accounting question

fireflys

hey,

so in a cash budget question there is a bit of relevant information following it:

"fixed production costs for the year are 150,000. These are paid quarterly in equal amounts. The 150,000 includes depreciation of 20,000"

My question is as depreciation has nothing to do with cash budgets do you add the 20,000 back on or take it off?

Any help would be appreciated

seventeen sheep

fireflys wrote: »

hey,

so in a cash budget question there is a bit of relevant information following it:

"fixed production costs for the year are 150,000. These are paid quarterly in equal amounts. The 150,000 includes depreciation of 20,000"

My question is as depreciation has nothing to do with cash budgets do you add the 20,000 back on or take it off?

Any help would be appreciated

Wouldn't you take it away? For a cash budget, you are interested in where the actual money is going. If the total cost is 150 incl. dep of 20, the dep isn't a real "hard" cost, therefore for cashflow purposes, the cost is 130.

fireflys

seventeen sheep wrote: »

Wouldn't you take it away? For a cash budget, you are interested in where the actual money is going. If the total cost is 150 incl. dep of 20, the dep isn't a real "hard" cost, therefore for cashflow purposes, the cost is 130.

Thanks for the reply, that's what I was thinking of doing but also would that not be a double depreciation, should you add it back on so that it can be ignored then

Anyone else have an opinion please

HeinekenTicket

fireflys wrote: »

would that not be a double depreciation, should you add it back on so that it can be ignored then

No - it is included in the 150 so you deduct it in order to exclude it.

smcgiff

The question tells you that the €150k fixed costs includes €20k depreciation.

As only cash movements are relevant you would exclude the €20k depreciation.

The relevant cost would be €130k as mentioned above.