Any profit from disposing of non-current assets must be _________ from net income, while any loss should be _________ to net income when calculating funds from operations.
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Answer: C. Deducted, Added
Explanation
Non-operating profit on asset disposal is deducted when calculating operating funds. Losses on asset disposal are added back to net income during fund calculations. This adjustment removes non-operating items from core operational cash flows. Funds from operations measure cash generated strictly through core business activities. Profits and losses on asset sales belong to investing activities rather than operations. Reconciling net income requires eliminating non-cash and non-operating gains.
Financial analysts adjust net income to evaluate sustainable operating cash generation. Fund flow statements help managers understand working capital changes over time. Proper classification of asset disposal gains prevents distortion of operating results. Option A is incorrect because profits are deducted, not added to net income. Option B is wrong since disposal profits must be deducted rather than added. Option D is incorrect because disposal losses require addition instead of deduction.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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