- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 20. Understanding Cash Flow Statements
- Subject 2. Preparing the Cash Flow Statement
CFA Practice Question
Consider the following:
Machinery, ending balance: $100,000
Accumulated Depreciation, Machinery, beginning balance: $60,000
Accumulated Depreciation, Machinery, ending balance: $64,000
Depreciation expense: $15,000
Machinery, beginning balance: $114,000
Machinery, ending balance: $100,000
Accumulated Depreciation, Machinery, beginning balance: $60,000
Accumulated Depreciation, Machinery, ending balance: $64,000
Depreciation expense: $15,000
What was the amount of cash inflow from the sale of old machinery during the year? Assume no other transactions affected the machinery account and that the sale of the machinery did not result in a gain or loss on disposal.
A. $3,000
B. $14,000
C. $11,000
Explanation: When machinery is removed from the ledger, the accumulated depreciation related to the machinery is debited. In this case, the debit was $60,000 + $15,000 - $64,000 = $11,000. The machinery account decreased by $14,000 ($114,000 - $100,000). The sale of the machinery involved a debit to Accumulated Depreciation for $11,000, a debit to Cash for $3,000, and a credit to Machinery for $14,000.
User Contributed Comments 8
| User | Comment |
|---|---|
| shasha | no other transaction: no other sold-out, no newly purchased; no +/- : the sold-out was based on a market value which was equal to its book value. above two premise makes things simple. |
| murli | Asset A/c given is Gross not Net of depreciation. |
| CoffeeGirl | historical cost of asset - accumulated depreciation related to this asset = sales price of asset accumulated depreciation change = 60000+15000-64000 = 11000 cost of asset = 14000 so, price of asset = 14000 - 10000 = 3000 this is the cash inflow from sales of asset. |
| wundac | Good explanation but I think you mean 14000-11000 = 3000 |
| azramirza | Mach a/c=op bal 114000 ending bal 100000 bal=14000 Acc depn a/c= opening 60000+add depn(15000)=75000 ending bal=64000 bal=11000 mach a/c=14000-(depn)11000=3000 |
| showmethemoney | beg book value = 114000-60000 = 54000 end book value = 100000-64000 = 36000 difference: 18000 depreciation expense takes up 15000. so you sold the machine for 3000. |
| ColonelCFA | showmethemoney! good stuff |
| bidisha | Yea thanks showme |