The effect of depreciation in operating cash flows of brazilian electricity power companies in years 2001 and 2002

Authors

  • Fernanda Fernandes Rodrigues
  • Paulo Roberto Barbosa Lustosa
  • Uverlan Rodrigues Primo

Abstract

The aim of this paper is to analyses FASB and IASB prescriptions related with the way depreciation expense is treated in Cash Flows Statement (CFS) and the correspondingly effect of such treatment in cash flows of operating activities. As a result of the analysis, we propose an alternative model for dealing with this subject. The model requires that noncash depreciation expense should be deducted from operating cash flows and simultaneously added to investing cash flows. In analyzing the CFS of large electricity power companies located in Brazil, we found that years 2001 and 2002 operating cash flows were substantially higher than net income in the same period, in opposition with what occurs when we apply the model proposed in this study. We then conclude that operating cash flows of such companies may be overestimated as a result of not considering depreciation expense as a virtual noncash transaction in the body of CFS.

Key words: operating cash flows, virtual noncash transaction, electricity power companies.

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Published

2021-05-25

Issue

Vol. 2 No. 1 (2005): jan/apr

Section

Articles

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