Question

For 2015 Amazon has investing cash outflows of $5 million for capex projects, how does this transaction affect the income statement and balance sheet for 2015 and future years?

Answer 1

Solution:

(1) The impact of Capital expenditure on AMAZON'S income statement and balance sheet in 2015.

Solution: Since the spending in the Capital expenditure project is an investment, not an expense. It is not recorded in the income statement and it is treated as an asset on the balance sheet. Therefore, the asset base of the Amazon will increase by $5000 million.

(2) The impact of Capital expenditure on AMAZON'S income statement and balance sheet in future.

Solution: In the subsequent years, the expenses associated with the capital expenditure i.e. suppose the company has invested in a fixed asset then operating expenses of maintenance and depreciation etc will be treated in the income statement and the value of the fixed asset will e decreased in the balance sheet.

Summary ( Future treatment in the income statement and balance sheet)

(1) In the income statement, expenses related will the capital expenditure will be treated

(2) In the balance sheet, the depreciable/ closing value of the asset will be treated.