When selling PP&E at a gain, how does it affect the cash flow statement?

• A. Decrease in PP&E and increase in investing activities
• B. Increase in PP&E and decrease in investing activities
• C. No change in cash
• D. Increase in operating activities

Answer: (A)

When PP&E is sold for a gain, the cash flow statement reflects two things: the asset is removed from the books (PP&E) and cash is received from the sale. The cash received is an investing activities inflow, since it comes from the disposal of a long-term asset. At the same time, the asset balance decreases because you no longer own that property, plant, or equipment. The gain itself appears in net income, but it does not create operating cash. In the indirect method, you would adjust for this non-cash gain when reconciling net income to operating cash flow, typically by subtracting the gain from operating activities to avoid counting it twice. So the correct depiction is a decrease in PP&E and an increase in investing activities.