Question

Last year Ace charged $4,143,467 Depreciation on the Income Statement of Andrews. If early this year Ace sold all its depreicable assets for their book value, the effect on Andrews's financial statements would be (all other items remaining equal)

a. Increase Net Cash from operations
b. Decrease Net Cash from operations on the Cash Flow Statement
c. No impact on Net Cash from operations
d. Just impact the Balance Sheet

Answer 1

c. No impact on Net Cash from operations

d. Just impact the Balance Sheet

Options c and d are right.

Step-by-step explanation:

The sale of assets at their book values results in no loss or gain in disposal of such assets. Hence, the asset is derecognized from the books by crediting assets account by the book value of the asset and debiting the cash or receivables account with the same amount. No effect on the statements of p/l.

Considering all the options;

a. Increase Net Cash from operations - Since cash is received, there is a net increase net Cash however, this is from Investing activities.

b. Decrease Net Cash from operations - Same as the statement in option a above.

c. No impact on Net Cash from operations - This is right as the impact is on Net Cash from investing activities.

d. Just impact the Balance Sheet - This is also right as there is no loss or gain in disposal of such assets.

Hence the right Options are c. No impact on Net Cash from operations and d. Just impact the Balance Sheet