CMA Study Group

I disagree with you Muhammad about your cash flow remark.  Using the Indirect cash flow reporting, expenses are NEVER listed in the Operating section of the statement of cash flows.   Indirectly, the expense is reported because you are using Net Income, which net income is derived from taking revenue less expenses.  Then adjustments are made to Net Income in order to convert Net Income over to cash flows.  What are those adjustments?  One of the adjustments is to add back all non-cash expenses, and depreciation is considered one of the non-cash items.

Hi Patricia,
I am bit late in joining this discussion but I find it quite interesting. Thank you for refreshing me with the cash flow reports. I have not  done anything regarding cash flows report for a long time in my actual work, so I am a bit confused here.

I agree with you that A Major repair will be capitalized by reducing "Accumulated Depreciation" of the repaired assets if the repair is considered to lengthen the life of the asset.

The original Han Bing question is "anyone can explain why a decrease in accumulated depreciation, caused by major repair to projection equipment  does not affect cash flow during calculating the reconciliation of  the net income to cash flow". 

I have read through all the email trails and try to find  a direct answer to that question.

You stated in your earlier email that we only did the reconciliation if we used the indirect method and if I may add, we only do that for "Cash flow from Operating Activities".

Back to Han Bing question, when he asked why a major repair does not affect the cash flow during reconciliation, am I correct to infer that  the answer is "because the cash outflow  from  that "Major Repair"  transaction is not part of "Cash Flow from Operating Activities" but part of "Cash Flow from Investing Activities" hence it will not show up in the reconciliation of net income to operating cash flows". ?Am I correct ?

Regards

Johanes

I disagree with you Muhammad about your cash flow remark.  Using the Indirect cash flow reporting, expenses are NEVER listed in the Operating section of the statement of cash flows.   Indirectly, the expense is reported because you are using Net Income, which net income is derived from taking revenue less expenses.  Then adjustments are made to Net Income in order to convert Net Income over to cash flows.  What are those adjustments?  One of the adjustments is to add back all non-cash expenses, and depreciation is considered one of the non-cash items.

Hi Patricia,
I am bit late in joining this discussion but I find it quite interesting. Thank you for refreshing me with the cash flow reports. I have not  done anything regarding cash flows report for a long time in my actual work, so I am a bit confused here.

I agree with you that A Major repair will be capitalized by reducing "Accumulated Depreciation" of the repaired assets if the repair is considered to lengthen the life of the asset.

The original Han Bing question is "anyone can explain why a decrease in accumulated depreciation, caused by major repair to projection equipment  does not affect cash flow during calculating the reconciliation of  the net income to cash flow". 

I have read through all the email trails and try to find  a direct answer to that question.

You stated in your earlier email that we only did the reconciliation if we used the indirect method and if I may add, we only do that for "Cash flow from Operating Activities".

Back to Han Bing question, when he asked why a major repair does not affect the cash flow during reconciliation, am I correct to infer that  the answer is "because the cash outflow  from  that "Major Repair"  transaction is not part of "Cash Flow from Operating Activities" but part of "Cash Flow from Investing Activities" hence it will not show up in the reconciliation of net income to operating cash flows". ?Am I correct ?

Regards

Johanes

I disagree with you Muhammad about your cash flow remark.  Using the Indirect cash flow reporting, expenses are NEVER listed in the Operating section of the statement of cash flows.   Indirectly, the expense is reported because you are using Net Income, which net income is derived from taking revenue less expenses.  Then adjustments are made to Net Income in order to convert Net Income over to cash flows.  What are those adjustments?  One of the adjustments is to add back all non-cash expenses, and depreciation is considered one of the non-cash items.

Johanes you get the gold star - your analysis sounds correct.    

More facts surrounding the problem would have been helpful.  The accumulated depreciation account is associated with long-term assets, and hence is not directly a part of the operating section.  When a long-term asset is purchased, the cash disbursement appears under the investing section of the cash flows.  The accumulated depreciation can assist us in different ways.  First, if you are showing a decrease in accumulated depreciation, the company may have sold off or disposed of some equipment.   If the company did, this would result in a gain or loss, and gains and losses are a part of the operating section because gains and losses were included in deriving net income, and hence needs to be reversed.  This is why we subtract gains and add losses within the operating section.  Whereas the cash received for the item sold is reported under the investing section.  Second, reduction in accumulated depreciation could also be used to increase an assets book value due to that major repair. The cash disbursed for the long-term capitalized repair would once again appear in the investing section. 

Hi Patricia,
I am bit late in joining this discussion but I find it quite interesting. Thank you for refreshing me with the cash flow reports. I have not  done anything regarding cash flows report for a long time in my actual work, so I am a bit confused here.

I agree with you that A Major repair will be capitalized by reducing "Accumulated Depreciation" of the repaired assets if the repair is considered to lengthen the life of the asset.

The original Han Bing question is "anyone can explain why a decrease in accumulated depreciation, caused by major repair to projection equipment  does not affect cash flow during calculating the reconciliation of  the net income to cash flow". 

I have read through all the email trails and try to find  a direct answer to that question.

You stated in your earlier email that we only did the reconciliation if we used the indirect method and if I may add, we only do that for "Cash flow from Operating Activities".

Back to Han Bing question, when he asked why a major repair does not affect the cash flow during reconciliation, am I correct to infer that  the answer is "because the cash outflow  from  that "Major Repair"  transaction is not part of "Cash Flow from Operating Activities" but part of "Cash Flow from Investing Activities" hence it will not show up in the reconciliation of net income to operating cash flows". ?Am I correct ?

Regards

Johanes

I disagree with you Muhammad about your cash flow remark.  Using the Indirect cash flow reporting, expenses are NEVER listed in the Operating section of the statement of cash flows.   Indirectly, the expense is reported because you are using Net Income, which net income is derived from taking revenue less expenses.  Then adjustments are made to Net Income in order to convert Net Income over to cash flows.  What are those adjustments?  One of the adjustments is to add back all non-cash expenses, and depreciation is considered one of the non-cash items.

Johanes you get the gold star - your analysis sounds correct.    

More facts surrounding the problem would have been helpful.  The accumulated depreciation account is associated with long-term assets, and hence is not directly a part of the operating section.  When a long-term asset is purchased, the cash disbursement appears under the investing section of the cash flows.  The accumulated depreciation can assist us in different ways.  First, if you are showing a decrease in accumulated depreciation, the company may have sold off or disposed of some equipment.   If the company did, this would result in a gain or loss, and gains and losses are a part of the operating section because gains and losses were included in deriving net income, and hence needs to be reversed.  This is why we subtract gains and add losses within the operating section.  Whereas the cash received for the item sold is reported under the investing section.  Second, reduction in accumulated depreciation could also be used to increase an assets book value due to that major repair. The cash disbursed for the long-term capitalized repair would once again appear in the investing section. 

Hi Patricia,
I am bit late in joining this discussion but I find it quite interesting. Thank you for refreshing me with the cash flow reports. I have not  done anything regarding cash flows report for a long time in my actual work, so I am a bit confused here.

I agree with you that A Major repair will be capitalized by reducing "Accumulated Depreciation" of the repaired assets if the repair is considered to lengthen the life of the asset.

The original Han Bing question is "anyone can explain why a decrease in accumulated depreciation, caused by major repair to projection equipment  does not affect cash flow during calculating the reconciliation of  the net income to cash flow". 

I have read through all the email trails and try to find  a direct answer to that question.

You stated in your earlier email that we only did the reconciliation if we used the indirect method and if I may add, we only do that for "Cash flow from Operating Activities".

Back to Han Bing question, when he asked why a major repair does not affect the cash flow during reconciliation, am I correct to infer that  the answer is "because the cash outflow  from  that "Major Repair"  transaction is not part of "Cash Flow from Operating Activities" but part of "Cash Flow from Investing Activities" hence it will not show up in the reconciliation of net income to operating cash flows". ?Am I correct ?

Regards

Johanes

I disagree with you Muhammad about your cash flow remark.  Using the Indirect cash flow reporting, expenses are NEVER listed in the Operating section of the statement of cash flows.   Indirectly, the expense is reported because you are using Net Income, which net income is derived from taking revenue less expenses.  Then adjustments are made to Net Income in order to convert Net Income over to cash flows.  What are those adjustments?  One of the adjustments is to add back all non-cash expenses, and depreciation is considered one of the non-cash items.