ࡱ> 241` /bjbjss 2/ 4444444H H12$ch444    44   :,44 J4 01>Ruuu4   1HHHdHHHHHH444444 Calculating Cash Flows due to Investment in Fixed Assets Net Value of Fixed Assets on the Balance Sheet The Net Value of Fixed Assets equals Fixed Assets minus Accumulated Depreciation. Some Balance Sheets just show the net result and some show both the value of Fixed Assets and the Accumulated Depreciation. See pages 169 thru 171 in Riggs. Accumulated Depreciation and Depreciation Expense are not the same Accumulated Depreciation is an ongoing account over many accounting periods Depreciation Expense is the amount of Accumulated Depreciation during the current accounting period. This is the value of the CHANGE in Accumulated Depreciation over the accounting period. Depreciation Expense is the amount that Net Value of Fixed Assets was reduced over the accounting period. This is the value on page 98 of Riggs. It is also the value on the Income Statement and Cash Flow Statement for the accounting period. Calculating the Investment in Fixed Asset for the Cash Flow Statement (pg 98 in Riggs). The change in the NET value of Fixed Assets was an increase of $11,939 ($113,650 $101,711). To increase your investment you must USE cash. But this increase in the NET value was understated. It was actually higher and was reduced by some amount of Depreciation over the accounting period. This amount of Depreciation would be the Depreciation Expense for the accounting period. Therefore, Depreciation Expense must be added back to the NET value of Fixed Assets to figure the true amount of the change in Fixed Assets (the true amount of cash USED). Thus, the Investment in Fixed Assets is $11,939 + $28,941. The same logic (and math) is applied even if there is a decrease in the Fixed Assets on the Balance Sheet. The Procedure for Non-cash Expenses on the Cash Flow Statement Cash Flows for Depreciation Expense Depreciation Expense is a non-cash transaction that is used to reduce taxable income. Net Income is a cash flow (a SOURCE if a profit and a USE if a loss). Thus, Net Income (whether a profit or loss) was understated by the Depreciation Expense, so it is added back as a cash flow. The GAIN ON THE SALE OF A FIXED ASSET is usually listed under OTHER INCOME AND EXPENSES on the Income Statement It is actually a non-cash transaction since it is only the accounting difference between the selling price and the book value of an asset (reference pg 171 in Riggs). Since a GAIN is a non-cash transaction that overstates Net Income, it will show as a USE of cash under CASH FLOWS FROM INVESTING ACTIVITIES. Similarly, a LOSS understates Net Income and will be a SOURCE of cash. 9 /h5*6OJQJ]^Jh5*OJQJ^Jh5*9:i9 Z [ Q  R  r Y & F8^8 & F & F/)BZ./ & F & F & F 0&P1h/ =!"#$% @@@ NormalCJ_HaJmH sH tH L@L Heading 1$$@&a$5OJQJ\^JDAD Default Paragraph FontVi@V  Table Normal :V 44 la (k@(No List >>@> Title$a$5OJQJ\^J/ 9:i9Z[QRrY)BZ . 1 h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0h0/ / / 1 6 > 1 3)1 1 @e.|#,S P^`POJQJo( ^`OJQJo(o pp^p`OJQJo( @ @ ^@ `OJQJo( ^`OJQJo(o ^`OJQJo( ^`OJQJo( ^`OJQJo(o PP^P`OJQJo( P^`POJQJo( ^`OJQJo(o pp^p`OJQJo( @ @ ^@ `OJQJo( XPX^X`POJQJo( ^`OJQJo( ^`OJQJo( ^`OJQJo(o PP^P`OJQJo(@e\        \   \    5*N@pX2/ P@UnknownGz Times New Roman5Symbol3& z Arial?5 z Courier New;Wingdings"h[[Y24* * 2QHX)?N2,Expanded Answer to Problem 13a in Chapter 5: Scott WainessWainess  Oh+'0$ 4@ ` l x 0Expanded Answer to Problem 13a in Chapter 5:Scott WainessNormalWainess2Microsoft Office Word@@0y5@I@I՜.+,0 hp|  *  -Expanded Answer to Problem 13a in Chapter 5: Title  "#$%&'(*+,-./03Root Entry F J5Data 1TableWordDocument2SummaryInformation(!DocumentSummaryInformation8)CompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89q