The 2012 statement of cash flows for technology company Hewlett-Packard reported
ID: 2651524 • Letter: T
Question
The 2012 statement of cash flows for technology company Hewlett-Packard reported a net loss of $12.7 billion arid net cash provided by operating activities of $10.6 billion. Depreciation and amortization totaled $5.1 billion. HP used the indirect form of presenting the statement of cash flows. a. How is depreciation disclosed on the statement of cash flows? Why? b. Why doesn?t net earnings plus depreciation equal net cash provided by operating activities? c. One large non-cash impairment expense totaled $18.0 billion. Provide an estimate of the net change in current assets and current liabilities for HP during 2012.Explanation / Answer
a) Depreciation is added back to the Net Income under the indirect method of cash flow statement because it is a non cash expense . Though it reduces the Net income on the Income Statement, the cash balance on the balance sheet is uneffected by the amount of Depreciation Expense so it is added back to the Net income under Indirect method of cash flow statement.
b) Net Earnings plus Depreciation is not equal to Net cash Provided by Operating Activities because the Cash flow from Operating Actvities also takes into account the effect of Net Working capital changes like the increase or decrease in Accounts Receivable , etc into account for calculating Net cash flow from Operating Activities.
c) The non cash impairment expense will be added back to the net income because it is a non cash expense but there will be no effect on the the current liabilities and current assets for HP during 2012 because the impairment expense will not effect current assets or current liabilities.
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