Textbook Notes (290,000)
CA (170,000)
UTSG (10,000)
Chapter 5

RSM220H1 Chapter 5: P5-8.docx


Department
Rotman Commerce
Course Code
RSM220H1
Professor
Amy Kwan
Chapter
5

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P5-8
Gain/Loss on disposal
One of the rules in preparing a statement of cash flows is that the entire proceeds received
from he sale of a long term asset must be reported in the second section of the investing
activities section.
This presents a problem because any gain or loss on the sale of an asset is also included
in the company’s net income, which is reported in the first section “operation activities”
To avoid double counting, each gain is deducted from net income and each loss is added
to net income in the operating activities section
Cash flows from operating activities:
Gain on sale of investments (3400)
Cash flows from investing activities:
Proceeds from sale of investments 19,000
Put the title
Depreciation
Net income for 2014 was 320,000 after allowing for depreciation of 12,000.
Depreciation is not cash basis expense, so should be added back
A/R
Increase in A/R, I’m showing I’m profitable but I’m not actually getting cash. For each
sale with increase in A/R, you’are getting less cash.
c. The statement of cash flows is useful for:
Assessing the amount, timing and uncertainty of future cash flows
The user has a better understanding of the liquidity and financial flexibility of the
enterprise
Provides useful information about the flow of enterprise resources, helps to make
more accurate predictions about future cash flows
Quality of the earnings
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