18 March 2010
Dear Sir/Madam, What will be the effect of loss on investment at the time of preparation of cash flow statement as well as depreciation at the time of preparation of cash flow statement.
Kindly give me the details regarding the loss on investment and depreciation as soon as possible.May you also define the Direct Method and Indirect Method of Cash Flow.
18 March 2010
Under Direct Method of CFS, Loss on sale of investments and depreciation will have no effect.
Under indirect method of CFS, loss on sale of invetsments and depreciation are added back since to the net profit since they don't represent any cash outflow.
Loss on sale of investment does represent cash outflow.
First it is added back to operating profit for showing cashflow from operating activities. Later it is reflected under cash from Investment activities.
Depreciation being non cash transaction will be added back to operating profits.
23 March 2010
My dear Mr. Bohra, it is the principal part and not the loss part which gets reflected in Cash Flow from Investing activities. Suppose the invt. of 100 cr. is sold for 80 cr., u show only 80 cr. in cash flow from invt. activities. Remaining amt of Rs 20cr. not received represents loss which is shown into p/l A/c. Since for this 20cr. there is no inflow or outflow of cash, it is notn-cash item. and hence the answer given by the 1st expert is absolutely right. In case of any further doubt u can revert back to me. Regards, CA Shakuntala Chhangani
CAclubindia
