I have problem with the different treatment to gains from selling land, gains from selling equipment, gains from selling plant… someone can explaine?
receive cash increases the asset classified as cash, decrease the asset sold to 0 and record the gain or loss on the equity side of the balance sheet
cash hits CFI, gain backed out of CFO, gain hits PnL
I think your confusion lies in the difference between an actual cash transaction and an accounting transaction based on the accrual method of accounting. If you have a piece of PP&E that has been sitting on your balance sheet for 5 years and you decide to sell it, what is your actual cash flow during this period? Is the cash you are receiving the gain on the property or is it the total selling price? Well, if I sold a piece of property for $5MM, I’m receiving $5MM in cash. This is what the cash flow statement measures, actual cash received and paid. The amount of cash received in the transaction is listed in CFI. Now, if you decide to buy a different piece of property for $2MM during that same period then your cash outflow for this transaction is $2MM. To get CFI for this period you would take your $5MM inflow from your sale and your $2MM outflow for your purchase and get $3MM in positive CFI for the period. The gain on sale of a piece of property is measured as the sales price minus the cost basis. The cost basis is the cost of the asset when purchased minus the accumulated depreciation. When you sell an asset you record the gain from the sale on the income statement (this is based on accrual accounting). This gain does not measure the actual cash transaction. If the cost basis was $3MM and you sold it for $5MM, then you received $5MM in this transaction. However, the difference of $2MM would be recorded as an accounting gain on the income statement. Since this $2MM is included in income, it needs to be added back to net income when calculating CFO to get actual cash flow from operating activities.