (loss) on sale is subtracted (added) to CFO is because it shows up on Inc statement and since it is a non cash income (expense) we adjust Net Income.
CFI is affected by the book value (carrying cost) of asset only.

On the other hand if we are calculating CFO via the direct method, we will concern ourself with just the selling price of the asset and will ignore the gain (loss).



Edited 1 time(s). Last edit at Monday, June 4, 2007 at 10:30PM by delhirocks.
 
"we are all talking about the indirect method right...Correct me if iam wrong... the only reason gain (loss) on sale is subtracted (added) to CFO is because it shows up on Inc statement and since it is a non cash income (expense) we adjust Net Income.
CFI is affected by the book value (carrying cost) of asset only.

On the other hand if we are calculating CFO via the direct method, we will concern ourself with just the selling price of the asset and will ignore the gain (loss)."


I understood the most of the first paragraph but for the last statement "CFI is affected by the book value (carrying cost) of asset only. " and the second para. did you really mean to write CFO or should it be CFI. Selling an asset, is it not an investing activity and accounted for in CFI?

delhirocks can you explain??
 
My bad Reema

CFI is impacted by the Selling Price of the asset

What I meant with the 2nd para is that CFO will not be impacted at all under direct method.

CFI calc is same under both direct or indirect thus CFI will be impacted by selling price.

Thanks for pointing that out...I had to think through the whole thing...hopefully i'll remember it now come dec.
 
spud99 Wrote:
-------------------------------------------------------
> basically the exam question was something
> like...An asset costed $100, it had accumulated
> deprication of$70, and was sold for $25. How is it
> recorded in CFI? You're saying it should just be
> $25 as supposed to $-5?

Nice questions.
I am going for Dec exam as well.

$25 should be reported as Sale of asset on CFI.
$5 is added back if use indirect method for CFO.

For direct method CFO, $5 loss is useless since it is not cash inflow of outflow.
CFI and CFF are no diffrences for direct and indirect.
$25 is added to CFI for direct method as well.
 
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