GP Sales - COGSGP Pec GP / SalesEarned Cash Collection * GP%Deferred Installment Recev. * GP%
Year 1B1Jan-01 Installment Sales 400000 GP 400000 300000 100000B1Dec-31 Bal Installment 150000 GP% 100000 400000 0.25
COGS 300000 Realized 250000 0.25 62500Realized Profit Deferred 150000 0.25 37500Earned Profit
Sales 300000 GP 300000 200000 100000COGS 200000 GP% 100000 300000 0.331st Installment Rec 100000 Realized 100000 0.33 33333
Deferred 200000 0.33 66667
Record sale of the landInstallment Sales Rec 300000
Inventory 200000Deferred GP 100000
Record cash collectionCash 100000
Installment Sales Rec 100000Profit on cash collectionDeferred GP 33333
Realized GP 33333
Points to consider
Recognized revenue = Receivable collection + Interest revenue if anyFor financial statement purposes, the installment method of accounting may be used if the ultimate amount collectible is indeterminate. Otherwise, the installment method of recognizing revenue is not acceptable for GAAP, and the entire gain is recognized in the year of sale.
The amount of deferred gross profit relating to installment AR collections 12 months beyond the balance sheet date should be reported in the current asset section as a contra account.
Sales 100000Cost of land 70000Cash collection Y1 Y2 Y3
35000 40000 25000
Record sale of the landCost Recovery Rece 100000
land 70000Def. gross profit 30000
Record Y1 collectionCash 35000
Cost Recovery Rece 35000Record Y2 collectionCash 40000
Cost Recovery Rece 40000Deferred GP 5000
Realized GP 5000
Record Y3 collectionCash 25000
Cost Recovery Rece 25000Deferred GP 25000
Realized GP 25000
For financial statement purposes, the installment method of accounting may be used if the ultimate amount collectible is indeterminate. Otherwise, the installment method of recognizing revenue is not acceptable for GAAP, and the entire gain is recognized in the year of sale.
months beyond the balance sheet date should be reported in the current asset section as a contra account.
For financial statement purposes, the installment method of accounting may be used if the ultimate amount collectible is indeterminate. Otherwise, the installment method of recognizing revenue is not acceptable for GAAP, and the entire gain is recognized in the year of sale.
Acctg For Nonmonetary Excahnge
Exchange of non-monetary assets be categorized into one of two groups:
Those that have commercial Substance Those that lack commercial Substance
When exchange has commercial substance: When exchange lack commercial substance:If the future cash flows change as a result of exchange transaction If projected cash flow are not expected to change significantly
General Rule:FAIR VALUE APPROACH IS USED Loss should be recognized
DR CRN New Asset (FV) O Old Asset (historical cost) Not Recognized IfA Acc. Dep old asset C Cash given No boot (Cash) receivedC Cash Received G Gain Boot (cash) paidL Loss
General Rule:
Foxy exchange car for building. Car Cost 102000Acc Dep 62000 FV 45000BV or CV 40000 -BV 40000 Example 1FV 45000 Gain 5000 Excahnge Machine A with BCash Paid 20000 Machine A (BV=10,000) (FV=12,000)Calculate Gain Machine B (FV= indeterminable)
Dr CrN Bulding FV 45000 Cash 20000 65000A Acc Dep 62000 Example 2C Cash Received Excahnge Machine A & 2,500 with BL Loss Machine A (BV=10,000) (FV=12,000)
O Car 102000 Machine B (FV= 14,500)C Cash Paid 20000G 5000
127000 127000Note Equal FV+Cash Received Example 3
Excahnge Machine A with B & 2,500
The change can either be in the area of: Risk, timing ND mount of future of cash flows
The following accounting method must be used also the acctg method is used when FV is inderteminable
In other word, economic position of the two parties change as a result of exchabge
In exchange that have commercial substance, all gains and losses are always recognized. Its computed as difference between [FV - BV "of asset given not received"]
FV 38000 FV 38000 Machine A (BV=10,000) (FV=12,000)-BV 40000 Machine B (FV= 9,500)Loss -2000
Dr CrN Bulding FV 38000 Cash 20000 58000A Acc Dep 62000C Cash Received 0L Loss 2000
O Car 102000C Cash Paid 20000 Example 4G Gain Excahnge Machine A with B & 6,000
122000 122000 Machine A (BV=10,000) (FV=12,000)Machine B (FV= 6,000)
Example 5Excahnge Machine A with BMachine A (BV=10,000) (FV=8,000)Machine B (FV= 8,000)
Those that lack commercial Substance Involuntary Conversion
When exchange lack commercial substance: Types of invluntary:If projected cash flow are not expected to change significantly 1. Fire loss
2. Theft3. Condemnation
Loss should be recognizedGain as folllow:
Not Recognized If Recognized If Example:No boot (Cash) received Boot (cash) Received
All gain recognized
Condenmantion 100,000BV of building 75,000Gain 25,000
Step 1Step 2 Cash
Gain Recognized= (A) * (B) BuildingGain on involuntary conversion
No boot, then no gain is recognized Gain will be recorded in income from continuing operationExcahnge Machine A with B Gain = 12000 - 10000 = 2000 not recognizedMachine A (BV=10,000) (FV=12,000) Dr Cr Cost of Removal and clan up cost should be added to carrying value not fair value of the assets and charged against condemination received.Machine B (FV= indeterminable) Machine B 10,000
Machine A 10,000 If the transactions involve; (1) the condemnation and (2) the replacement.Gain will be recognized in income from continuing operation
boot paid, then no gain is recognized Carrying amount of property condemned = Replacement cost > Condemination carrying amount excess is carrying amountExcahnge Machine A & 2,500 with B Gain = 12000 - 10000 = 2000 not recognizedMachine A (BV=10,000) (FV=12,000) Dr CrMachine B (FV= 14,500) Machine B 12,500
Machine A 10,000Cash 2,500
boot received less than 25%, % gain recognizedExcahnge Machine A with B & 2,500 Gain 12000 10000 2000
The following accounting method must be used also the acctg method is used when FV is inderteminable
Whenever nonmonetary assets are involuntary converted into cash, full gains or losses are recognized for financial accounting purposes
Company A received a condemantion award of 100,000 for the forced sales of A company's building. At that time, A company's building had a book value of 75,000.Calculate gain/ loss and prepare the JE.Equal or exceeds than 25% ->
of the consideration received
Less than 25% of the ->of the consideration received Proportional amount
of gain recognized
FV Old Asset - CV Old Asset = Gain (A)Boot Received / FV of old Assets (B)
Machine A (BV=10,000) (FV=12,000) Ratio 2,500 12,000 0.21 less than 25%Machine B (FV= 9,500) Gain Recog 2000 0.21 420
Dr CrMachine B 7,920Cash 2,500Machine A 10,000Gain 420
10,420 10,420
boot received less than 25%, % gain recognizedExcahnge Machine A with B & 6,000 Gain 12000 10000 2000Machine A (BV=10,000) (FV=12,000) Ratio 6,000 12,000 0.50 less than 25%Machine B (FV= 6,000) Gain Recog 2000 1 2000
Dr CrMachine B 6,000Cash 6,000Machine A 10,000Gain 2,000
12,000 12,000
Excahnge Machine A with B Loss 8000 10000 -2000Machine A (BV=10,000) (FV=8,000) Full RecognizeMachine B (FV= 8,000)
Dr CrMachine B 8,000Loss 2,000Machine A 10,000
10,000 10,000
Involuntary Conversion
100,00075,00025,000
Gain will be recorded in income from continuing operation
Cost of Removal and clan up cost should be added to carrying value not fair value of the assets and charged against condemination received.
If the transactions involve; (1) the condemnation and (2) the replacement.Gain will be recognized in income from continuing operation proceeds - carryin amountCarrying amount of property condemned = Replacement cost > Condemination carrying amount excess is carrying amount
50000 > 30000 then carrying amount of condemned property is 20000
Whenever nonmonetary assets are involuntary converted into cash, full gains or losses are recognized for financial accounting purposes
Company A received a condemantion award of 100,000 for the forced sales of A company's building. At that time, A company's building had a book
Calculate gain/ loss and prepare the JE.
Accounting for Partnership
Admission of Partner1. Purchase of Sale of existing partnership interest. No JE2. Formation of Partner
FV of Assets ContributedPV of Liabilities AssumedPartner Capital Account
3. Creation of new partnership interest with additional Investment Capital1. Total partnership capital does change2. Purchase price can be more, equal,or less than book value
More Bonus to existEqual No Good will or Bonus (Exact)Less Bonus to new
Exact Method: T.Equity of Existing Partner / No. of Existing Partner Partner A B CCapital 20,000 30,000 50,000A.B. & C decided to Admit D for 25% interest in the new partnershipIF D pays BV, how much should D contribute in order to have 25% interest?
a b c solution 20000 30000 50000 100000 3 33333.33
Bonus Method:Partner A B Interest less than amount contributedCapital 30000 10000 Bonus to ExistingShare % 0.6 0.4 New Partner Pays More than VBVC invest 35000 one third No goodwill
Solution:A 30000 0.6B 10000 0.4Total 40000C 35,000 0.3333333Total 75000 25000 75000*.33333
Dr CrInvest Pays 35,000 Cash 35,000Actual Interest 25,000 Capital C 25,000Bonus to exist 10,000 Capital A 6,000To A 0.6 6000 Capital B 4,000To B 0.4 4000
Bonus Method:Partner A B Interest more than amount contributedCapital 30000 10000 Bonus to NewShare % 0.6 0.4 New Partner Pays less than NBV
C invest 14000 one third No goodwill
Solution:A 30000 0.6B 10000 0.4Total 40000C 14,000 0.3333333Total 54000 18000 75000*.33333
Dr CrInvest Pays 14,000 Cash 14,000Actual Interest 18,000 Capital A 2400Bonus to C -4,000 Capital B 1600From A 0.6 -2400 Capital C 18,000From B 0.4 -1600
Goodwill Method Dr CrPartner A B Cash 35000Capital 30000 10000 Goodwill 30000
Partner A 18000Admit C for 35,000 for one third interest Partner B 12000
Partner C 35000Implied Value (35,000 * 3) 105000 65000 65000T.Partnet Capital AC (30000+10000+35000) 75000Goodwill Recognized 30000
A 0.6 18000B 0.4 12000
Profit & Loss Distribution
Example:Partner A B CCapital 30000 60000 90000Int on Cap 0.08 0.08 0.08Salary 10000 0 0Bonus 0 0 .15 of profitProfit 200000Share 0.2 0.3 0.5
A B C
Income & loss in partnership are distributed in accordance with their agreement, and in the absence of the agreement the profir and loss are shared equally irrspective of what their capital reflect or amount of time each partners spent in partnership.
Unless the partnership agreement specified otherwise, interest on capital, salaries, and bonuses are deducted prior to any distribution of profit. Such payment are provided in full, even in a loss situation.
Profit 2000000.08 2400 4800 7200 -14400Salary 10000 0 0 -10000bonus 0 0 30000 -30000
12400 4800 37200 145600Profit 29120 43680 72800T.Dist 41520 48480 110000
Liquidation of A Parnter
A B C0.5 0.3 0.2 Cash 20000
Advance 15000 0 5000 Noncash 75000 125000 65000Capital 10000 20000 20000 Liab. Creditor 25000
Advance Capitalcash Noncash Liab A C A B20000 75000 25000 15000 5000 10000 20000
Sales of noncash asset 125000 -75000 0 0 0 25000 15000145000 0 25000 15000 5000 35000 35000
Pay the creditor -25000 -25000120000 0 0 15000 5000 35000 35000
Pay partner -20000 0 0 -15000 -5000 0 0100000 0 0 0 0 35000 35000
Pay Capital -100000 0 0 0 0 -35000 -350000 0 0 0 0 0 0
cash Noncash Liab A C A B20000 75000 25000 15000 5000 10000 20000
Sale of noncash asset 65000 -75000 0 0 0 -5000 -300085000 0 25000 15000 5000 5000 17000
Pay creditor -25000 0 -25000 0 0 0 060000 0 0 15000 5000 5000 17000
Pay Advance -20000 0 0 -15000 -5000 0 040000 0 0 0 0 5000 17000
Distribute to cash -40000 0 0 0 0 -5000 -170000 0 0 0 0 0 0
cash Noncash Liab A C A B20000 75000 25000 15000 5000 10000 20000
Sale of noncash asset 15000 -75000 0 0 0 -30000 -1800035000 0 25000 15000 5000 -20000 2000
Pay creditor -25000 0 -25000 0 0 0 010000 0 0 15000 5000 -20000 2000
Advance to A 0 0 0 -15000 0 15000 010000 0 0 0 5000 -5000 2000
Divisionof A deficiency 0 0 0 0 5000 -300010000 0 0 0 5000 0 -1000
Divisionof B deficiency 0 1000
10000 0 0 0 5000 0 0-10000 0 0 0 -5000 0 0
Order of Preference regarding distribution of assets:
When the solvent partners are dissolved, and assets are reduced to cash, the cash must be used to pay partnership's first the creditors, including partnership creditor, must be paid before non-creditor partners. Then partners' capital, right to offset between partner loan to and from partnership and thatpersons' capital exists in liquidation.
Losses must be provided for liquidation before any distribution made to partners. Losses in partnership are charged against partners' capital in accordance with partnership agreement, in absence of partnership agreement, the losses are shared equally.
The general procedure in liquidation is that all noncash assets converted to cash, all liabilities are paid, the remainder if any, are distributed to the partners.
Liquidation of partnership assets results in gain or loss realized and loss realized resulting in capital deficiency. A capital deficiency is debit balance in partners capital account. If partners with capital deficiency has a loan, the partnership has legal right to offset and may use loan to satisfy capital deficiency. If deficiency still exists, the remaining partners must absorb the deficiency according to their profit and los share.
Interest less than amount contributed
New Partner Pays More than VBV
Interest more than amount contributed
Income & loss in partnership are distributed in accordance with their agreement, and in the absence of the agreement the profir and loss are shared equally irrspective of what their capital reflect or amount
Unless the partnership agreement specified otherwise, interest on capital, salaries, and bonuses are deducted prior to any distribution of profit. Such payment are provided in full, even in a loss situation.
15000
CapitalC200001000030000
300000
30000-30000
0C20000-200018000
018000
018000
-180000
C20000
-120008000
08000
08000
-20006000
-1000
5000-5000
When the solvent partners are dissolved, and assets are reduced to cash, the cash must be used to pay partnership's first the creditors, including partnership creditor, must be paid before non-creditor partners. Then partners' capital, right to offset between partner loan to and from partnership and thatpersons' capital exists in
Losses must be provided for liquidation before any distribution made to partners. Losses in partnership are charged against partners' capital in accordance with partnership agreement, in absence of partnership agreement, the
The general procedure in liquidation is that all noncash assets converted to cash, all liabilities are paid, the
Liquidation of partnership assets results in gain or loss realized and loss realized resulting in capital deficiency. A capital deficiency is debit balance in partners capital account. If partners with capital deficiency has a loan, the partnership has legal right to offset and may use loan to satisfy capital deficiency. If deficiency still exists, the remaining partners must absorb the deficiency according to their profit and los share.
Financial Reporting and Changes Prices
Appreciation InflationCost Dollar
Historical Current Nominal Constant
Historical Actual exchange value in $ at the timeCurrent Cost incurred at present time - replacement cost
Nominal unadjusted for changes in purchasing powerConstant $ restated based on calculation f CPI
Neither HC/ND based on historical price without restatement for changes in purchasing power dollar - GAAPInflation HC/CD
Appreciation CC/ND based on current cost without restatement for changes in purchasing power of dollar.Both CC/CD
Holding during Inflation Holding during DeflationMonetary Items Assets Purcahsing power loss Purchasing power gainInflation Laib Purchasing power gain Purchasing power loss
Monetary Asset PP G/L Nonmonetary Assets PP G/LInflation Appreciation
HC/ND No NoHC/CD Yes NoCC/ND No YesCC/CD Yes Yes
based on historical price adjusted for changes in purchasing power of dollar - Uses general price index to adjust historical cost
based on current cost and adjusted for changes in purchasing power of dollar - Uses specific price index or direct pricing to determine current cost, and Uses general price index to general purchasing power
based on historical price without restatement for changes in purchasing power dollar - GAAP
based on current cost without restatement for changes in purchasing power of dollar.
Holding during DeflationPurchasing power gainPurchasing power loss
Nonmonetary Assets PP G/LAppreciation
No NeitherNo InflationYes AppreciationYes Both
based on historical price adjusted for changes in purchasing power of dollar -
based on current cost and adjusted for changes in purchasing power of dollar - to determine current cost, and
Foreign Currency Accounting
FC Transaction Transaction with foreign entity donimated in foreign currencyFC Translation Conversion of FS of foreign entitiy into FS expressed in domestic currency
Exchange Rate Price of one unit of currency expressed in units of another currencyDirect Method Domestic price of one unit of another currency Euro 1 = $0.55
Indirect Method Freign price of one unit of domestic currency Euro 1.8 buys $1
Current Exch. RateForward Exch. RateHistorical Exch. RateW,Avg Exch, Rate Used for income statement translation
Reporting currency Always US DollarFunctional Currency Local currency or US dollar
FC Remeasurement Restatement of FS denominated in Foreign currency to functional currency prior to translationFC Translation Restatement of FS denominated in functional currency to currency of reporting entity
Foreign FS Translation
Translation Method I/S B/SRevenue WA Asset Current/Year endExpenses WA Liab Current/Year endNI Transfer to RE CS/APIC Historical
RE Roll forwardPlug
Remeasurement Method I/SRevenue WAExpense non-B/S WAExpense B/S HistoricalPlug Currency Gain/Loss
Functional Currency
Exchange rate at the current dateExchange rate existing now for exhanging two currencies at specified future dateExchange in effect at the date of issuance stock
Accumulated Translation Adjustment PUFE
IDEA
Local currency qualifies as foreign entity functional currency - it must be the currency of primary economic environment of company operates, and all of the following must exists:
1. Foreign ops self-contained within with country2. Day to day ops don't depend on investor functional currency3. Local economy of foreign entity is not highly inflationary
FS of "K Corp" foreign Sub of "D Corp (US company)" are shown below.
Assumptions1. Parent organized sub on Dec 21, 20X02. Exchange Rate: Dec 31, 20X0, Mar 31, 20X1 0.18 April 1, 20X1, Jun 30, 20X1 0.13 Jul 1, 20X1 - Sept 30,20X1 0.10 Oct 1, 20X1 - Dec 31, 20X1 0.10 Weighted Average 1.275
TranslationSales 525,000 0.13 66,938 Cost & Expenses
COGS 400,000- 0.13 51,000-Dep Exp 22,000- 0.13 2,805-Sell Expense 31,000- 0.13 3,953-Other operationg Expense 11,000- 0.13 1,403-Income Taxes Expense 19,000- 0.13 2,423-Total costs and expenses 483,000- 0.13 61,583-
Net Income 42,000 0.13 5,355
Stmt of RERetained Earning. Beg - Net Income 42,000 0.13 5,355 Retained Earning, End 42,000 0.13 5,355
B/S - AssetsCash 10,000 0.10 1,000 A/C Rec 50,000 0.10 5,000 Inventory 95,000 0.10 9,500 Fixed Assets 275,000 0.10 27,500 Accumulated Dep 22,000- 0.10 2,200-Total Assets 408,000 0.10 40,800
Liab & Stockholders EquityA/C Payable 34,000 0.10 3,400 Long-term debt 132,000 0.10 13,200 Common Stock, 10,000 shares 200,000 0.18 36,000 Reatined Earnings 42,000 5,355 Accumulated Bal of OCI <Plug> 17,155-Total Liab& Stockho;ders Equity 408,000 40,800
Changes in Exchange Rate
FS of "K Corp" foreign Sub of "D Corp (US company)" are shown below.
Assumptions1. Parent organized sub on Dec 21, 20X02. Exchange Rate: Dec 31, 20X0, Mar 31, 20X1 0.18 April 1, 20X1, Jun 30, 20X1 0.13 Jul 1, 20X1 - Sept 30,20X1 0.10 Oct 1, 20X1 - Dec 31, 20X1 0.10 Weighted Average 1.275
Foreign exchange transaction gain or loss will result if the exchange rate changes between the time of purchase or sales of foreign currency and the time of actual payment
Foreign exchange transaction gain or loss that is recognized in current net income must be computed at each balance sheet date on all recorded transaction of foreign currency that have not been settled at the balance sheet date. The difference between exchange rate used in recording the transaction and exchange rate at the balance shet date is an unrealized gain/loss on foreign currency (IDEA).
Assets and liabilities resulting from foreign exchange transactions should be recorded at the rate in effect at the date of aqcuisition.
12/1/Yr1 "O comp" purchased goods on credit for 100,000 pesos. "O comp" paid for goods on 2/1/Yr2. The exchange rate
12/01/Yr1 0.112/31/Yr1 0.0802/01/Y2 0.09
Goods 10000A.c Payable 10000
100000 0.02 2000 gain 0.2 -> (0.1 - 0.09)
A/C paybale 2000FX gain 2000
FX loss 1000A/C Payable 8000Cash 9000
Foreign exchange transaction gain or loss will result if the exchange rate changes between the time of purchase or sales of foreign currency and the time of actual payment
Foreign exchange transaction gain or loss that is recognized in current net income must be computed at each balance sheet date on all recorded transaction of foreign currency that have not been settled at the balance sheet date. The difference between exchange rate used in recording the transaction and exchange rate at the balance shet date is an unrealized gain/loss on foreign currency (IDEA).
Assets and liabilities resulting from foreign exchange transactions should be recorded at the rate in effect at the date of aqcuisition.
Conversion of FS of foreign entitiy into FS expressed in domestic currency
Euro 1 = $0.55Euro 1.8 buys $1
Restatement of FS denominated in Foreign currency to functional currency prior to translationRestatement of FS denominated in functional currency to currency of reporting entity
Current/Year endCurrent/Year end
Roll forward
B/SMonetary Current/Year endNonmonetary Historical Rate
at specified future date
Accumulated Translation Adjustment PUFE
Local currency qualifies as foreign entity functional currency - it must be the currency of primary economic environment of company operates,
Remeasurement 0.13 66,938
0.13 51,000- 0.18 3,960- 0.13 3,953- 0.13 1,403- 0.13 2,423-
62,738- Plug 2 6,853
11,053
11,053 11,053
0.10 1,000 0.10 5,000 0.13 12,113 0.18 49,500 0.18 3,960-
63,653
0.10 3,400 0.10 13,200 0.18 36,000 Plug 1 11,053
63,653
Foreign exchange transaction gain or loss will result if the exchange rate changes between the time of purchase or sales of foreign
Foreign exchange transaction gain or loss that is recognized in current net income must be computed at each balance sheet date on all recorded transaction of foreign currency that have not been settled at the balance sheet date. The difference between exchange rate used in recording the transaction and exchange rate at the balance shet date is an unrealized gain/loss on foreign currency
Assets and liabilities resulting from foreign exchange transactions should be recorded at the rate in effect at the date of aqcuisition.
12/1/Yr1 "O comp" purchased goods on credit for 100,000 pesos. "O comp" paid for goods on 2/1/Yr2. The exchange rate
Foreign exchange transaction gain or loss will result if the exchange rate changes between the time of purchase or sales of foreign
Foreign exchange transaction gain or loss that is recognized in current net income must be computed at each balance sheet date on all recorded transaction of foreign currency that have not been settled at the balance sheet date. The difference between exchange rate used in recording the transaction and exchange rate at the balance shet date is an unrealized gain/loss on foreign currency
Assets and liabilities resulting from foreign exchange transactions should be recorded at the rate in effect at the date of aqcuisition.
On personal financial statements, all items are reported at their fair market values (estimated current values).
Net assets are presented at FMV rather than:A. Individual assets and liabilities at costB. Total assets and liabilities at costC. Proprietorship equity at cost
Rule: Assets are reported at estimated fair value.
Ink stock at buyout value (fair value) 675,000Jewelry at fair value 70,000Total 745,000
On a personal statement of financial condition, estimated income taxes equals the difference between fair values and tax bases of assets and liabilities.
Personal financial statements usually include a statement of financial condition (similar to a balance sheet) and a statement of changes in net worth (similar to an income statement).
A business interest that constitutes a large part of an individual's total assets should be presented in a personal statement of financial condition as a single amount equal to the estimated current value of the business interest.
Note - Any tax liability due upon the sale of appreciated property would be disclosed separately as a against the estimated fair value of the asset.
On personal financial statements, all items are reported at their fair market values (estimated current values).
On a personal statement of financial condition, estimated income taxes equals the difference between fair values and tax bases of assets and
Personal financial statements usually include a statement of financial condition (similar to a balance sheet) and a statement of changes in net
A business interest that constitutes a large part of an individual's total assets should be presented in a personal statement of financial condition as a single amount equal to the estimated current value of the business interest.
Note - Any tax liability due upon the sale of appreciated property would be disclosed separately as a ''deferred tax liability'' and not ''netted''
Statement of Cash Flow
Purpose: Possible information about sources and uses of cash and cash equivalent
Cash & Cash Equivalent"Change in cash"SCF reconciles the cash and cash equivalent amount presented on the beginning B/S to amount presented on the ending B/S.
Cash Actual cashCash equivalent Quickly convertible into cash and maturity of 3 months or less
Methods of Presenting SCF
Regardless of the method used, Investing and Financing activities are same. Only operating activities and required disclosure are different
Direct Operating activities shows all major cash collection and disbursementReconciliation of net income to CF from operating activities is required to be in different schedule
Indirect Report operating activities indirectly, by adjusting net income to reconcile to net CF from operating activities
Sections of SCF
Operating activitiesMajor classes of cash receipt and disbursement are presented in gross and totaled to arrive to CF from operating activities.
Direct MethodInflow "Receipt" Outflow "Disbursed"
Cash collection Cash PaidSales to customer
+ Decrease A/R +- Increase A/R -+ Increase Unearned Revenue +- Decrease Unearned Revenue -
+-+
Cash received from customer: Cash Paid to SupplierCash Sales XXX Step 1
Cash receivedInterest ReceivedDividend Received "if paid Financing"Other receipt "such insurance proceed & law suit settlement"Cash received from sales Trading Securities "AFS & HTM is investing"
Cash paid to supplierInterest Paid "Principal Paid is Financing"Cash paid for rent, utilties, etc.Income Tax paid " deferred or current"Cash paid to acquire Tading Securities "AFS & HTM is investing"
Asset has negative relationship
Liability has positive relationship
Plus
A/R Step 2Beginning A/R XXX Write offs XXX Cash Purchases XXXCredit Sales XXX Cash Collection XXX A/P
Ending A/R XXX Cash Paid
Indirect MethodNI XXX
Add Depriciation/ (Amortisation discount) XXXLoss - Sale of PPE or Long term Investment XXX lessDecrease in Assets XXXIncrease in Liabilities XXX XXX
Subtract Amortisation Premium (XXX)Gain -Sale of PPE or Long term Investment (XXX)Increase in Assets (XXX)Decrease in Liabilities (XXX) (XXX)
Provided if positive XXXUsed If negative (XXX)
Investing activities
Inflows OutflowsDisposals AFS & HTM Securities Acquiring AFS & HTM SecuritiesDisposals PPE Acquiring PPE
Making loan to other entities
Financing activitiesOwner-Oriented Creditor-Oriented
Inflows Outflows InflowsIssuing Stock Repurchase Stock
Paying Dividend
Non-cash Investing & Financing
Information about material non-cash financing and investing activities should be presented in a separate disclousre.Examples of non-cash investing and financing activities
Purchase of fixed assets by issuing stockPurchase of fixed assets through Capital lease
Net Cash Flow Provided/Used From Operating Activities
Issuing bond, note& other borrowing
Exchange non-cash assets to another non-cash assets
Some useful formula to help solving question
Bond Redeemption = Beg Bond Payable + Bond Issued during year - Ending Bond Payable
Conversion of bond to equity - Each conversion should be disclosed separately
SCF reconciles the cash and cash equivalent amount presented on the beginning B/S to amount presented on the ending B/S.
Regardless of the method used, Investing and Financing activities are same. Only operating activities and required disclosure are different
Reconciliation of net income to CF from operating activities is required to be in different schedule
Report operating activities indirectly, by adjusting net income to reconcile to net CF from operating activities
Major classes of cash receipt and disbursement are presented in gross and totaled to arrive to CF from operating activities.
Direct MethodOutflow "Disbursed"
COGSIncrease InventoryDecrease InventoryIncrease PrepaidIncrease PrepaidDecrease A/PIncrease A/PExpenses
Cash Paid to SupplierBeg Inventory + Purchases - End Inventory = COGS
Cash paid to supplierInterest Paid "Principal Paid is Financing"Cash paid for rent, utilties, etc.Income Tax paid " deferred or current"Cash paid to acquire Tading Securities "AFS & HTM is investing"
Asset has Positive relationship
Liability has Negative relationship
"Solve for Purchases"
Cash Purchases XXX PlusA/P
Beginning A/P XXXCash Paid XXX Purchases "step 1" XXX
Ending A/P XXX
Indirect Method
Asset Cost Selling Price InvestingAccu. Dep less NBVNBV Gain/Loss operating
Creditor-OrientedOutflows
Payment of Principal
Information about material non-cash financing and investing activities should be presented in a separate disclousre.
y1 y2 y3500 700 500
1000 300 0400 700 900200 500 1200
500 1200 17001500 1500 1700
0.333333 0.8 1500 500 300
166.6667 400 -100233.3333 300