Last year Attic charged $3,260,000 Depreciation on the Income Statement of Andre

Question

Last year Attic charged $3,260,000 Depreciation on the Income Statement of Andrews. If Attic sold a fully depreciated piece of equipment at a loss, the effect on Andrews's financial statements would be (all other items remaining equal): Decrease Net Cash from operations on the Cash Flow Statement Just impact the Balance Sheet No impact on Net Cash from operations Increase Net Cash from operations Last year Attic charged $3,260,000 Depreciation on the Income Statement of Andrews. If Attic sold a fully depreciated piece of equipment at a loss, the effect on Andrews's financial statements would be (all other items remaining equal): Decrease Net Cash from operations on the Cash Flow Statement Just impact the Balance Sheet No impact on Net Cash from operations Increase Net Cash from operations

Explanation / Answer

Depreciated asset has book value of Zero. The loss acquired while offering it implies you have caused some cost for disposing of it. That will be dealt with as a STCL (short-term capital loss). There will be availability of tax shield on this short-term capital loss. Hence as a result option d will come into effect.  

Cash Flow from Operating Activities = Earnings Before Income Tax + Dep. - Taxes +/- deviation in Working Capital

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