Archive for August, 2007
How do asset impairments effect the cash flow statement?
Alex A asked:
If land or houses built and in inventory are impaired and “written down” to mkt value which reduces profit on the P&L as an expense or charge, why does this figure end up as an increase on the cash flow statement?
If land or houses built and in inventory are impaired and “written down” to mkt value which reduces profit on the P&L as an expense or charge, why does this figure end up as an increase on the cash flow statement?
Its a non-cash event is it not? Example: if you write down the value of land and a house (you’re a builder) for $50,000 due to fallen prices, why does this $50,000 charge end up as an increase to the cash account and improve the cash flow statement?
Obviously, I’m not an accountant and this seems very counter intuitive. If what I described is correct, you do not have an additional $50,000 in your bank account to spend.
What am I missing?
Kraig Darring

















