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Publication date: 29 Nov 2020 us Financial statement presentation guide 6.8 ASC 230 requires separate disclosure of all investing or financing activities that do not result in cash flows. This disclosure may be in a narrative or tabular format. The noncash activities may be included on the same page as the statement of cash flows, in a separate footnote, or in other footnotes, as appropriate. ASC 230-10-50-4 provides examples of noncash investing and financing transactions:
Other examples include:
6.8.1 Constructive receipts and disbursementsNumerous processes and protocols have developed in which financial institutions or other entities act as quasi-agents on behalf of reporting entities in regard to transfers of cash. Thus, a reporting entity may have certain transactions that do not result in an exchange of currency or an entry into its cash account, but for which the same economic results are obtained as if an exchange of currency or an entry into its cash account had occurred. In these situations, the question arises as to whether the transactions should be reflected as a noncash activity or if the reporting entity should gross up its statement of cash flows to reflect that cash was constructively received and disbursed. If an arrangement is made whereby a cash disbursement is made by a third party (e.g., a financial institution) on behalf of the reporting entity to satisfy the reporting entity’s obligation to another party (e.g., a vendor), we believe the substance of the transactions and its constructive cash flows should be reported in the statement of cash flows. Therefore, a reporting entity should include cash flows received or paid by a third party on behalf of the reporting entity as though the transaction took place through the bank accounts of the reporting entity. For example, assume a reporting entity engages a transfer agent to assist in the simultaneous borrowing under a new loan with Lender B and the payoff and retirement of an existing loan with Lender A. The new debt proceeds from Lender B are sent to the transfer agent, and from the transfer agent to Lender A. Neither the new loan proceeds, nor the old loan payoff enter, or leave the reporting entity’s bank account. In this situation, the reporting entity should gross up its statement of cash flows to reflect that cash was constructively received from Lender B (a financing inflow) through the reporting entity’s agent, and then this same cash was constructively disbursed to Lender A in the form of principal and interest (a financing outflow and operating outflow). Another example of constructive receipt and disbursement is when a reporting entity obtains financing from a bank which is immediately used to pay a vendor payable. If the reporting entity instructs the bank to pay the vendor directly on their behalf, the reporting entity should reflect a financing inflow for the receipt of the debt proceeds and an operating outflow for the payment of the vendor payable. Judgment is required when determining if constructive receipt and disbursement is appropriate. 6.8.2 Examples of noncash investing and financing activitiesExample FSP 6-3 and Example FSP 6-4 demonstrate the identification and presentation of noncash investing and financing activities. EXAMPLE FSP 6-3 On December 20, 20X1, FSP Corp purchases and takes title to equipment costing $100, and accordingly debits property, plant, and equipment and credits accounts payable. As of December 31, 20X1, FSP Corp has not yet made cash payment to settle the accounts payable. How should the equipment acquisition be reflected in FSP Corp’s December 31, 20X1 statement of cash flows? Analysis Until FSP Corp has made a cash payment related to the equipment, the equipment acquisition is a noncash activity that should not be reflected in the statement of cash flows. Understanding if FSP Corp’s equipment acquisition is a noncash activity requires an understanding of the words “or soon before or after purchase.” Regardless, it would be incorrect to include a $100 investing outflow and a corresponding $100 operating inflow (created by the increase in accounts payable as a reconciling item using the indirect method of presentation) in FSP Corp’s December 31, 20X1 statement of cash flows, because neither of those cash flows occurred. EXAMPLE FSP 6-4 FSP Corp acquires computer equipment for $100 cash and a $400 installment note payable to the seller. Providing installment notes payable to its customers is not a normal trade term for the seller. How should the $100 cash payment be recorded in the statement of cash flows? How should the $400 installment note payable to the seller be reflected? Analysis The $100 cash payment should be reported as an investing activity outflow and included with purchases of property, plant, and equipment. The noncash investing and financing transaction of $400 should be disclosed. The subsequent principal payments on the debt should be classified as financing cash outflows, whereas the payments of interest on the debt should be classified as operating cash flows. Alternatively, if the $400 was borrowed from a third-party lender who agrees to disburse the funds either to the buyer, or to the seller at the direction of the buyer, the loan would be a financing cash inflow and the full purchase price of the equipment would be an investing cash outflow. PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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Is dividends paid an investing activity?(c) dividends received would be considered an investing activity.
Is paying dividends a financing decision?Cash Flow From Financing Activities
The financing activity in the cash flow statement focuses on how a firm raises capital and pays it back to investors through capital markets. These activities also include paying cash dividends, adding or changing loans, or issuing and selling more stock.
Why is dividend paid a financing activity?The general philosophy is that dividend payments are considered to be Financing Activities because these are payments to the investors (shareholders) who actually are co-finincing the company.
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