plant assets

Hello Everyone -

 

The statement of cash flows for McDonalds appears on page 29 of the annual report.  The statement of cash flows for McDonalds was prepared using the indirect method.  The indirect method starts out with the dollar amount net income that appears on the income statement.  Since the transactions recorded for revenues and expense are based on the accrual method of accounting, net income needs to be converted to the cash basis when preparing the statement of cash flows.  Noncash transactions reported on the income statement, (e.g. depreciation expense) are adjustments to net income followed by the changes in the current accounts.   The changes in the current asset and current liabilities indicate if cash increased or decreased when converting the transactions from the accrual basis to the cash basis of accounting.

 

The investing activities and financing activities will appear the same when using the indirect and direct methods.  Alyssa's response identified the purchase and sale of plant assets reported as investing activities on the statement of cash flows for McDonalds.  The dollar amount spent for the purchase of plant and equipment (capital expenditure) is a cash outflow as where the sale (disposal) of plant assets results in a cash inflow.  Take a look at Illustration 12A-1. The changes in noncash current and long-term assets are computed based on the comparison of the account balances that appear in the balance sheet for the current and previous years.  Illustration 12A-1 shows how the change in the account balances for the plant assets and the accumulated depreciation are computed.

 

Class - How does the analysis of change in the plant assets and accumulated depreciation impact the preparation of the statement of cash flows?  Substantive responses add new topic related information to help move the discussion forward and do not summarize or repeat information that was previously posted by another student.

 

 

References

 

Kimmel, P. D. (2013). Financial accounting: Tools for business decision making. Retrieved from University of Phoenix eBook Collection.

McDonalds Annual Reports (2015) .   2014 Annual Report.  Retrieved from http://www.aboutmcdonalds.com/mcd/investors/annual_reports.html

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