Question

Last year Acre charged $3,442,667 Depreciation on the Income Statement of Andrews. If early this year Acre sold all its depreicable assets for their book value, the effect on Andrews's financial statements would be (all other items remaining equal):

Select: 1

	No impact on Net Cash from operations
	Decrease Net Cash from operations on the Cash Flow Statement
	Just impact the Balance Sheet
	Increase Net Cash from operations

Answer 1

Answer : No impact on Net cash from operations

The net cash from operations are calculated as follows :

Net income as reported in income statement XXX

( + ) Depreciation Expense ( Since it is non cash item). XXX

( + or - ) Change in current Assets XXX

Net cash from operations XXX

Since depreciation expense is nil than $34,42,667 from last year and other items remain same, there is decrease in depreciation figure which is added to net income. But in  income statement depreciation would have been already deducted. There wont be any deduction in income statement since depreciation is NIL. So it nullifies the effect of addition in cash flow statement. So there is no effect.