Theta Company reported the following for its most recent year of operations, (in millions): Capital expenditures:...

Theta Company reported the following for its most recent year of operations, (in millions):

Capital expenditures: $163.10
Net income: $46.10
Depreciation expense: $49.00

Theta Company uses the indirect method of preparing the statement of cash flows. How will these items effect the statement of cash flows?

Expert Solution

Treatment of above itmes in cash flows is shown in the below format of Cash Partial Cash Flows Statement


Cash Flow Statement
Particular's	Amount (in millions)	Amount (in millions)
Cash flow from Operating Activities
Net Income	$46.10
Add: Depreciation	$49.00
Cash Flow from Operating activities (A)		$95.10

Cash Flow From Investing Activities
Capital Expenditure	-$163.10
Cash Used in Investing Activities (B)		-$163.10

Cash Flows from Financing Activities (C )		$0.00

Net Cash Used (D = A +B + C)		-$68.00

Depreciation is not part of Cash flows, In reality depreciation is cost of wear and tear of Machinery or fixed assets, it is expense but there is no cash out flows happens for depreciation. When we calculate Net profit we deduct the Depreciation so, for calculating Actual cash inflows we have to add back the depreciation in Net profit.

Capital Expenditure is not related to Operating activity of Business it relates to Investing activity for example if we buy a Fixed assets for business it is called we have invested the money in capital. When we expense there is outflow of Cash so, we deduct Capital Expenditure from Investing Activity

If you have any doubt or still need help please ask in comment section......Thanks

ekkarill92 answered 1 year ago

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