Question

Help ry 3 Bookmarks People Tab Window x Topic: Module 3 - Discussion 4 X + m/courses/54454/discussion_topic/584495 This is a graded discussion: 5 points possible due Feb Module 3 - Discussion 4 - Week 5 • ABC Corporation sold an unused building for $177,000. The building's book value on the date of sale was $172,000. How will this transaction appear in a statement of cash flows prepared using the indirect method? • What is free cash flows? How do you calculate it? • The following information is available from the current period financial statements: Net income $140,000 Depreciation expense 28,000 Increase in accounts receivable 16,000 Decrease in accounts payable 21,000 • What is the net cash flow from operating activities using the indirect method? • Why do some financial expert refer to the Statement of Cash Flows as the most "honest" of the four required statements? Search entries or author Unread D

Answer 1

1.

Indirect Cash Flow Statement
Sale Value of Building	$177,000
The Transaction of Sale Value of Builiding of $ 177,000 is to be shown under Inflows in Cash Flows from Investing Activities
Sale Value of Building	$177,000
Book Value of Building	$172,000
Profit on Sale of Building	$5,000
The Profit on Sale of Building of $ 5,000 is to be reduced from the Profit before Taxation under Cash Flows from Operating Activities

2.

Free cash flow is the cash a company produces through its operations (Operating Cash Flow) less the cost of expenditures on assets .

To Calculated Free Cash Flow Start with net income from Income and Expenditure Statement (Profit and Loss Account) and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting Increase in current assets from Increase in Current Liabilities. Then subtract capital expenditure (or spending on plants and equipment):

Net Income

+ Depreciation/Amortization

- Change in Working Captial

- Capital Expenditure

= Free Cash Flow

	Net Income	$140,000
Add	Depreciation	$28,000
Less	Increase in Accounts Receivable	($16,000)
Less	Decrease in Accounts Payable	($21,000)
	Net Cash from Operating Activities	$131,000

Cash Flow is regarded as the most honest of the four required statements due to the information provided in the statements which are very useful to the users of such statement. Some of the information assessed through cash flow statements are as under

1. Cash Flow statements shows differences between Net Income and the Associated Cash Flows by giving details of Operating Cash flows and Cash and Non Cash transactions of Depreciation and changes in working Capital
2. The Operating Cash Flow shows the ability to generate Positive future cash flows
3. Cash Flow statement gives information of Cash and Cash Equivalents which shows the ability to meet Operating obligations , pay dividends to Shareholders and need for external finance requriements
4. Cash Flow Statement shows the effect on the financial position of the investing and financial transactions done by management during the period