Calculating cash received for equipment sold

LOS 34:f - demonstrate the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;

One of the difficulty in understanding this LOS is calculating the cash received for equipment sold based on the Income & Balance Sheet statements. It does not help that the SchweserNotes just bypass this particular calculation. I must say that the Notes were poorly written for this particular LOS 34:f. The examples given were only for calculating the cash paid for purchase of equipment. The example given on page 114 did not have a sale of equipment. Shame!

If the company has not sold of equipment, calculating the cash flow for purchase of equipment is easy. In this case, cash paid for purchase of equipment = Ending Historical Cost of Equipment – Beginning Historical Cost of Equipment.

But if there is a sale of equipment, it becomes complicated. The CFA Institutes reading were no better in its description. It just give the 3 steps to calculate the cash received for sale of equipment on page 264 at Reading 34 without much explanation on the rationale. There are so many steps that there isn’t enough time to calculate during examination. Shame shame!

After cracking my brain, here is the right flow of thought:

Beginning Historical Cost of Equipment (from Balance Sheet)
- Beginning Accumulative Depreciation (from Balance Sheet)
- Depreciation Expense for the period (from Income Statement)
+ Purchase of Equipment (from footnotes)
- Historical Cost of Equipment Sold
= Ending Historical Cost of Equipment (from Balance Sheet)
– Ending Accumulative Depreciation (from Balance Sheet)

Rearrange the equation and you’ll get the Historical Cost of Equipment Sold.

Therefore, cash received for sale of equipment = Historical Cost of Equipment Sold + Gain (from Income Statement).