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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

CHAPTER 22

STATEMENT OF CASH FLOWS

ASSIGNMENT CLASSIFICATION TABLE

Topics

Brief Exercises Exercises Problems

Writi!Assi!mets

1. Cash flows from abusiness perspective.

1

. !ses of statement ofcash flows.

1 1,

". Cash and cashe#uivalents.

" "

$. Classifying operating,investing, andfinancing activities.

$, %, &, ',(

, ", $, %, &,', (, ), 1*,11

", $, %, &,1*

1, , $, &

%. +irect and indirect

methods of preparingoperating activities.

), 1* ", 1, 1",

1$, 1%, 1&,1', 1(

", $, ', (

&. tatement of cashflows-direct method.

), 11, 1,1", 1$

", $, 1, 1",1$, 1%, 1&,1), *

1, ", $, %,', ), 1*,11, 1

1

'. tatement of cashflows-indirectmethod.

1*, 1$,1%, 1&

1, ", $, %, &,1", 1$, 1%,1&, 1', 1(,*, 1

, ", $, &,', (, ),1*, 11, 1"

(. resentation anddisclosure.

', ( ", $, ', (, ),1*, 11, 1%,1&

1, ", $, %,', 1*, 1,1"

). /nterpret a statementof cash flows.

1, $, ), 1%,1'

1, , %, ',(, 11, 1,1"

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ASSIGNMENT CLASSIFICATION TABLE "Coti#e$%

Topics

Brief Exercises Exercises Problems

Writi!Assi!mets

1*. +ifferences between/0 and 23.

, $ $, 1*, 11,1&

&, (, )

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ASSIGNMENT CHARACTERISTICS TABLE

Item &escri'tioLe(el of&iffic#lt)

Time"mi#tes%

3-1 repare statement from transactions, and

e4planation of changes in cash flow

Moderate $*-$%

3- Classification of transactions andcalculation of cash flows.

Moderate %-"%

3-" 5ournal entries and classification Moderate 1%-*3-$ 6ong-term e#uity investment7 direct and

indirect /0 and 23Moderate 1%-*

3-% artial C0, indirect method. Moderate *-%3-& 2nalysis of changes in capital asset

accounts and related cash flows.Moderate "*-"%

3-' tatement presentation8indirect method. Moderate *-"*3-( tatement presentation 9 e#uity accounts Moderate 1%-*

3-) 3ntries and partial comparative C0 foroperating and finance lease

Moderate *-%

3-1* Classification of transactions and events. imple 1*-1%3-11 Classification of transactions - indirect. imple 1*-1%3-1 :perating activities section8direct method. imple *-"*3-1" ;ad debt write-offs and recoveries. imple 1%-*3-1$ C0 direct and indirect methods with

comments.Moderate "*-$*

3-1% C0, direct and indirect methods, thencontrast results.

Moderate "*-$*

3-1& C0, direct and indirect methods Moderate *-"*

3-1' ;oth methods of C0 and analysis. Moderate "%-$*3-1( :perating activities section8indirect

method.imple 1%-*

3-1) :perating activities section8direct method. Moderate *-"*3-* 2ccounting cycle, financial statements,

cash account, and C0, direct and indirectModerate $*-%*

3-1 :perating activities section8indirectmethod <%=

Moderate *-"*

>3- Work sheet analysis of selectedtransactions.

Moderate *-%

>3-" Work sheet preparation. Moderate $%-%%

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ASSIGNMENT CHARACTERISTICS TABLE "Coti#e$%

Item &escri'tioLe(el of&iffic#lt)

Time"mi#tes%

-1 C0, direct method and reconciliation andcomments

Comple4 %*-%%

- C0, indirect method. Moderate $*-$%-" ;oth methods including cash and cash

e#uivalentsComple4 $%-%*

-$ :perating activities section8direct methodand C08indirect method, and draftoverall comments

Moderate $*-%*

-% C0, direct method and reconciliation andcomments

Moderate $%-&*

-& 3#uity transactions reported on the C0 Moderate "*-"%

-' C0, indirect method, and net cash flowfrom operating activities, direct method andcomments.

Moderate "*-$*

-( :perating activities section8indirectmethod

Moderate *-"*

-) C0 0?-:C/ investment transactions, bothformats

Moderate *-%

-1* 2ll financial statements from accountactivities involving investments.

Moderate "*-"%

-11 C0, both methods and analysis Moderate $*-$%-1 repare statement of financial position from

cash flow and income statements.

Comple4 %*-%%

-1" C0, indirect method with summary onhighlights concerning cash activities, andrelated #uestions.

Moderate %*-&*

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SOL*TIONS TO BRIEF E+ERCISES

BRIEF E+ERCISE 22,-

".% A b#siess s/o#l$ /.(e 'ositi(e c.s/ flo0s to fi.ceex'.sio1 '.) $i(i$e$s1 .$ rem.i sol(et $#ri!ecoomic $o0t#rs St.mfor$ m.) /.(e . 'ositi(e c.s/b.l.ce .$ . soli$ c#rret r.tio .s of t/e $.te of t/ecom'.)3s most recet st.temet of fi.ci.l 'ositio1 .s0ell .s . /istor) of 'rofit.bilit) Ho0e(er1 St.mfor$3s b.4m..!er 0ill .lso 0.t to .ssess t/e b#siess3s .bilit) to!eer.te 'ositi(e c.s/ flo0s from o'er.tios for t/e

'erio$ 0/ic/ 0ill cofirm its .bilit) to fi.ce t/e#'comi! ex'.sio .$ $ecre.se t/e ris4 i(ol(e$ ile$i! to St.mfor$

"b% T/e st.temet of c.s/ flo0s 'ro(i$es iform.tio .bo#tt/e b#siess3s so#rces .$ #ses of c.s/ $#ri! t/e'erio$1 .$ /el's i(estors .$ cre$itors .ssess t/eb#siess3s e.ri!s 5#.lit) Wit/ t/e iform.tio o t/est.temet of c.s/ flo0s1 St.mfor$3s b.4 m..!er c..ssess t/e b#siess3s .bilit) to !eer.te c.s/ to '.) its

m.t#ri! $ebt1 icre.se 'ro$#cti(e c.'.cit)1 .$ $istrib#te. ret#r to its o0ers T/e st.temet of c.s/ flo0s .lso.llo0s St.mfor$3s b.4 m..!er to .ssess t/e 5#.lit) of St.mfor$3s re'orte$ 'rofit.bilit) b) com'.ri! c.s/ flo0from o'er.tios to .ccr#.l b.sis et icome "For ex.m'le1if .ccr#.l b.sis et icome is m#c/ !re.ter t/. c.s/ flo0from o'er.tios1 t/e com'.)3s re'orte$ et icome m.)be 6#$!e$ to be of lo0er 5#.lit)1 or less reflecti(e of ecoomic re.lit)%

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BRIEF E+ERCISE 22,2

".% 72281999 "7-981999 : 7-291999%

*$er IFRS1 'referre$ s/.res .c5#ire$ close to t/eir

m.t#rit) $.te m.) be icl#$e$ i c.s/ e5#i(.lets Le!.ll)restricte$ c.s/ b.l.ces .re ot icl#$e$ i C.s/e5#i(.lets T/e) .re re'orte$ se'.r.tel) i c#rret.ssets or oc#rret .ssets1 $e'e$i! o t/e $.te of .(.il.bilit) of t/e c.s/ or of t/e ex'ecte$ $isb#rsemet

"b% 7-981999

*$er ASPE1 c.s/ e5#i(.lets excl#$e .ll e5#it)

i(estmets Le!.ll) restricte$ c.s/ b.l.ces .re oticl#$e$ i C.s/ e5#i(.lets T/e) .re re'orte$se'.r.tel) i c#rret .ssets or oc#rret .ssets1$e'e$i! o t/e $.te of .(.il.bilit) of t/e c.s/ or of t/eex'ecte$ $isb#rsemet

BRIEF E+ERCISE 22,;

<#e ;9 <#e ;9 Net29-= 29-; &ecre.se

C.s/ i b.4 7-21-99 7 >1=?9Pett) c.s/ -99 -2@

I(estmet i C..$. ?9,$.)tre.s#r) bill 221999 281;99

Tem'or.r) b.4 o(er$r.ft1c/e5#i! .cco#t "-;1899% "-1999%

C.s/ .$ c.s/ e5#i(.lets 7291=99 7 ;?188@ 7 -?1=8@

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BRIEF E+ERCISE 22,=

".% IFRS

C.s/ flo0 from i(esti! .cti(itiesProcee$s from s.le of l.$ 7-891999Procee$s from s.le of bo$s =-@1999Iterest recei(e$ --1999&i(i$e$s recei(e$ =1999P#rc/.se of F,NI i(estmets "-@1999%P#rc/.se of e5#i'met "=>@1999%P#rc/.se of i(estmets i bo$s1 re'orte$

.t .mortie$ cost "?-1999%Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities 7 ;>1999

"b% ASPE

C.s/ flo0 from i(esti! .cti(itiesProcee$s from s.le of l.$ 7-891999Procee$s from s.le of bo$s =-@1999P#rc/.se of F,NI i(estmets "-@1999%P#rc/.se of e5#i'met "=>@1999%P#rc/.se of i(estmets i bo$s1 re'orte$

.t .mortie$ cost "?-1999%Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities 7 2=1999

BRIEF E+ERCISE 22,@

C.s/ flo0 from fi.ci! .cti(itiesProcee$s from iss#.ce of commo s/.res 72991999Procee$s from iss#.ce of bo$s '.).ble =-91999P.)met of b.4 lo. 'rici'.l "291999%

&i(i$e$s '.i$ "-91999%P#rc/.se of com'.)3s o0 s/.res "=1999%Net c.s/ 'ro(i$e$ b) fi.ci! .cti(ities 7;;1999

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BRIEF E+ERCISE 22,?

".% & "/% P,I "o% R,F"b% A "i% P,I "'% P,F"c% R,F "6% A "5% R,I1 A"$% A "4% & "r% P,F"e% R,I "l% R,F "s% N"f% R,I1 & "m% N "t% N"!% P,F "% & "#% A

BRIEF E+ERCISE 22,

".% L.$ -=>1999Commo S/.res-=>1999

"b% No effect

"c% I t/e otes to t/e fi.ci.l st.temetsDNo,c.s/ I(esti! .$ Fi.ci!

Acti(itiesD P#rc/.se of l.$ t/ro#!/iss#.ce of commo s/.res 7-=>1999

BRIEF E+ERCISE 22,8

Fi.ci! .cti(itiesDC.s/ '.i$ o c.'it.l le.se 7"21;;9%

I t/e otes to t/e fi.ci.l st.temetsDNo,c.s/ I(esti! .$ Fi.ci! Acti(itiesD

P#rc/.se of m.c/ier) #$er c.'it.l le.se 78@1999

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BRIEF E+ERCISE 22,>

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers

"729@1999 7-1999% 7-881999C.s/ '.i$ To s#''liers "7-291999 : 7--1999 7-;1999% 7--81999 For o'er.ti! ex'eses "7@91999 72-1999% 2>1999 -=1999Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7 =-1999

BRIEF E+ERCISE 22,-9

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7;@1999A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese 72-1999 Icre.se i .cco#ts '.).ble -;1999 Icre.se i .cco#ts recei(.ble "-1999% Icre.se i i(etor) "--1999% ?1999Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7=-1999

BRIEF E+ERCISE 22,--

S.les 7=291999LessD S.les ret#rs .$ .llo0.ces "-91999%LessD S.les $isco#ts "-1999%A$$D &ecre.se i .cco#ts recei(.ble -;1999

C.s/ recei(e$ from c#stomers 7=221999

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BRIEF E+ERCISE 22,-2

Cost of !oo$s sol$ 7@@91999A$$D Icre.se i i(etor) 2;1999P#rc/.ses @;1999&e$#ctD Icre.se i .cco#ts '.).ble 81999C.s/ '.i$ to s#''liers 7@?@1999

BRIEF E+ERCISE 22,-;

".%&ec ;- &ec ;- Effect

29-= 29-; o C.s/

Icome t.x ex'ese 29-= 7"21@99%F#t#re t.x beefit 29-= ?99C/.!es i rel.te$ SFP.cco#tsD Icome t.x '.).ble 7 -1299 7 -1=99 "299% F#t#re t.x .sset ;99 ";99%

F#t#re t.x li.bilit) -1>@9 -1?99 ;@9Icome t.xes '.i$ 7 "219@9%

*$er ASPE1 com'.ies .re eco#r.!e$ to $isclos#re icomet.xes '.i$1 b#t icome t.xes '.i$ .re ot re5#ire$ to be$isclose$ se'.r.tel)

"b%

*$er IFRS1 icome t.xes '.i$ .re re5#ire$ to be $isclose$

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BRIEF E+ERCISE 22,-= ".% C.s/ flo0s from o'er.ti! .cti(ities

C.s/ recei(e$ from c#stomers 7>91999C.s/ '.i$ for ex'eses "7?91999 7-1@=9%

@81=?9Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7;-1@=9

"b% C.s/ flo0s from o'er.ti! .cti(ities Net icome 7=91999

Icre.se i et .cco#ts recei(.ble"7212?9 7-81899% "81=?9%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7;-1@=9

BRIEF EXERCISE 22-15

C.s/ flo0s from o'er.ti! .cti(ities Net icome 7=?1999 A$6#stmets to recocile et icome to et

c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities&e'reci.tio ex'ese 7-1999*re.lie$ losses o F,NI i(estmets ;1999Icre.se i .cco#ts '.).ble >1;99

Icre.se i .cco#ts recei(.ble "--1999%&ecre.se i $eferre$ t.x .ssets 21999Icre.se i i(etor)

"1=99%

-21>99 Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7@81>99


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BRIEF E+ERCISE 22,-?

C.s/ flo0s from o'er.ti! .cti(itiesNet loss "7@?1999%A$6#stmets to recocile et icome

"loss% to et c.s/ 'ro(i$e$ b)o'er.ti! .cti(ities

&e'reci.tio ex'ese 781999 Icre.se i .cco#ts recei(.ble "81-99%

81>99Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7221>99

BRIEF E+ERCISE 22,-

".% O'er.ti!Net Icome291999

Ret.ie$ E.ri!s291999

"b% Ret.ie$ E.ri!s?91999Fi.ci!&i(i$e$s P.i$?91999

"c% E5#i'met--=1999I(esti!P#rc/.se of E5#i'met--=1999

"$% I(esti!S.le of E5#i'met-;1999

Acc#m#l.te$ &e'reci.tioE5#i'met;21999E5#i'met=91999O'er.ti!G.iS.le of E5#i'met @1999


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SOL*TIONS TO E+ERCISES

E+ERCISE 22,- "=9,=@ mi#tes%".%

Stro! Ho#se1 IcSt.temet of C.s/ Flo0s "I$irect Met/o$%For t/e e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7=21999A$6#stmets to recocile et icome

to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities

&e'reci.tio ex'ese ".% 7-;1@@9G.i o s.le of i(estmet i bo$s "b% "@99% -;19@9

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7@@19@9

C.s/ flo0s from i(esti! .cti(itiesP#rc/.se of l.$ "c%

"@1@99%Procee$s o s.le of i(estmet i bo$s "$% -@1@99

Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities -91999

C.s/ flo0s from fi.ci! .cti(ities&i(i$e$s '.i$ "e% "->1999%P.)mets to retire bo$s '.).ble "f% "-91999%Procee$s from iss#.ce of commo

s/.res "!% 291999Net c.s/ #se$ b) fi.ci! .cti(ities

">1999%

Net icre.se i c.s/ @[email protected]/ b.l.ce1 <.#.r) -1 29-= -91999C.s/ b.l.ce1 &ecember ;-1 29-= 7??19@9

No,c.s/ i(esti! .$ fi.ci! .cti(itiesIss#.ce of bo$s for e5#i'met 7;21999

S#''lemet.l $isclos#res of c.s/ flo0 iform.tioD

C.s/ '.i$ $#ri! t/e )e.r forDIterest 7=1@99Icome t.xes 7->1@99

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E+ERCISE 22,- "Coti#e$%

"b% &e.r Mr Br.#erD

Eclose$ is )o#r st.temet of c.s/ flo0s for t/e )e.r e$i! &ecember ;-1 29-= I 0o#l$ li4e to t.4e t/is o''ort#it)to ex'l.i t/e c/.!es 0/ic/ occ#rre$ i )o#r b#siess .s .res#lt of c.s/ .cti(ities $#ri! 29-= "Ple.se refer to t/e.tt.c/e$ st.temet of c.s/ flo0s%

T/e first c.te!or) s/o0s t/e et c.s/ flo0 0/ic/ res#lte$from .ll of )o#r o'er.ti! .cti(ities O'er.ti! .cti(ities .ret/ose e!.!e$ i for t/e ro#tie co$#ct of b#siess1 i(ol(i!most of t/e tr.s.ctios #se$ to $etermie et icome T/e

c.s/ iflo0 from o'er.tios 0/ic/ .ffects t/is c.te!or) is eticome Ho0e(er1 t/is fi!#re m#st be .$6#ste$1 first for $e'reci.tio "item .%bec.#se t/is ex'ese $i$ ot i(ol(e .c.s/ o#tl.) i 29-=.$ seco$ for t/e 7@99 !.i o t/e s.le of )o#r bo$ i(estmet "item b% T/e !.i m#st be s#btr.cte$from t/is sectio bec.#se it 0.s icl#$e$ i et icome1 b#t it isot t/e res#lt of . o'er.ti! .cti(it)it is . i(esti! .cti(it)

T/e seco$ c.te!or)1 c.s/ flo0s from i(esti! .cti(ities1res#lts from t/e .c5#isitio$is'os.l of 'l.t .ssets .$i(estmets icl#$i! t/e '#rc/.se of .ot/er etit)3s $ebts#c/ .s bo$s or otes o#r '#rc/.se of l.$ "item c% .s 0ell.s t/e s.le of )o#r i(estmet i bo$s "item $% re'resets )o#r i(estmet .cti(ities $#ri! 29-=1 t/e '#rc/.se bei! . 7@1@99o#tflo0 .$ t/e s.le bei! . 7-@1@99 iflo0

C.s/ flo0s .risi! from t/e iss#.ce .$ retiremet of $ebt .$ e5#it) .re 'ro'erl) cl.ssifie$ .s JC.s/ flo0s fromfi.ci! .cti(itiesK T/ese iflo0s .$ o#tflo0s !eer.ll)

icl#$e t/e lo!,term li.bilit) .$ e5#it) items o t/e st.temetof fi.ci.l 'ositio Ex.m'les of )o#r fi.ci! .cti(itiesres#lti! i c.s/ flo0s .re t/e '.)met of $i(i$e$s "item e%1 t/eretiremet of )o#r bo$s '.).ble "item f%1 .$ )o#r iss#.ce of commo s/.res "item !%

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Note t/.t1 .lt/o#!/ 7;21999 0ort/ of bo$s 0ere iss#e$ for t/e'#rc/.se of /e.() e5#i'met1 t/e tr.s.ctio /.s o effect ot/e c/.!e i c.s/ from <.#.r) -1 29-= to &ecember ;-1 29-=

I /o'e t/is iform.tio /el's )o# to better #$erst.$ t/eeclose$ st.temet of c.s/ flo0s If I c. f#rt/er .ssist )o#1'le.se let me 4o0Sicerel)1

"c%

Stro! Ho#se1 IcSt.temet of Fi.ci.l Positio

&ecember ;-1 29-=

AssetsC.s/ 7??19@9C#rret .ssets ot/er t/. c.s/ ;=1999I(estmet i bo$s1 .t .mortie$ cost 2@1999 "-%Pl.t .ssets "et% @1>@9 "2%L.$ ==1999 ";%

72=@1999

Li.bilities .$ E5#it)C#rret li.bilities 7-=1@99Lo!,term otes '.).ble ;91999Bo$s '.).ble @=1999 "=%S/.re c.'it.l -991999 "@%Ret.ie$ e.ri!s =?1@99 "?%

72=@1999

"-% 7=91999 7-@1@99 : 7@99"2% 7@1@99 7-;1@@9 : 7;21999";% 7;81@99 : 7@1@99"=% 7;21999 : 7;21999 7-91999"@% 7891999 : 7291999"?% 72;1@99 : 7=21999 7->1999

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"$% T/e st.temet of c.s/ flo0s #se$ to be c.lle$ t/est.temet of c/.!es i fi.ci.l 'ositio bec.#se it #se$to re'ort t/e so#rces of icre.se .$ $ecre.se i 0or4i!c.'it.l It .lso icl#$e$ .ll tr.s.ctios .ffecti! t/eetit)3s .ssets .$ c.'it.l str#ct#re1 re!.r$less of 0/et/er or ot t/e tr.s.ctios i(ol(e$ c.s/ flo0s

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E+ERCISE 22,2 "2@,;@ mi#tes%

".%O'er.ti! .cti(itiesD

C.s/ recei(e$ from c#stomersS.les re(e#e 72>@1999LessD Icre.se i .cco#ts recei(.ble "-91999%C.s/ recei(e$ from c#stomers 728@1999

"b% T/e .''ro.c/ is to 're'.re . T,.cco#t for 'ro'ert)1 'l.t1.$ e5#i'met

Pro'ert)1 Pl.t E5#i'met

-2;--; -=1999E5#i'met from exc/.!e of BP 291999

P.i$ for '#rc/.se of PPE =@1999 E5#i'met sol$-2;--= -1999

P.)mets 7-1999 : 7=@1999 7-=1999 7291999 7@@1999

T/e '#rc/.se of 'ro'ert)1 'l.t1 .$ e5#i'met is .i(esti! .cti(it) Note t/.t t/e .c5#isitio of 'ro'ert)1'l.t1 .$ e5#i'met i exc/.!e for bo$s '.).ble 0o#l$be $isclose$ .s . o,c.s/ i(esti! .$ fi.ci! .cti(it).$ t/e $et.ils of t/is exc/.!e 0o#l$ be 'ro(i$e$ i .ote to t/e fi.ci.l st.temets

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E+ERCISE 22,2 "Coti#e$%

"c% T/e .''ro.c/ is to set #' . T,.cco#t for .cc#m#l.te$$e'reci.tio

Acc#m#l.te$ &e'reci.tio

?1999 -2;--;

;;1999 &e'reci.tio ex'eseE5#i'met sol$

81999 -2;--=

Acc#m#l.te$ $e'reci.tio o e5#i'met sol$ 7-?1999 :7;;1999 7-81999 7221999

T/e etr) to reflect t/e s.le of e5#i'met isD

C.s/ "'rocee$s from s.le of e5#i'met% "7=@1999 : 7-=1@99 7221999% ;1@99 "force%Acc#m#l.te$ $e'reci.tio 221999 ".bo(e%

Pro'ert)1 Pl.t1 .$ E5#i'met =@1999 "!i(e%G.i o S.le of E5#i'met -=1@99 "!i(e%

T/e 'rocee$s from t/e s.le of e5#i'met of 7;1@99 .re

re'orte$ .s i(esti! .cti(ities iflo0

olutions Manual -1( Chapter

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"$% T/e c.s/ $i(i$e$s '.i$ c. be $etermie$ b) ..l)i! T,.cco#ts for ret.ie$ e.ri!s .$ $i(i$e$s '.).ble

Ret.ie$ E.ri!s

>-1999 -2;--;&i(i$e$s $ecl.re$ ;-1999 Net icome

-9=1999 -2;--=

&i(i$e$s $ecl.re$ 7>-1999 : 7;-1999 7-9=1999 7-81999

&i(i$e$s P.).ble

@1999 -2;--;-81999 &i(i$e$s $ecl.re$

C.s/ $i(i$e$s '.i$ 81999 -2;--=

C.s/ $i(i$e$s '.i$ 7@1999 : 7-81999 781999

7-@1999

Fi.ci! .cti(ities icl#$e .ll c.s/ flo0s i(ol(i! o,

o'er.ti! li.bilities .$ s/.re/ol$ers3 e5#it) itemsP.)met of c.s/ $i(i$e$s is t/#s . fi.ci! .cti(it)o#tflo0

olutions Manual -1) Chapter

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"e% T/e re$em'tio of bo$s '.).ble .mo#t is $etermie$ b)setti! #' . T,.cco#t

Bo$s P.).ble

-=?1999 -2;--; 291999 Iss#.ce of BP for PPE

Re$em'tio of BP -=>1999 -2;--=

T/e 'roblem st.tes t/.t t/e bo$s 0ere iss#e$ .t '.r .$ sot/e re$em'tio of bo$s '.).ble is t/e ol) c/.!e ot

.cco#te$ for

Re$em'tio of bo$s '.).ble 7-=?1999 : 7291999 7-=>1999 7-1999

Fi.ci! .cti(ities icl#$e .ll c.s/ flo0s i(ol(i! o,o'er.ti! li.bilities .$ s/.re/ol$ers3 e5#it) itemsT/erefore1 re$em'tio of bo$s '.).ble is cosi$ere$ .fi.ci! .cti(it) o#tflo0

olutions Manual -* Chapter

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"f% T/e .''ro.c/ is to set #' . T,.cco#t for F,NII(estmets

F,NI I(estmets

-2;--; =>1999-1999 I(estmets sol$ ;1999 *re.lie$ loss

I(estmets '#rc/ -2;--= =-1999

C.rr)i! .mo#t of i(estmets sol$ 7221999 7@1999 7-1999

T/e etr) to reflect t/e s.le of i(estmets isD C.s/ "'rocee$ss.le of i(estmets% 221999 "!i(e%

F,NI I(estmets -1999 "force%G.i o S.le of I(estmets @1999 "!i(e%

T/e 'rocee$s from t/e s.le of F,NI i(estmets of 7221999is re'orte$ .s i(esti! .cti(ities iflo0

"!% To sol(e for t/e .mo#t of t/e '#rc/.se of F,NI

i(estmets1 #se t/e JTK .cco#t for t/e F,NI i(estmets.bo(e "7=-1999 : 7-1999 : 7;1999 7=>1999 7-21999%

T/e '#rc/.se of F,NI i(estmets of 7-21999 is re'orte$.s i(esti! .cti(ities o#tflo0


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E+ERCISE 22,; "-@,29 mi#tes%

".%29-=M.) - C.s/ 221@99

Acc#m#l.te$ &e'reci.tio,E5#i'met ;81999G.i o S.le of E5#i'met 81@99E5#i'met @21999

<#e -@ Acc#m#l.te$ &e'reci.tio,E5#i'met @1@99Loss o &is'os.l of E5#i'met @99

E5#i'met ?1999

Se't - E5#i'met 199

C.s/ 199

&ec ;9 Notes Recei(.ble @1999G.i o S.le of L.$ ;91999L.$ =@1999

;- &e'reci.tio Ex'ese -21?99Acc#m#l.te$ &e'reci.tio,E5#i' -21?99

"b% I$irect met/o$DO'er.ti! .cti(itiesD

&e'reci.tio ex'ese 7-21?99Loss o $is'os.l of e5#i'met @99G.i o s.le of e5#i'met "81@99%G.i o s.le of l.$ ";91999%

I(esti! .cti(itiesDS.le of e5#i'met 221@99P#rc/.se of e5#i'met "199%

Note +DSi!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(itiesDA mort!.!e ote recei(.ble of 7@1999 0.s obt.ie$ fromt/e s.le of l.$

olutions Manual - Chapter

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E+ERCISE 22,; "Coti#e$%

"c% &irect met/o$DO'er.ti! .cti(itiesD

I(esti! .cti(itiesDS.le of e5#i'met 221@99P#rc/.se of e5#i'met "199%

Note +DSi!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(itiesDA mort!.!e ote recei(.ble of 7@1999 0.s obt.ie$ fromt/e s.le of l.$

"$% Alt/o#!/ .t first !l.ce it mi!/t .''e.r .s if t/e res#lts fromo'er.ti! .cti(ities #si! t/e t0o form.ts $iffer I f.ct t/e)$o ot I t/e i$irect met/o$1 fo#r .$6#stmets .''e.r toremo(e t/eir effect o et icome "t/e st.rti! 'oit of t/ei$irect met/o$% T/ese fo#r items .re liste$ to .$6#st.ccr#.l et icome to c.s/ from o'er.ti! .cti(ities T/efo#r items liste$ 0ere icl#$e$ i et icome1 .$ so t/eir effect /.s to be remo(e$ b) t/ese .$6#stmets .s t/e) $oot i(ol(e o'er.ti! .cti(ities


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3@3C/3 -$ <1%,29 mi#tes%

(a)

Recocili.tio of tr.s.ctios to i(estmet .cco#tD

B.l.ce <. -1 29-= 7=221999 P#rc/.se of .$$itio.l s/.res <. 21 29-= ?@1999A$$ s/.re of Bl.c4 icome for 29-=

"=9 x 7;;1999%-;129

9Less $i(i$e$s recei(e$ from Bl.c4 i 29-=

"=9 + 7-=1999%"@1?99

% B.l.ce &ec ;-1 29-= 7=>=1?99

"b%O'er.ti! .cti(itiesD &irect I$irectE5#it) icome of Bl.c4 Ic 7"-;1299%I(esti! .cti(itiesDC.s/ recei(e$ for $i(i$e$s 7 @1?99C.s/ '.i$ for Bl.c4 Ic s/.res "?@1999% "?@1999%

"c%O'er.ti! .cti(itiesD &irect I$irect

C.s/ recei(e$ for $i(i$e$s 7 @1?99E5#it) i icome of Bl.c4 Ic i

excess of $i(i$e$s recei(e$ "ote -% 7 "1?99%I(esti! .cti(itiesDC.s/ '.i$ for Bl.c4 Ic s/.res 7"?@1999% 7"?@1999%

"ote -%I(estmet icome from Bl.c4 Ic 7"-;1299%&i(i$e$s recei(e$ from Bl.c4 Ic @1?99

Net 7 "1?99%


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E+ERCISE 22,@ "29,2@ mi#tes%

T..4. Limite$St.temet of C.s/ Flo0s "'.rti.l1 i$irect met/o$%

For t/e e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7 =91999A$6#stmets to recocile et icome to et

c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese 7-?1899

Loss o s.le of m.c/ier)

@1899 221?99&i(i$e$s '.i$ "-@1999%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities =1?99C.s/ flo0s from i(esti! .cti(ities

P#rc/.se of m.c/ier) "?21999%Procee$s o s.le of m.c/ier) 2@1999Cost of m.c/ier) costr#cte$ "=81999%

Net c.s/ #se$ b) i(esti! .cti(ities "8@1999%

.

"7@?1999 72@1299% 7@1899Q 72@1999


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E+ERCISE 22,? ";9,;@ mi#tes%

".%- L.$ "e0%>-1999

C.s/ ;1999L.$ "ol$% ?91999G.i o &is'os.l of L.$ 281999

L.$21999C.s/ 21999

"7@81999 7>-1999 : 7?91999%

2 Acc#m#l.te$ &e'reci.tioE5#i'met -91999

C.s/-1999E5#i'met -91999G.i o S.le of E5#i'met -1999

Acc#m#l.te$ &e'reci.tioE5#i'met 21;99Loss o &is'os.l of E5#i'met99

E5#i'met ;1999

E5#i'[email protected]/ 1@99"7?1@99 7-91999 7;1999 : + 7?21999%

&e'reci.tio Ex'ese ;1@99Acc#m#l.te$ &e'reci.tioE5#i'met ;1@99

"72=1999 7-91999 721;99 : + 7-@1299%


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E+ERCISE 22,? "Coti#e$%

; E5#i'met #$er Le.se-9=12=Obli!.tios #$er Le.se -9=12=

Obli!.tios #$er [email protected]/ 2@1999

Iterest Ex'ese;1>?2Iterest P.).ble ;1>?2"7-9=12= 72@1999% + -9 + ?-2Q

&e'reci.tio Ex'ese -91=2@Acc#m#l.te$ &e'reci.tio Le.se$ E5#i'met

-91=2@

"7-9=12= + ?-2 $i(i$e$ b) @ )e.rs%"b%- I(esti! .cti(itiesD

P.)met o exc/.!e of l.$ ";1999%P#rc/.se of l.$ "21999%

2 I(esti! .cti(itiesD

Procee$s from s.le of e5#i'met -1999P#rc/.se of e5#i'met "1@99%

; Fi.ci! .cti(itiesDP.)met o c.'it.l le.se "2@1999%

"c%- G.i o $is'os.l of l.$ "281999%2 G.i o s.le of e5#i'met "-1999%

Loss o $is'os.l of e5#i'met 99

&e'reci.tio ex'ese o e5#i'met ;1@99; &e'reci.tio ex'ese o le.se$ e5#i'met [email protected] i iterest '.).ble ;1>?2


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E+ERCISE 22,? "Coti#e$%

"$% I '.rt "b%1 o etries .''e.re$ for o'er.ti! .cti(ities for .) of t/e etries 're'.re$ i '.rt ".% 0/e #si! t/e $irectmet/o$ of t/e st.temet of c.s/ flo0s I '.rt "c% se(er.l

items ee$e$ to .''e.r #$er t/e o'er.ti! .cti(ities #si!t/e i$irect form.t Alt/o#!/ .t first !l.ce it mi!/t .''e.r .s if t/e res#lts from o'er.ti! .cti(ities #si! t/e t0oform.ts $iffer I f.ct t/e) $o ot I t/e i$irect met/o$1 six.$6#stmets .''e.r i or$er to remo(e t/eir effect o eticome "t/e st.rti! 'oit of t/e i$irect met/o$% T/ese sixitems .re liste$ to .$6#st .ccr#.l et icome to c.s/ fromo'er.ti! .cti(ities T/e six items liste$ 0ere icl#$e$ iicome1 .$ so t/eir effect /.s to be remo(e$ b) t/ese

.$6#stmets .s t/e) $o ot i(ol(e o'er.ti! .cti(ities


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E+ERCISE 22, "29,;9 mi#tes%

- Pl.t .ssets "cost% 7=91999%Acc#m#l.te$ $e'reci.tio "7=91999 -9Q + ?% 2=1999%

C.rr)i! .mo#t .t $.te of s.le -?1999%S.le 'rocee$s "@1;99%Loss o s.le 7-9199%

T/e loss o s.le of 'l.t .ssets is re'orte$ i t/e o'er.ti!.cti(ities sectio of t/e st.temet of c.s/ flo0s It is .$$e$ toet icome to .rri(e .t et c.s/ 'ro(i$e$ b) o'er.ti!.cti(ities

T/e s.le 'rocee$s of 7@1;99 .re re'orte$ i t/e i(esti!

sectio of t/e st.temet of c.s/ flo0s .s follo0sD

S.le of 'l.t .ssets 7@1;99

2 S/o0 i t/e fi.ci! .cti(ities sectio of . st.temet of c.s/ flo0s .s follo0sD

S.le of commo s/.res 7=-91999

; T/e 0rite off of t/e #collectible .cco#ts recei(.ble of 721999 is ot re'orte$ o t/e st.temet of c.s/ flo0s T/e0rite off re$#ces t/e Allo0.ce for &o#btf#l Acco#tsb.l.ce .$ t/e Acco#ts Recei(.ble b.l.ce It $oes ot.ffect c.s/ flo0s


7/25/2019 sm ch (22).doc



E+ERCISE 22, "Coti#e$%

= T/e et loss of 7-91999 s/o#l$ be re'orte$ i t/e o'er.ti!.cti(ities sectio of t/e st.temet of c.s/ flo0s &e'reci.tioof 7221999 is .$$e$ to icome i t/e o'er.ti! sectio of t/est.temet of c.s/ flo0s T/e !.i o s.le of l.$ is $e$#cte$from icome "loss% i t/e o'er.ti! .cti(ities sectio of t/est.temet of c.s/ flo0s T/e 'rocee$s from t/e s.le of l.$of 7;>1999 .re re'orte$ i t/e i(esti! .cti(ities sectio of t/e st.temet of c.s/ flo0s T/ese fo#r items mi!/t bere'orte$ .s follo0sD

C.s/ flo0s from o'er.ti! .cti(itiesNet loss 7"-91999%

A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.tiosD &e'reci.tio ex'ese 221999 G.i o s.le of l.$ ">1999%

Eit/er et c.s/ #se$ or 'ro(i$e$ $e'e$i! #'o ot/er .$6#stmets Gi(e ol) t/e .$6#stmets1 t/e Jet c.s/'ro(i$e$K 0o#l$ be #se$

C.s/ flo0s from i(esti! .cti(itiesS.le of l.$ 7;>1999

@ T/e '#rc/.se of t/e C..$i. Tre.s#r) bill is ot re'orte$ it/e st.temet of c.s/ flo0s T/is istr#met is cosi$ere$ .c.s/ e5#i(.let .$ is t/erefore icl#$e$ i c.s/ .$ c.s/e5#i(.lets

? T/e '.tet .morti.tio of 7-81999 is re'orte$ i t/eo'er.ti! .cti(ities sectio of t/e st.temet of c.s/ flo0s It

is .$$e$ to et icome i .rri(i! .t et c.s/ 'ro(i$e$ b)o'er.ti! .cti(ities

olutions Manual -"* Chapter

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E+ERCISE 22, "Coti#e$%

T/e exc/.!e of commo s/.res for . i(estmet iTr.sCo Cor' is re'orte$ .s . Jo,c.s/ i(esti! .$fi.ci! .cti(it)K1 most li4el) i t/e otes It is s/o0 .sfollo0sD

No,c.s/ i(esti! .$ fi.ci! .cti(itiesP#rc/.se of i(estmet b) iss#.ce of commo s/.res 7>991999

8 T/e .ccr#.l of . #re.lie$ loss $oes ot i(ol(e c.s/ .$0o#l$ /.(e c.#se$ . re$#ctio of et icome It is re'orte$ i

t/e o'er.ti! .cti(ities sectio of t/e st.temet of c.s/ flo0sIt is .$$e$ to et icome i .rri(i! .t et c.s/ 'ro(i$e$ b)o'er.ti! .cti(ities

olutions Manual -"1 Chapter

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E+ERCISE 22,8 "-9,-@ mi#tes%

".% Net icomeD

Ret.ie$ e.ri!s1 e$ of )e.r 7;991999A$$D

C.s/ $i(i$e$s 'referre$ ?12@9Stoc4 $i(i$e$ -=1999

Ret.ie$ e.ri!s .(.il.ble for $i(i$e$s ;2912@9LessD be!ii! b.l.ce Ret.ie$ E.ri!s 2=91999

Net icome "$eri(e$% 7 8912@9

"b% C.s/ flo0s from fi.ci! .cti(ities D

Preferre$ $i(i$e$s '.i$ "7 ?12@9%P.)mets o re'#rc/.se of commo s/.res "281@99%

"7;21999 7;1@99 Cotrib#te$ S#r'l#s%

Stoc4 $i(i$e$s $o ot i(ol(e c.s/

"c% Bec.#se M.$ric/ Ic is #si! IFRS1 it co#l$ c/oose tocl.ssif) t/e 'referre$ $i(i$e$s '.i$ i t/e .mo#t of 7?12@9 .s o'er.ti! c.s/ flo0s


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E+ERCISE 22,> <9,2@ mi#tes%

".%<#l) -1 29-;

e/icles #$er Le.se

;19?=1=9Obli!.tios #$er Le.se

;19?=1=9

Obli!.tios #$er Le.se @[email protected]/ @=@1999

&ecember ;-1 29-;Iterest Ex'ese -991>

Iterest P.).ble -991>

"729-1@@8 + ?-2 7-991>%

&e'reci.tio Ex'ese 2-818>-Acc#m#l.te$ &e'reci.tio

e/icles #$er Le.se 2-818>-"7;19?=1=9 )e.rs + ?-2 72-818>-%

<#l) -1 29-=Iterest Ex'ese -991>Iterest P.).ble -991>Obli!.tios #$er Le.se ;=;1==2

C.s/ @=@1999

&ecember ;-1 29-=Iterest Ex'ese 819=-

Iterest P.).ble 819=-"7-=1982 + ?-2 7819=-%

&e'reci.tio Ex'ese =;18-

Acc#m#l.te$ &e'reci.tioe/icles #$er Le.se =;18-"7;19?=1=9 )e.rs 7=;18-%

olutions Manual -"" Chapter

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E+ERCISE 22,> "Coti#e$%

"b%W.!er Ic

St.temet of C.s/ Flo0s P.rti.lFor t/e e.r e$e$ &ecember ;-1

29-= 29-;C.s/ 'ro(i$e$ b) "#se$ i% O'er.ti! .cti(ities &irect Met/o$

P.)mets of iterest 7"29-1@@8% ,9,C.s/ 'ro(i$e$ b) "#se$ i% Fi.ci! .cti(ities

P.)mets o le.se obli!.tios " ;=;1==2 % 7"@=@1999%Net $ecre.se i c.s/ 7"@=@1999% 7"@=@1999%

C.s/ 'ro(i$e$ b) "#se$ i%o'er.tios I$irect Met/o$

St.rt 0it/ et icome effectIterest ex'ese 7"-81829%7"-991>%&e'reci.tio ex'ese "=;18-% "2-818>-%Tot.l re$#ctio of icome "?2@1?9-% ";->1?9%

&e'reci.tio ex'ese =;18- 2-818>-C/.!es i o,c.s/ 0or4i! c.'it.lDC/.!e i iterest '.).ble "-;1;8% -991>

C.s/ #se$ i o'er.ti! .cti(ities "29-1@@8% ,9,

C.s/ 'ro(i$e$ b) "#se$ i% Fi.ci! .cti(ities

P.)mets o fi.ce le.ses " ;=;1==2% "@=@1999 %

Net $ecre.se i c.s/ 7@=@1999 7@=@1999

"7-991> : 7819=- 7-8129%

Note +D &#ri! 29-;1 W.!er Ic si!e$ fi.ci! le.ses to.c5#ire . fleet of tr#c4s for t/e .mo#t of 7;19?=1=9

olutions Manual -"$ Chapter

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"c%<#l) -1 29-;

Pre'.i$ Ret @[email protected]/ @=@1999

&ecember ;-1 29-;Ret Ex'ese 221@99

Pre'.i$ Ret 221@99"7@=@1999 + ?-2 7221@99%

<#l) -1 29-=

Ret Ex'ese @[email protected]/ @=@1999

W.!er IcSt.temet of C.s/ Flo0s P.rti.lFor t/e e.r e$e$ &ecember ;-1

29-= 29-;C.s/ 'ro(i$e$ b) "#se$ i% o'er.tios &irect Met/o$

C.s/ '.i$ for ret.ls 7"@=@1999% 7"@=@1999%

C.s/ 'ro(i$e$ b) "#se$ i%o'er.tios I$irect Met/o$

St.rt 0it/ et icome $ecre.se$ b) ret ex'ese 7"@=@1999% 7"221@99%

C/.!es i o,c.s/ 0or4i! c.'it.lDIcre.se i 're'.i$ ret "221@99%

Net $ecre.se i c.s/ 7"@=@1999% "@=@1999%

olutions Manual -"% Chapter

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"$% W/e loo4i! .t . st.temet of c.s/ flo0s1 . exter.l #ser 0o#l$ 'refer to see stro! c.s/ iflo0s comi! fromo'er.tios T/e c.s/ flo0s tot.lli! 7@=@1999 'er )e.r .re.ll cl.ssifie$ .s o'er.ti! c.s/ flo0s 0/e t/e le.se iscl.ssifie$ .s . o'er.ti! le.se O t/e ot/er /.$1 0/ecl.ssifie$ .s . fi.ce le.se1 ol) t/e iterest '.i$ o t/ele.se obli!.tio is cl.ssifie$ .s . o'er.ti! c.s/ flo010/ile t/e 'rici'.l re'.)mets .re fi.ci! c.s/ flo0sCose5#etl) exter.l #sers 0o#l$ iter'ret . stro!er 'erform.ce 0/e loo4i! .t t/e c.s/ flo0 0/ere t/e le.se/.s bee c.'it.lie$

olutions Manual -"& Chapter

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E+ERCISE 22,-9 "-9,-@ mi#tes%

"-% ".% Not . c.s/ tr.s.ctio1 b#t .cti(it) is . o'er.ti!.cti(it)

"2% ".% Not . c.s/ tr.s.ctio1 b#t .cti(it) is . o'er.ti!.cti(it) bec.#se of t/e c/oice m.$e b) m..!emet

";% ".% O'er.ti! .cti(it)"=% "b% I(esti! .cti(it)"@% ".% O'er.ti! .cti(it)"?% "$% A si!ific.t o,c.s/ i(esti! or fi.ci! .cti(it)"% ".% Not . c.s/ tr.s.ctio1 b#t .cti(it) is . o'er.ti!

.cti(it)"8% "c% Fi.ci! .cti(it) bec.#se of t/e c/oice m.$e b)

m..!emet

">% ".% O'er.ti! .cti(it)"-9% "$% A si!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(it)"--% "b% I(esti! .cti(it)"-2% "b% I(esti! .cti(it) bec.#se of t/e 'olic) c/oice m.$e b)

m..!emet"-;% "b% I(esti! .cti(it) for t/e $is'ositio of t/e (e/icles"-=% ".% "e% Not . c.s/ .cti(it) or tr.s.ctio t/.t is re'orte$ o

t/e c.s/ flo0 st.temet1 b#t t/e .cti(it) itself 0o#l$ be .o'er.ti! .cti(it) .s m..!emet re!.r$s $i(i$e$s '.i$.s . o'er.ti! .cti(it) T/e $ecisio to iss#e t/e$i(i$e$ .$ .s . stoc4 $i(i$e$ iste.$ of . c.s/$i(i$e$ 0o#l$ be . o'er.ti!,t)'e $ecisio

Ple.se oteDT/e Istr#ctios .s4 )o# to $etermie 0/.t t)'e of .cti(it) e.c/tr.s.ctio is1 ot 0/ere e.c/ tr.s.ctio is re'orte$ o t/ec.s/ flo0 st.temet Bec.#se t/e c.s/ flo0 st.temets#mm.ries t/e c.s/ flo0s .ssoci.te$ 0it/ .ll t/e tr.s.ctios.$ e(ets t/.t t.4e 'l.ce i t/e .cco#ti! 'erio$1 it is

im'ort.t to be .ble to i$etif) t/e t)'e of .cti(it) e.c/#$erl)i! tr.s.ctio is T/is $ict.tes t/e t)'e of c.s/ flo0rel.te$ to e.c/

E+ERCISE 22,-9 "coti#e$%

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For istr#ctors 0/o 'refer to .s0er t/is 5#estio from t/e'ers'ecti(e of /o0 e.c/ tr.s.ctio is re'orte$ o . c.s/ flo0st.temet1 t/e follo0i! sol#tio .''liesD

"-% ".% O'er.ti! .cti(it) "i$irect met/o$ ol) 0it/ offsetti!.$6#stmets to icome%

"2% "e% Noe of t/ese o'tios";% ".% O'er.ti! .cti(it)"=% "b% I(esti! .cti(it)"@% ".% O'er.ti! .cti(it)"?% "$% No,c.s/ i(esti! .$ fi.ci! .cti(it)"% "e% Noe of t/ese o'tios"8% "c% Fi.ci! .cti(it) bec.#se of t/e c/oice m.$e b)

m..!emet">% ".% O'er.ti! .cti(it)"-9% "$% No,c.s/ i(esti! .$ fi.ci! .cti(it)"--% "b% I(esti! .cti(it)"-2% "b% I(esti! .cti(it) bec.#se of t/e 'olic) c/oice m.$e b)

m..!emet"-;% ".%"b% O'er.ti! .cti(it) for t/e !.i o $is'os.l "i$irect

met/o$ ol)% .$ I(esti! .cti(it) for t/e 'rocee$s froms.le

"-=% "e% Noe of t/ese o'tios

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E+ERCISE 22,-- "-9,-@ mi#tes%

".%

"-% ";% I(esti! .cti(it)"2% "=% Fi.ci! .cti(it) for re$em'tio c.s/ '.i$ "- or 2%

o'er.ti! .$$ to icome .) loss .$ $e$#ct fromicome .) !.i res#lti! from t/e re$em'tio

";% "@% Si!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(it)"=% ";% I(esti! .cti(it) for .) c.s/ 'rocee$s recei(e$

from t/e s.le1 "- or 2% o'er.ti! .$$ to icome .)loss .$ $e$#ct from icome .) !.i res#lti! fromt/e s.le

"@% "-% O'er.ti!.$$ to et icome"?% "@% Si!ific.t o,c.s/ i(esti! .cti(it) "- or 2% If .)

!.i is recor$e$ o t/e exc/.!e1 $e$#ct fromicome i o'er.ti! .cti(ities .$ .$$ b.c4 .) loss

"% "=% Fi.ci! .cti(it)"8% "-% O'er.ti!.$$ to et icome">% "=% Fi.ci! .cti(it)"-9% "@% Si!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(it)"--% "-% O'er.ti!.$$ to et icome

"-2% "-% O'er.ti!.$$ to et icome"-;% "2% O'er.ti! .cti(it) bec.#se of t/e c/oice m.$e b)m..!emet

"-=% "2% O'er.ti!$e$#ct from et icome"-@% "-% O'er.ti!.$$ to et icome"-?% "@% Si!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(it)"-% "=% Fi.ci! .cti(it) for 'rici'.l '.i$ o le.se

obli!.tio fi.ci! .cti(it) for iterest '.i$o'er.ti! .$$ to icome for t/e iterest ex'ese

"-8% "?% Noe of t/ese o'tios '.rt of c.s/ .$ c.s/

e5#i(.lets"->% "?% O'er.ti! .cti(it) .lre.$) reflecte$ i t/e icome

st.temet so o .$6#stmet to icome is re5#ire$"29% "2% O'er.ti!$e$#ct from et icome"2-% "=% Fi.ci! .cti(it)"22% "=% Fi.ci! .cti(it)

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E+ERCISE 22,-- "Coti#e$%

"2;% "=% Fi.ci! .cti(it) bec.#se of t/e c/oice m.$e b)m..!emet

"2=% ";% I(esti! .cti(it) bec.#se of t/e c/oice m.$e b)m..!emet

"2@% "-% O'er.ti! .cti(it) bec.#se of t/e c/oice m.$e b)m..!emet

"2?% "?% Noe of t/ese o'tios '.rt of c.s/ .$ c.s/e5#i(.lets

"b% T/e follo0i! .s0ers 0o#l$ be $ifferet #$er ASPED

"-;% "=% Fi.ci! .cti(it) if c/.r!e$ $irectl) to ret.ie$

e.ri!s"2;% "?% O'er.ti! .cti(it) if reco!ie$ i et icome if

.lre.$) reflecte$ i t/e icome st.temet1 o

.$6#stmet to icome is re5#ire$ 0/e #si! t/ei$irect met/o$

"2=% "?% O'er.ti! .cti(it) .lre.$) reflecte$ i t/e icomest.temet so o .$6#stmet to icome is re5#ire$0/e #si! t/e i$irect met/o$

"2@% "?% O'er.ti! .cti(it) .lre.$) reflecte$ i t/e icomest.temet so o .$6#stmet to icome is re5#ire$0/e #si! t/e i$irect met/o$

"2?% ";% I(esti! .cti(it)

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E+ERCISE 22,-2 "29,;9 mi#tes%

".%

Ellis Cor'P.rti.l St.temet of C.s/ Flo0s "&irect Met/o$%


C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers 7>1999 ".%C.s/ '.i$

To s#''liers

7=8?1999 "b%For icome t.xes

?91@99 "c% @=?1@99Net c.s/ 'ro(i$e$ b)

o'er.ti! .cti(ities 72@91@99".% Com'#t.tio of c.s/ recei(e$ from c#stomersD

Re(e#e from fees 781999A$$D &ecre.se i .cco#ts recei(.bleA$$D "7@=1999 7;@1999% ->1999C.s/ recei(e$ from c#stomers 7>1999

"b% Com'#t.tio of c.s/ '.i$ to s#''liersDO'er.ti! ex'eses 'er icome st.temet 7=>>1999

&e$#ctD Icre.se i .cco#ts '.).ble&e$#ctD "7==1999 7;-1999% "-;1999%C.s/ '.i$ to s#''liers 7=8?1999

"c% Com'#t.tio of c.s/ '.i$ for t.xesDIcome t.x ex'ese 'er icome st.temet 7@81999A$$D &ecre.se i icome t.x '.).bleA$$D "781@99 7?1999% [email protected]/ '.i$ for icome t.xes 7?91@99

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E+ERCISE 22,-2 "Coti#e$%

"b% C#rret c.s/ $ebt co(er.!e r.tio i 29-=

C#rret c.s/ $ebt co(er.!e r.tio

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities A(er.!e c#rretli.bilities

72@91@99 "7;-1999 : 781@99% : "7==1999 : 7?1999%Q 2

@?

C#rret c.s/ $ebt co(er.!e r.tio is . me.s#re of t/e com'.)3s

.bilit) to '.) off its c#rret li.bilities i . s'ecific )e.r from itso'er.tios A icre.se i t/e com'.)3s c#rret c.s/ $ebtco(er.!e r.tio from 2 to @? is . im'ro(emet .$ . si! of better li5#i$it) i 29-= A cre$itor is itereste$ i ..l)i! t/ecom'.)3s li5#i$it) "s/ort,term .bilit) to re'.) m.t#ri!obli!.tios% .$ c#rret c.s/ $ebt co(er.!e r.tio1 to /el'$etermie t/e le(el of cre$it ris4 .ssoci.te$ 0it/ le$i! to t/ecom'.) A cre$itor m.) iter'ret t/e icre.se i c#rret c.s/$ebt co(er.!e r.tio .s . i$ic.tio t/.t it is less li4el) t/.t t/ecom'.) 0ill ex'eriece $iffic#lt) i meeti! its c#rretli.bilities .s t/e) come $#e1 .$ t/.t t/e cre$it ris4 .ssoci.te$0it/ le$i! to t/e com'.) i t/e s/ort,term /.s $ecre.se$


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E+ERCISE 22,-; "-@,29 mi#tes%

Allowance for Doubtful Accounts................. 5,000Accounts Receivable.............................. 5,000

Accounts Receivable..................................... 3,500Allowance for Doubtful Accounts......... 3,500

Cash................................................................. 3,500Accounts Receivable.............................. 3,500

Bad Debt Expense.......................................... 4,400Allowance for Doubtful Accounts......... 4,400

C.s/ 'ro(i$e$ b) "#se$ i% o'er.tios &irect Met/o$

C.s/ recei(e$ from c#stomers 7;1@99

C.s/ 'ro(i$e$ b) "#se$ i% o'er.tios I$irect Met/o$St.rt 0it/ et icome $ecre.se$ b) b.$ $ebt ex'ese 7"=1=99%

C/.!es i o,c.s/ 0or4i! c.'it.lD&ecre.se i .cco#ts recei(.ble et of et 0rite,offs "-% 1>99

Net icre.se i c.s/ 7;1@99

(1)Accounts receivable:Bad debt write-off................................... $(5,000)Bad debt recovery.................................. 3,500Collection of bad debt recovered.......... (3,500) $(5,000)

Allowance for doubtful accounts:Bad debt write-off................................... $5,000Bad debt recovery................................. (3,500)Accrual of bad debt expense................. (4,400 ) (2,900)

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&ecre.se i .cco#ts recei(.ble1 et7"1>99%

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E+ERCISE 22,-= ";9,=9 mi#tes%

".%T#it Ic

St.temet of C.s/ Flo0s "&irect Met/o$%For t/e e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers "-% 7;;-1-@9

C.s/ '.i$ to s#''liers for !oo$s .$ser(ices "2%

-?1999

C.s/ '.i$ to .$ o be/.lf ofem'lo)ees ";%

?@1999

C.s/ '.i$ for iterest --1=99C.s/ '.i$ for t.xes "=% ?1-2@ 2=>1@2@

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 8-1?2@.

C.s/ flo0s from i(esti! .cti(itiesProcee$s o s.le of e5#i'met "@% 81999P#rc/.se of e5#i'met "?% "==1999%

Net c.s/ #se$ b) i(esti! .cti(ities ";?1999%

C.s/ flo0s from fi.ci! .cti(itiesPrici'.l '.)mets o s/ort,term lo. "21999%

Prici'.l '.)mets o lo!,term lo. ">1999%&i(i$e$ '.i$ "?1999%Net c.s/ #se$ b) fi.ci! .cti(ities "-1999%

Net icre.se i c.s/ .$ c.s/ e5#i(.lets [email protected]/ .$ c.s/ e5#i(.lets1 <.#.r) -1 29-= [email protected]/ .$ c.s/ e5#i(.lets1 &ecember ;-1 29-= 7 @;1?2@

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E+ERCISE 22,-= "Coti#e$%

Com'#t.tiosD"-% C.s/ recei(e$ from c#stomers

S.les re(e#e 7;;81-@9

LessD Icre.se i .cco#ts recei(.ble "1999%C.s/ recei(e$ from c#stomers 7;;-1-@9

"2% C.s/ '.i$ to s#''liers for !oo$s .$ ser(icesCost of !oo$s sol$ 7-?@1999LessD &ecre.se i i(etor) "291999%P#rc/.ses -=@1999LessD Icre.se i .cco#ts '.).ble "?1999%C.s/ '.i$ to s#''liers for !oo$s -;>1999

O'er.ti! ex'eses -291999LessD S.l.ries .$ 0.!es ex'ese "?>1999%&e'reci.tio ex'ese "% "2=1999%

A$$D Icre.se i 're'.i$ ret -1999P.i$ to s#''liers for !oo$s .$ ser(ices 7-?1999

";% C.s/ '.i$ to .$ o be/.lf of em'lo)eesS.l.ries .$ 0.!es ex'ese 7?>1999Icre.se i s.l.ries .$ 0.!es '.).ble "=1999%

C.s/ '.i$ to .$ o be/.lf of em'lo)ees 7?@1999

"=% Icome t.xes '.i$Icome t.x ex'ese 7=1-2@&ecre.se i icome t.x '.).ble 21999Icome t.xes '.i$ 7?1-2@

"@% C.lc#l.tio of 'rocee$s from s.le of e5#i'metDCost of e5#i'met sol$ 7 291999

Acc#m#l.te$ $e'reci.tio of e5#i'met sol$ "9% "-=1999%C.rr)i! .mo#t of e5#i'met sol$ ?1999G.i o s.le of e5#i'met 21999Procee$s o s.le of e5#i'met 7 81999

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"?% C.lc#l.tio of cost of e0 e5#i'met '#rc/.se$DE5#i'met <. -1 29-= 7 -;91999

E5#i'met &ec ;-1 29-= -@=1999Net icre.se i e5#i'met 2=1999Cost of e5#i'met sol$ 291999Cost of e5#i'met '#rc/.se$ $#ri! )e.r 7 ==1999

"% C.lc#l.tio of $e'reci.tio ex'eseDAcc#m#l.te$ $e'reci.tio <. -1 29-= 7 "2@1999%Acc#m#l.te$ $e'reci.tio of e5#i'met sol$ -=1999Acc#m#l.te$ $e'reci.tio &ec ;-1 29-= ;@1999&e'reci.tio ex'ese for t/e )e.r 7 2=1999

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"b%T#it Ic

St.temet of C.s/ Flo0s "I$irect Met/o$%For t/e e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7>1?2@A$6#stmets to recocile et icome to et

c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese 72=1999 Im'.irmet loss1 !oo$0ill ;91999 G.i o s.le of e5#i'met "21999%

Icre.se i .cco#ts recei(.ble "1999% &ecre.se i i(etor) 291999 Icre.se i 're'.i$ ret "-1999% Icre.se i .cco#ts '.).ble ?1999 Icre.se i s.l.ries .$ 0.!es '.).ble =1999 &ecre.se i icome t.x '.).ble "21999% Tot.l .$6#stmets 21999 Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 8-1?2@

C.s/ flo0s from i(esti! .cti(ities

Procee$s o s.le of e5#i'met 81999P#rc/.se of e5#i'met "==1999%

Net c.s/ #se$ b) i(esti! .cti(ities ";?1999%

C.s/ flo0s from fi.ci! .cti(itiesPrici'.l '.)mets o s/ort,term lo. "21999%Prici'.l '.)mets o lo!,term lo. ">1999%&i(i$e$ '.i$ "?1999%

Net c.s/ #se$ b) fi.ci! .cti(ities "-1999%

Net icre.se i c.s/ .$ c.s/ e5#i(.lets [email protected]/ .$ c.s/ e5#i(.lets1 <.#.r) -1 29-= [email protected]/ .$ c.s/ e5#i(.lets1 &ecember ;-1 29-= 7@;1?2@

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C.s/ '.i$ $#ri! t/e )e.r forDIterest 7--1=99Icome t.xes 7?1-2@

<c= Bec.#se T#it Inc. follows ASPE, there are no choices on

how to classify interest and dividend payments in the

statement of cash flows.

Companies that adopt IFRS do have some choices.*$er

IFRS1 iterest '.i$ .$ recei(e$ .$ $i(i$e$s '.i$ .$recei(e$ c. be reco!ie$ .s o'er.ti! flo0sAlter.ti(el)1 iterest '.i$ c. be reco!ie$ .s .fi.ci! o#tflo0 0/ile iterest .$ $i(i$e$s recei(e$ c.be reco!ie$ .s i(esti! iflo0s A c/oice is 'ermitte$for $i(i$e$s '.i$D . fi.ci! o#tflo0 .s . ret#r to e5#it)/ol$ers1 or . o'er.ti! o#tflo0 .s . me.s#re of t/e .bilit)of o'er.tios to co(er ret#rs to s/.re/ol$ers

"$% T#it Ic3s o'er.ti! .cti(ities !eer.te si!ific.t 'ositi(e

c.s/ flo01 0/ic/ s#''orts t/e com'.)3s i(esti! .$fi.ci! .cti(ities T/e com'.) is #si! t/e si!ific.tc.s/ !eer.te$ from its o'er.tios to ex'.$ b)'#rc/.si! e5#i'met .$ to re'.) cre$itors .$ '.)$i(i$e$s to s/.re/ol$ers1 0/ic/ is . si! of . m.t#re1s#ccessf#l com'.) T/e com'.) is ex'.$i! b)'#rc/.si! e5#i'met1 li4el) $#e to /i!/ forec.ste$$em.$ for t/e com'.)3s 'ro$#ct"s% T/e com'.) re'.i$cre$itors .$ '.i$ $i(i$e$s to s/.re/ol$ers1 .$ still!eer.te$ . si!ific.t icre.se i et c.s/ .$ c.s/e5#i(.lets i 29-= A i(estor 0/o is itereste$ ii(esti! i m.t#re1 s#ccessf#l com'.ies m.) (ie0 T#itIc f.(o#r.bl)1 .$ $eci$e to i(est i t/e com'.)

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E+ERCISE 22,-@ ";9,=9 mi#tes%

".% Bot/ t/e $irect met/o$ .$ t/e i$irect met/o$ for re'orti! c.s/ flo0s from o'er.ti! .cti(ities .re.cce't.ble i 're'.ri! . st.temet of c.s/ flo0sHo0e(er1 .cco#ti! st.$.r$s eco#r.!e t/e #se of t/e$irect met/o$ *$er t/e $irect met/o$1 t/e st.temet of c.s/ flo0s re'orts t/e m.6or cl.sses of c.s/ recei(e$ .$c.s/ $isb#rsemets1 .$ $iscloses more iform.tio t/ism.) be t/e st.temet3s 'rici'.l .$(.t.!e *$er t/ei$irect met/o$1 et icome o t/e .ccr#.l b.sis is.$6#ste$ to t/e c.s/ b.sis b) .$$i! or $e$#cti! o,c.s/ items icl#$e$ i et icome1 t/ereb) 'ro(i$i! .#sef#l li4 bet0ee t/e st.temet of c.s/ flo0s .$ t/e

icome st.temet .$ st.temet of fi.ci.l 'ositio

"b% T/e St.temet of C.s/ Flo0s for G#.s Ic1 for t/e )e.r e$e$ M.) ;-1 29-=1 #si! t/e $irect met/o$1 is 'resete$belo0

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E+ERCISE 22,-@ "Coti#e$%

G#.s IcSt.temet of C.s/ Flo0s "&irect Met/o$%

For t/e e.r E$e$ M.) ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers 7-1;2?1?99C.s/ '.i$

To s#''liers for !oo$s .$ ser(ices 78221;99To .$ o be/.lf of em'lo)ees 2-81899For iterest ?=1?99For icome t.xes

?@1=99 -1--1-99 Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities -@@1@99

C.s/ flo0s from i(esti! .cti(itiesP#rc/.se of 'l.t .ssets

"==1999%

C.s/ flo0s from fi.ci! .cti(itiesProcee$s from iss#.ce of

commo s/.res 7 =1@9&i(i$e$s '.i$ "81999%P.i$ o retiremet of bo$s '.).ble

"2@1999%

Net c.s/ #se$ b) fi.ci! .cti(ities

">812@9%

Net icre.se i c.s/

-;[email protected]/1 <#e -1 29-;

291999C.s/1 M.) ;-1 29-= 7;;12@9

Note -DSc/e$#le of o,c.s/ i(esti! .$ fi.ci! .cti(itiesDIss#.ce of commo s/.res for 'l.t .ssets

7@-1999

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S#''orti! c.lc#l.tiosDCollectios from c#stomers

S.les 7-1;=@1899LessD Icre.se i .cco#ts recei(.ble ->1299

C.s/ collecte$ from c#stomers 7-1;2?1?99

C.s/ '.i$ to s#''liers for !oo$s .$ ser(icesCost of !oo$s sol$ 78-=1999LessD &ecre.se i i(etor) -91;99

Icre.se i .cco#ts '.).ble 81999C.s/ '.i$ for !oo$s for res.le >@199

Ot/er ex'eses 2=1899

A$$D Icre.se i 're'.i$ ex'eses -1899C.s/ '.i$ to s#''liers for !oo$s .$ ser(ices 78221;99

C.s/ '.i$ to .$ o be/.lf of em'lo)eesS.l.ries .$ 0.!es ex'ese 7291899A$$D &ecre.se i s.l.ries .$ 0.!es'.).ble --1999

C.s/ '.i$ to .$ o be/.lf of em'lo)ees 72-81899

C.s/ '.i$ for iterestIterest ex'ese 7??199LessD Icre.se i iterest '.).ble 21-99

C.s/ '.i$ for iterest 7?=1?99


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"c% T/e c.lc#l.tio of t/e c.s/ flo0 from o'er.ti! .cti(itiesfor G#.s Ic1 for t/e )e.r e$e$ M.) ;-1 29-=1 #si! t/ei$irect met/o$1 is 'resete$ belo0

G#.s IcSt.temet of C.s/ Flo0s "'.rti.l%For t/e e.r E$e$ M.) ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesNet e.ri!s 7-=-1-99A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD

&e'reci.tio ex'ese 72?1999&ecre.se i i(etor) -91;99Icre.se i .cco#ts '.).ble 81999Icre.se i iterest '.).ble 21-99Icre.se i .cco#ts recei(.ble "->1299%Icre.se i 're'.i$ ex'eses "-1899%&ecre.se i s.l.ries .$ 0.!es

'.).ble "--1999% -=1=99Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7-@@1@99

"$% *$er IFRS1 . c/oice is 'ermitte$ for $i(i$e$s '.i$D .fi.ci! flo0 .s . ret#r to e5#it) /ol$ers1 or . o'er.ti!flo0 .s . me.s#re of t/e .bilit) of o'er.tios to co(er ret#rs to s/.re/ol$ers Ho0e(er m..!emet (ie0s t/eses'ecific flo0s1 oce t/e c/oice is m.$e1 it is .''lie$cosistetl) from 'erio$ to 'erio$.

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"e% T/e $i(i$e$ '.)o#t r.tio for t/e )e.r e$i! M.) ;-1 29-=c. be e.sil) c.lc#l.te$ #si! .mo#ts re'orte$ o t/est.temet of c.s/ flo0s T/e $i(i$e$ '.)o#t r.tio is @@781999 "$i(i$e$s '.i$% $i(i$e$ b) 7-=-1-991 "ete.ri!s%Q From t/e 'ers'ecti(e of . s/.re/ol$er1 t/is0o#l$ be . 'ositi(e r.tio1 .s s/.re/ol$ers .re reci'iets of t/is ret#r o i(estmet T/e com'.)3s o'er.tios!eer.te$ t/e c.s/ re5#ire$ to '.) t/is $i(i$e$1 0/ic/ is. 'ositi(e si! t/.t t/e com'.) m.) be .ble to s#st.i'.)met of $i(i$e$s i t/e f#t#re

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E+ERCISE 22,-? "29,;9 mi#tes%

".%

NORTH ROA& INCSt.temet of C.s/ Flo0s I$irect Met/o$

e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! Acti(itiesNet icome 7>-1=89A$6#stmets to recocile et icome toet c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities&e'reci.tio ex'ese 7 @8199

G.i o s.le of e5#i'met "81@9%Icre.se i .cco#ts recei(.ble "@;1899%Icre.se i i(etor) "->12@9%Icre.se i .cco#ts '.).ble =1=29&ecre.se i .ccr#e$ li.bilities "?1;9% "2@1=-9%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities ??199

C.s/ flo0s from i(esti! .cti(itiesS.le of i(estmets 221@99

S.le of e5#i'met -@1@@9P#rc/.se of e5#i'met ">-1999%

Net c.s/ #se$ b) i(esti! .cti(ities "@21>@9%

C.s/ flo0s from fi.ci! .cti(itiesIss#.ce of otes '.).ble 91999P.)met of c.s/ $i(i$e$s ";1?9%

Net c.s/ flo0s 'ro(i$e$ b) fi.ci! .cti(ities ;21;;9

Net icre.se i C.s/ =@[email protected]/1 <.#.r) - [email protected]/1 &ecember ;- 7>2199

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E+ERCISE 22,-? "Coti#e$%

".% "Coti#e$%

Note +DSi!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(itiesDE5#i'met 0it/ . cost of 7@91999 0.s exc/.!e$ for commo s/.res


C.s/ '.i$ $#ri! t/e )e.r forDIterest 721>=9

"b%

NORTH ROA& INCC.s/ Flo0 St.temet &irect Met/o$

e.r E$e$ &ecember ;-1 29-=

O'er.ti! Acti(itiesC.s/ collectios from c#stomers "-% 72=;199C.s/ '.)mets to s#''liers "2% "--=12>9%

C.s/ '.)mets for o'er.ti! ex'eses ";% "2-1=99

%

C.s/ '.)mets for iterest "21>=9

%

C.s/ '.)mets for icome t.xes ";>1999

%Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7??199

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E+ERCISE 22,-? "Coti#e$%

C.lc#l.tiosD

"-% C.s/ recei'ts from c#stomersS.les re(e#e 72>1@99LessD Icre.se i .cco#ts recei(.ble "@;1899%

72=;199"2% C.s/ '.)mets to s#''liers

Cost of !oo$s sol$ 7>>1=?9A$$D Icre.se i i(etor) ->12@9LessD Icre.se i .cco#ts '.).ble "=1=29%

7--=12>9";% C.s/ '.)mets for o'er.ti! ex'eses

O'er.ti! ex'eses 7-=1?9A$$D &ecre.se i .ccr#e$ li.bilities ?1;9

72-1=99

"c% Sice Nort/ Ro.$ Ic follo0s ASPE it $oes ot /.(e t/ec/oice i t/e cl.ssific.tio of t/e '.)met of $i(i$e$s ot/e st.temet of c.s/ flo0s &i(i$e$s '.i$ m#st becl.ssifie$ .s fi.ci! o#tflo0s H.$ Nort/ Ro.$ Icfollo0e$ IFRS1 . c/oice 0o#l$ be 'ermitte$ for $i(i$e$s'.i$D . fi.ci! flo0 .s . ret#r to e5#it) /ol$ers1 or .o'er.ti! flo0 .s . me.s#re of t/e .bilit) of o'er.tios toco(er ret#rs to s/.re/ol$ers Ho0e(er m..!emet(ie0s t/ese s'ecific flo0s1 oce t/e c/oice is m.$e1 it is.''lie$ cosistetl) from 'erio$ to 'erio$.

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E+ERCISE 22,- ";@,=9 mi#tes%

".%Tobit. Limite$

St.temet of C.s/ Flo0sFor t/e e.r E$e$ &ecember ;-1 29-=

"I$irect Met/o$%

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7>=@A$6#stmets to recocile et icome to

et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese "7-1299 7-1-9% 7 ;9 G.i o s.le of i(estmets "F,NI%

"89% Icre.se i .cco#ts recei(.ble "=@9% &ecre.se i i(etor)

;99 Icre.se i .cco#ts '.).ble

;99 &ecre.se i .ccr#e$ li.bilities

"@9% @9Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities >>@

C.s/ flo0s from i(esti! .cti(itiesS.le of F,NI i(estmets

299P#rc/.se of 'l.t .ssets "-;9%

Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities 9

C.s/ flo0s from fi.ci! .cti(itiesIss#.ce of commo s/.res -;9Retiremet of bo$s '.).ble "-@9%P.)met of c.s/ $i(i$e$s "2?9%

Net c.s/ #se$ b) fi.ci! .cti(ities "289%

Net icre.se i c.s/ [email protected]/1 <.#.r) -1 29-= [email protected]/1 &ecember ;-1 29-= 7-1>;@

"7-1=29 7-1;99% : 789 !.i "7-1>99 7-199% 79

"7-1>99 7-199% 79 "7-1>99 721@8@% : 7>=@ icomeNo,c.s/ i(esti! .$ fi.ci! .cti(ities

Iss#.ce of commo s/.res for 'l.t .ssets 79C.s/ '.i$ for iterest $#ri! t/e )e.r 729

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"b%Tobit. Limite$

St.temet of C.s/ Flo0sFor t/e e.r E$e$ &ecember ;-1 29-=

"&irect Met/o$%

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers 7?1=@9LessD C.s/ '.i$ to s#''liers for !oo$s

.$ ser(ices 7@19;9C.s/ '.i$ for iterest 29C.s/ '.i$ for icome t.xes =9@ @1=@@

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities >>@

C.s/ flo0s from i(esti! .cti(itiesProcee$s from s.le of F,NI i(estmets 299P#rc/.se of 'l.t .ssets "-;9%Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities 9

C.s/ flo0s from fi.ci! .cti(itiesProcee$s o iss#.ce of commo s/.res -;9

P.)met to retire bo$s '.).ble "-@9%&i(i$e$s '.i$ "2?9%Net c.s/ #se$ b) fi.ci! .cti(ities "289%

Net icre.se i c.s/ [email protected]/1 <.#.r) -1 29-= [email protected]/1 &ecember ;-1 29-= 7-1>;@

No,c.s/ i(esti! .$ fi.ci! .cti(ities

Iss#.ce of commo s/.res for 'l.t .ssets 79

7-1;99 : 7?1>99 7-1@9 7=199 : "7>-9 7;9% 7;99 7;99 : 7@9

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"c% Bec.#se Tobit. Limited follows ASPE, there are no choices

on how to classify interest and dividend payments in the

statement of cash flows.

Companies that adopt IFRS do have some choices.*$er IFRS1 iterest '.i$ .$ recei(e$ .$ $i(i$e$s '.i$ .$recei(e$ c. be reco!ie$ .s o'er.ti! flo0sAlter.ti(el)1 iterest '.i$ c. be reco!ie$ .s .fi.ci! o#tflo0 0/ile iterest .$ $i(i$e$s recei(e$ c.be reco!ie$ .s i(esti! iflo0s A c/oice is 'ermitte$for $i(i$e$s '.i$D . fi.ci! o#tflo0 .s . ret#r to e5#it)

/ol$ers1 or . o'er.ti! o#tflo0 .s . me.s#re of t/e .bilit)of o'er.tios to co(er ret#rs to s/.re/ol$ers

"$% T/ere is . .l.rmi! tre$ t/.t is fl.!!e$ b) t/e i$irectform.t of t/e st.temet of c.s/ flo0s ill#str.te$ .bo(eTobit. $ecre.se$ its i(etor) -? 0/ile .t t/e s.me timeicre.si! its .cco#ts '.).ble ;; Attetio s/o#l$ be'.i$ to t/e 'ossibilit) of i(etor) stoc4 o#ts or 'oor rel.tios/i's $e(elo'i! 0it/ s#''liers for o '.)met of .cco#ts 0it/i '.)met terms T/e $irect form.t of t/e

st.temet of c.s/ flo0s $oes ot /i!/li!/t t/is c/.!e1.lt/o#!/ t/e tre$s co#l$ be otice$ from . com'.riso of b.l.ces t.4e from t/e st.temet of fi.ci.l 'ositio

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E+ERCISE 22,-8 "-@,29 mi#tes%

Ellis Cor'P.rti.l St.temet of C.s/ Flo0s "I$irect Met/o$%


C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7-;1999A$6#stmet to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese 7??1999 Loss o s.le of e5#i'met -=1999 *re.lie$ lossF,NI i(estmets =1999 &ecre.se i .cco#ts recei(.ble ->1999

Icre.se i .cco#ts '.).ble -;1999 &ecre.se i icome t.x '.).ble "21@99% --;1@99Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 72@91@99

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E+ERCISE 22,-> "29,;9 mi#tes%

".% S.les re(e#e 7@@1=99&e$#ctD Icre.se i .cco#ts recei(.ble1

et of 0rite,offs

"1899%C.s/ collecte$ from c#stomers 7@=>1?99

"b% Cost of !oo$s sol$ 72@;1999&e$#ctD &ecre.se i i(etor) "-?1999%P#rc/.ses 2;1999&e$#ctD Icre.se i .cco#ts '.).ble ">1@99%C.s/ '.i$ to s#''liers for !oo$s 221@99Selli! ex'eses -;81999A$miistr.ti(e ex'eses -=91999

Less $e'reci.tio ex'ese "-1@99%Less b.$ $ebt ex'ese "@1999%

C.s/ '.i$ to s#''liers for !oo$s .$ ser(ices 7=>>1999

"c% Iterest ex'ese 7-@1?99&e$#ctD &ecre.se i #.mortie$ bo$ $isco#t ette$ 0it/ t/e li.bilit) "@99%C.s/ '.i$ for iterest 7-@1-99

"$% Icome t.x ex'ese 7291299A$$D &ecre.se i icome t.x '.).ble 81-99&e$#ctD Icre.se i $eferre$ t.x li.bilit) "99%C.s/ '.i$ for icome t.xes 721?99


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3@3C/3 -* "=9,@9 mi#tes%

".%Se't - C.s/ ;-1999

Commo S/.res ;-1999

2 E5#i'met -1289C.s/ -1289

= Pre'.i$ Ret "7?89 + ;% 219=9C.s/ 219=9

No etr)

8 S#''lies -1-=2Acco#ts P.).ble -1-=2

> C.s/ -1?>9Ser(ice Re(e#e -1?>9

-9 Office Ex'ese =;9C.s/ =;9

-= Acco#ts Recei(.ble @1-29Ser(ice Re(e#e @1-29

-8 Acco#ts P.).ble ?99C.s/ ?99

-> Ret.ie$ E.ri!s @1999C.s/ "@1999 + 7-99% @1999

29 C.s/ >89

Acco#ts Recei(.ble >89

2- S.l.ries .$ W.!es Ex'ese ?99C.s/ ?99

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Se't 28 Acco#ts Recei(.ble 21--9Ser(ice Re(e#e 21--9

2> *tilities Ex'eses -;@Office Ex'ese 8@

C.s/ 229

C.s/Se't - ;-1999 Se't 2 -1289Se't > -1?>9 Se't = 219=9

Se't 29 >89 Se't -9 =;9Se't -8 ?99Se't -> @1999Se't 2- ?99Se't 2> 229

B.l Se't ;9 1@99

"b%

Se't;9 &e'reci.tio Ex'ese 2?;

Acc#m#l.te$ &e'reci.tio 2?;"7-1289 7-1@99% @ + --2

;9 S.l.ries .$ W.!es Ex'ese ;99S.l.ries .$ W.!es P.).ble ;99

;9 S#''lies Ex'ese ;-S#''lies ;-

"7-1-=2 782@%

;9 Ret Ex'ese ?89Pre'.i$ Ret ?89

;9 *tilities Ex'ese ->@Acco#ts P.).ble ->@

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EXERCISE 22-20 (Continued)

"c%AS &esi! Limite$

A$6#ste$ Tri.l B.l.ceSe'tember ;91 29-=

&ebit Cre$itC.s/ 71@99Acco#ts Recei(.ble "7@1-29 7>89 : 721--9% ?12@9S#''lies 82@Pre'.i$ Ret -1;?9E5#i'met -1289

Acc#m#l.te$ &e'reci.tio,E5#i'met 72?;Acco#ts P.).ble "7-1-=2 7?99 : 7->@% ;S.l.ries .$ W.!es P.).ble ;99Commo S/.res ;-1999Ret.ie$ E.ri!s @1999Ser(ice Re(e#e "-1?>9 : @1-29 : 21--9% 81>29Ret Ex'ese ?89S#''lies Ex'ese ;-S.l.ries .$ W.!es Ex'ese "7?99 : 7;99% >99*tilities Ex'eses "7-;@ : 7->@% ;;9Office Ex'ese "7=;9 : 78@% @-@&e'reci.tio Ex'ese 2?;

7=-1229 7=-1229

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(d)

A S &esi! Limite$Icome St.temet

For t/e Mot/ E$e$ Se'tember ;91 29-=

Ser(ice re(e#e 781>29Ex'esesD

Ret ex'ese 7 ?89S#''lies ex'ese ;-S.l.ries .$ 0.!es ex'ese >99

&e'reci.tio ex'ese 2?;*tilities ex'eses ;;9Office ex'ese @-@

Tot.l ex'eses ;199@Net Icome 7@1>-@

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A S &esi! Limite$

St.temet of Fi.ci.l PositioAs .t Se'tember ;91 29-=

AssetsC.s/ 7 1@99Acco#ts recei(.ble ?12@9S#''lies 82@Pre'.i$ ret -1;?9

C#rret .ssets -@1>;@

E5#i'met -1289Acc#m#l.te$ $e'reci.tio 2?; -19-

Tot.l .ssets 7;21>@2

Li.bilitiesAcco#ts '.).ble 7 ;S.l.ries .$ 0.!es '.).ble ;99 Tot.l li.bilities -19;

S/.re/ol$er3s E5#it)Commo s/.res ;-1999Ret.ie$ e.ri!s >-@ Tot.l s/.re/ol$er3s e5#it) ;-1>-@ Tot.l li.bilities .$ s/.re/ol$er3s e5#it) 7;21>@2

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"e%

A S &esi! Limite$

St.temet of C.s/ Flo0sFor t/e Mot/ E$e$ Se'tember ;91 29-=

"I$irect Met/o$%

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7@1>-@A$6#stmets to recocile et icome to

et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD&e'reci.tio ex'ese 72?;Icre.se i .cco#ts recei(.ble "?12@9%

Icre.se i s#''lies "82@%Icre.se i 're'.i$ ret "-1;?9%Icre.se i .cco#ts '.).ble

;Icre.se i s.l.ries .$ 0.!es '.).ble

;99 "1-;@%Net c.s/ #se$ i o'er.ti! .cti(ities "-1229%

C.s/ flo0s from i(esti! .cti(itiesP#rc/.se of e5#i'met "-1289%

C.s/ flo0s from fi.ci! .cti(itiesIss#.ce of commo s/.res ;-1999P.)met of c.s/ $i(i$e$s "@1999%Net c.s/ 'ro(i$e$ b) fi.ci! .cti(ities 2?1999

Net icre.se i c.s/ [email protected]/1 Se'tember -1 29-= 9C.s/1 Se'tember ;91 29-= 71@99

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"f%A S &esi! Limite$

St.temet of C.s/ Flo0s P.rti.lFor t/e Mot/ E$e$ Se'tember ;91 29-=

"&irect Met/o$%

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers "-% 721?9LessD C.s/ '.i$ to s#''liers for !oo$s

.$ ser(ices "2% 7;12>9C.s/ '.i$ for s.l.ries .$ 0.!es ?99 ;18>9

Net c.s/ #se$ i o'er.ti! .cti(ities 7"-1229%

Com'#t.tiosD"-% C.s/ recei(e$ from c#stomers

Ser(ice re(e#e 781>29LessD Icre.se i .cco#ts recei(.ble "?12@9%

C.s/ recei(e$ from c#stomers 721?9

"2% C.s/ '.i$ to s#''liers for !oo$s .$ ser(icesTot.l ex'eses 7;199@LessD &e'reci.tio ex'ese "2?;%

LessD S.l.ries .$ 0.!es ex'ese ">99%-18=2

LessD Icre.se i .cco#ts '.).ble ";% A$$D Icre.se i s#''lies 82@ A$$D Icre.se i 're'.i$ ret -1;?9

P.i$ to s#''liers for !oo$s .$ ser(ices 7;12>9

"!% T/e st.temet of c.s/ flo0s b.l.ce .t Se'tember ;91 29-=

corres'o$s to t/e b.l.ce .t Se'tember ;91 29-= for t/ec.s/ .cco#t1 .rri(e$ .t i '.rt ".% to t/e exercise T/eo'er.ti! .cti(ities sectio #si! t/e $irect form.t i "f%more closel) resembles t/e .cti(it) i t/e c.s/ .cco#t .st/e .mo#ts of t/e etries corres'o$ "0/e .!!re!.te$% tot/e .mo#ts .''e.ri! .s icre.ses .$ $ecre.ses i t/ec.s/ .cco#t

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"/% If t/is 0ere . est.blis/e$ com'.)1 it mi!/t be cosi$ere$.l.rmi! "i t/e i$irect form.t of t/e st.temet of c.s/

flo0s 're'.re$ i '.rt "e% .bo(e%1 t/.t o'er.ti! c.s/ flo0s.re 0ell belo0 et icome le(els T)'ic.ll)1 t/e .mo#t of et c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities excee$s t/e.mo#t for et icome T/is is m.il) $#e to t/e .$6#stmetto icome for o,c.s/ items for ex'eses s#c/ .s$e'reci.tio I t/e c.se of A S &esi! Limite$1 icre.sesi its .cco#ts recei(.ble .$ 're'.i$ ret excee$ t/e.mo#t of t/e icome Pre'.i$ ret $oes ot re'reset .'oteti.l collectio ris4 b#t .cco#ts recei(.ble cert.il)$o Ho0e(er1 .s . com'.) t/.t is 6#st be!ii! to !ro0 its

b#siess1 t/is is ofte t/e c.se .$ is to be ex'ecte$ .sc.s/ reso#rces .re i(este$ i i(etories1 recei(.bles .$ot/er ecess.r) 0or4i! c.'it.l T/e $irect form.t of t/est.temet of c.s/ flo0s $oes ot /i!/li!/t t/is iss#e1.lt/o#!/ t/e s.me sit#.tio co#l$ be otice$ from .com'.riso of b.l.ces o t/e st.temet of fi.ci.l'ositio

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E+ERCISE 22,2- "29,;9 mi#tes%

".% C.s/ flo0s from o'er.ti! .cti(ities

Net icome 7;21999A$6#stmet to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD

&ecre.se i .cco#ts recei(.ble 7-1@99&ecre.se i i(etor) -1=99&ecre.se i .cco#ts '.).ble ";99% 21?99

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7;=1?99

"b% C.s/ flo0s from o'er.ti! .cti(ities

Net icome 7;21999A$6#stmet to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD Icre.se i .cco#ts recei(.ble 7";1999%

&ecre.se i i(etor) ;1299 Icre.se i .cco#ts '.).ble =1=99 =1?99Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7;?1?99

"c% C.s/ flo0s from o'er.ti! .cti(ities


Icre.se i .cco#ts recei(.ble 7"291999%Icre.se i i(etor) "-21999%Icre.se i .cco#ts '.).ble 1999 "2@1999%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 71999

"$% C.s/ flo0s from o'er.ti! .cti(ities


&ecre.se i .cco#ts recei(.ble [email protected] i i(etor) ";1>99%&ecre.se i .cco#ts '.).ble ";1>99% "?1;99%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 72@199

olutions Manual -'1 Chapter

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E+ERCISE 22,2- "Coti#e$%

"e% C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7;21999

A$6#stmet to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD&ecre.se i .cco#ts

recei(.ble721@99

&ecre.se i i(etor) -1-99Icre.se i .cco#ts '.).ble 21999 @1?99

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7;1?99


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E+ERCISE 22,22 "29,2@ mi#tes%

- Bo$s P.).ble;991999Cotrib#te$ S#r'l#sCo(ersio Ri!/ts >1999

Commo S/.res ;9>1999 "No,c.s/ i(esti! .$ fi.ci!.cti(it)%

2 O'er.ti!Net icome=-91999Ret.ie$ E.ri!s =-91999

; O'er.ti!&e'reci.tio Ex'ese>91999Acc#m#l.te$ &e'reci.tioB#il$i!s >91999

= I(estmet i Associ.te;=1==9O'er.ti!I(estmet Icome or

Loss ;=1==9"7-2;1999 + 28 7;=1==9%

@ Acc#m#l.te$ &e'reci.tioE5#i'met

;91999

E5#i'met-91999

O'er.ti!G.i o &is'os.l ofE5#i'met ?1999

I(esti!P#rc/.se of E5#i'met ;=1999

? Ret.ie$ E.ri!s-2;1999&i(i$e$s P.).ble -2;1999 "No,c.s/ fi.ci! .cti(it)%

olutions Manual -'" Chapter

7/25/2019 sm ch (22).doc


Kieso, Weygandt, Warfield, Young, Wiecek, , McConomy/ntermediate 2ccounting, Aenth Canadian 3dition

E+ERCISE 22,2; "=@,@@ mi#tes%

Cos4) Cor'or.tioWORU SHEET FOR PREPARATION OF STATEMENT OF CASH FLOWS


Acct

B.l Ate$ of 29-;

Recocili! Tr.s, Acct

B.l .te$ of 29-=

.ctios $#ri! 29-=

&ebits &ebit Cre$itC.s/ 7 2-1999 "-% 7 =1@99 7-?1@99F,NI i(estmets ->1999 "2% 7 ?1999 2@1999Acco#ts recei(.ble =@1999 ";% 21999 =;1999Pre'.i$ ex'eses 21@99 "=% -199 =1299I(etor) ?@1999 "@% -?1@99 8-1@99L.$ @91999 @91999B#il$i!s ;1@99 "-9% @-1@99 -2@1999E5#i'met =?1999 "--% 1999 @;1999&eli(er) e5#i'met ;>1999 ;>1999

P.tets "-2% -@1999 -@1999 Tot.l $ebits 7;?-1999 7=@21299

olutions Manual -'$Chapter

Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized opying, distri!ution, or trans"ission o# this page is stritly prohi!ited

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E+ERCISE 22,2; "Coti#e$%Acct

B.l Ate$ of 29-;

Recocili! Tr.s, AcctB.l Ate$ of 29-=

.ctios &#ri! 29-=

Cre$its &ebit Cre$itAcco#ts '.).ble 7 -?1999 "?% 7-91999 7 2?1999

S/ort,term otes '.).ble "tr.$e% ?1999 "% 7 21999 =1999Accr#e$ li.bilities =1?99 "8% -1?99 ;1999Allo0.ce for $o#btf#l .cco#ts 21999 ";% 299 -1899Acc#m#l.te$ $e'reci.tiob#il$i!s 2;1999 "-;% 1999 ;91999Acc#m#l.te$ $e'reci.tioe5#i'met -@1@99 "-;% ;1@99 ->1999Acc#m#l.te$ $e'reci.tio$eli(er) e5#i'met 291@99 "-;% -1@99 221999Mort!.!e '.).ble @;1=99 "-=% ->1?99 ;1999Bo$s '.).ble ?21@99 "-?% -21@99 @91999S/.re c.'it.l -9?1999 "-@% ==1999 [email protected]$ e.ri!s @-1@99 ">% -@1999 "-% ;?1>99 ;1=99 Tot.l cre$its 7;?-1999 7=@21299

olutions Manual -'%Chapter


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E+ERCISE 22,2; "Coti#e$%&ebit Cre$it

St.temet of C.s/ Flo0s effectsO'er.ti! .cti(ities Net icome "-% ;?1>99 &e'reci.tio ex'ese "-;% -21999

&ecre.se i .cco#ts recei(.ble "et% ";% -1899 Icre.se i 're'.i$ ex'eses "=% -199 Icre.se i i(etor) "@% -?1@99 Icre.se i .cco#ts '.).ble "?% -91999 &ecre.se i otes '.).ble "% 21999 &ecre.se i .ccr#e$ li.bilities "8% -1?99I(esti! .cti(ities P#rc/.se of F,NI i(estmets "2% ?1999 P#rc/.se of b#il$i! "-9% @-1@99 P#rc/.se of e5#i'met "--% 1999 P#rc/.se of '.tets "-2% [email protected]! .cti(ities

&i(i$e$s '.i$ ">% -@1999 Iss#.ce of mort!.!e '.).ble "-=% ->1?99 Procee$s from s.le of s/.res "-@% ==1999 P.)mets to retire bo$s "-?% -21@99 Tot.ls -2=1;99 -281899

&ecre.se i c.s/ "-% =1@99 Tot.ls 7-281899 7-281899

olutions Manual -'&Chapter


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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy /ntermediate 2ccounting, Aenth Canadian3dition

TIME AN& P*RPOSE OF PROBLEMS

roblem -1

<Aime %*-%% minutes=

urpose8to provide the student with a comprehensive set of financialstatements and supporting notes to arrive at a statement of cash flows using thedirect method. Ahe student must first analyBe some of the changes in thestatement of financial position amounts in order to calculate the activity of certainaccounts such as development costs. Ahe indirect format of the cash flow fromoperating activities is then re#uired, along with some comments e4plaining thecash crunch e4perienced by the entity.

roblem - <Aime $*-$% minutes=

urpose8to develop an understanding of the procedures involved in thepreparation of a statement of cash flows. Ahe student is re#uired to prepare thestatement using the indirect method, provide the necessary disclosure notes, andpresent an alternative treatment for the payment and collection of interest.Comments highlighting the investment strategy of the business as well asassessing the companys li#uidity position are re#uired in the problem.

roblem -" <Aime $%-%* minutes=

urpose8to provide a comprehensive problem involving the preparation of astatement of cash flows. Ahe student is re#uired to prepare the statement using

the indirect method. Ahe student must also calculate the net cash flows fromoperating activities using the direct method. 6ong-term investments accountedfor using the e#uity method are included in this problem. Ahe original instructionshave the student report the change in cash and cash e#uivalents, includingtemporary bank overdrafts. 2t the end of the problem, the student must discussthe effect of e4cluding or including cash e#uivalents from cash and cashe#uivalents.

roblem -$ <Aime $*-%* minutes=

urpose8to develop an understanding of both the direct and indirect method.

Ahe student is first asked to prepare the statement of cash flows using theindirect method. /n addition the student is asked to calculate the net cash flowsfrom operating activities using the direct method and then provide overallcomments about cash activities.

olutions Manual -'' Chapter

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TIME AN& P*RPOSE OF PROBLEMS "CONTIN*E&%

roblem -%

<Aime $%-&* minutes=

urpose8to develop an understanding of the procedures involved in thepreparation of a statement of cash flows. Ahe student is re#uired to prepare thestatement using the direct method, including a reconciliation schedule and mustthen provide short comments summariBing the cash flow activities. 0?-D/investments at fair value are included in this problem.

roblem -& <Aime "*-"% minutes=

urpose8to provide the student with the opportunity to analyBe the effects of several different transactions on several e#uity accounts. Ahe student is re#uiredto prepare the entries for the transactions and is then asked to prepare the

corresponding captions on a partial statement of cash flows using the indirectmethod and well as prepare any necessary additional disclosure notes. Ahis isnot a long problem but it re#uired a thorough understanding of the e#uitytransactions including the recording a property dividends involving a 0?-:C//nvestment.

roblem -' <Aime "*-$* minutes=

urpose8to develop an understanding of the procedures involved in thepreparation of a statement of cash flows. Ahe student is re#uired to prepare thestatement using the indirect method. Ahe student also must calculate the netcash flow from operating activities using the direct method. 2s a final task, thestudent must take on the role of a member of an investment club, preparing areport of the cash activities of the company for the clubs consideration.

roblem -( <Aime *-"* minutes=

urpose8to give the opportunity to the student to prepare the operating activitiesof the cash flow statement, using the indirect format from the description of several items and transactions occurring during the year. ince the wholestatement is not being prepared the student needs to distinguish which items do

or do not affect the operating activities section of the statement. ince some of the transactions described are not simple, the task is not simple either.

olutions Manual -'( Chapter

7/25/2019 sm ch (22).doc




roblem -) <Aime *-% minutes=

urpose8to provide the student with the opportunity to analyBe the effects of transactions on the accounts7 0?-:C/ /nvestments and 2ccumulated :ther Comprehensive /ncome. :nce the reconciliation is prepared of the activity of these two accounts for the year, the student is asked to prepare thecorresponding captions on the statement of cash flows using both the direct andthe indirect methods. Ahis is not a long problem but it re#uired a thoroughunderstanding of the accounting of 0?-:C/ investments.

roblem -1* <Aime "*-"% minutes=

urpose8to provide the student with the opportunity to analyBe the effects of

several transactions affecting investment and related accounts over a two year period. Ahe student must prepare partial statements of income, comprehensiveincome, changes in accumulated other comprehensive income and financialposition. 2fter the preparation selected Eournal entries, a partial statement of cashflows is re#uired, using both the direct and indirect methods. 0inally, somecomparisons between /0 and 23 are discussed. 2lthough this #uestioninvolves only investments, it is thorough in all aspects of financial statementpresentation and disclosure.

roblem -11 <Aime &*-'* minutes=

urpose8to develop an understanding of the procedures involved in thepreparation of a statement of cash flows. Ahe student is re#uired to prepare thestatement using the indirect method. Ahe student also must calculate somespecific captions appearing in the net cash flow from operating activities usingthe direct method and must then reconcile the amounts in total to the cashobtained from operating activities arrived at using the indirect method./nvestments accounted for by the e#uity method have been included in thisproblem. Ahe cash flow is reporting cash and cash e#uivalents in this problem.

olutions Manual -') Chapter

7/25/2019 sm ch (22).doc




roblem -1

<Aime %*-%% minutes=

urpose8to provide the student with a comprehensive problem in a style thatthe student has likely not encountered in the past. 0rom a set of financialstatements including the statement of income, the cash flow statement, preparedusing the indirect format, and the opening balances from a statement of financialposition, the student must calculate the ending balances for the statement of financial position. ;y working from this new perspective, the student has theopportunity to practice reconciling all changes to the statement of financialposition, that are ultimately reported on the other financial statements that havebeen provided. Ahis should be a challenging problem for most students.

roblem -1"

<Aime %*-&* minutes=

urpose8to develop an understanding of the procedures involved in thepreparation of a statement of cash flows, including a schedule of non-cashinvesting and financing activities. Ahe student is re#uired to prepare thestatement using the indirect method, and consider the proper treatment of ane4traordinary item. 2 memorandum of the highlights of the cash flow activity for the year is also re#uired. /n the last part, the student is asked to determine howoperating, investing and financing sections of the statement of cash flows willchange under various situations.

olutions Manual -(* Chapter

7/25/2019 sm ch (22).doc



SOL*TIONS TO PROBLEMS

PROBLEM 22-1

".%<eo'.r$) Ic

Cosoli$.te$ St.temet of C.s/ Flo0sFor t/e e.r E$e$ A'ril ;91 29-=

"7999 omitte$%

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers "-% 78=1=?C.s/ recei(e$ for iterest -1;-9 78@18?

P.)mets for !oo$s .$ ser(ices "2% =81>@2P.)mets to .$ o be/.lf of

em'lo)ees ";% =?1?;;Iterest '.i$ -128>Icome t.xes '.i$ "=% 9 >?18=Net c.s/ #se$ i o'er.ti! .cti(ities "--1988%

C.s/ flo0s from i(esti! .cti(itiesP#rc/.se of c.'it.l .sset "212>9%

P#rc/.se of ot/er i(estmets "-1@-?%Procee$s from s.le of 'ro'ert)'l.t .$ e5#i'met 2@9

P.)mets for fr.c/ise fees "@% "21?8?%Net c.s/ #se$ i i(esti! .cti(ities "?12=2%

C.s/ flo0s from fi.ci! .cti(itiesProcee$s from b.4 term lo.s 21299Re'.)mets of b.4 term lo.s "?% "-1299%Procee$s from s.le of s/.res -=1;>;

Procee$s from s.le of 0.rr.ts 8>>Net c.s/ 'ro(i$e$ b) fi.ci! .cti(ities -?12>2

&ecre.se i c.s/ .$ c.s/ e5#i(.lets "-19;8%C.s/ .$ c.s/ e5#i(.lets1 M.) -1 29-; "21@=-%C.s/ .$ c.s/ e5#i(.lets1 A'ril ;91 29-= 7 ";1@>%

olutions Manual -(1 Chapter

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PROBLEM 22,- "Coti#e$%

C.s/ .$ c.s/ e5#i(.lets cosist of c.s/ o /.$ .$b.l.ces 0it/ b.4s1 ?9,$.) tre.s#r) bills .$ tem'or.r) b.4

o(er$r.ft C.s/ .$ c.s/ e5#i(.lets icl#$e$ i t/e st.temetof c.s/ flo0s com'rise t/e follo0i! st.temet of fi.ci.l'ositio .cco#ts ".mo#ts i t/o#s.$s of $oll.rs%D

29-= 29-;C.s/ .$ ?9,$.) tre.s#r) bills 7 ;12?@ 7 ;1;>B.4 o(er$r.ft "?18==% "?1289%Tot.l c.s/ .$ c.s/ e5#i(.lets 7 ";1@>% 7 "21@=-%

"-% C.s/ recei(e$ from c#stomersO'er.ti! re(e#e 7 8>182-LessD icre.se i .cco#ts recei(.ble "@1;=@%C.s/ recei(e$ from c#stomers 7 8=1=?

"2% C.s/ '.i$ to s#''liers for !oo$s .$ ser(icesO'er.ti! ex'eses 7 ?1??Geer.l .$ .$miistr.ti(e ex'eses -;19;>

&e$#ctD s.l.ries .$ 0.!es ex'ese "=?1?2=%A$$D icre.se i i(etor) =1@22LessD $ecre.se i 're'.i$ ex'eses "2--%A$$D $ecre.se i .cco#ts '.).ble -1=?9P.i$ to s#''liers for !oo$s .$ ser(ices 7 =81>@2

";% C.s/ '.i$ to .$ o be/.lf of em'lo)eesS.l.ries .$ 0.!es ex'ese 7 =?1?2=

A$$D $ecre.se i s.l.ries .$ 0.!es '.).ble >C.s/ '.i$ to .$ o be/.lf of em'lo)ees 7 =?1?;;


7/25/2019 sm ch (22).doc




"=% Icome t.xes '.i$collecte$Icome t.x beefit 7"21@%

A$$D icre.se i $eferre$ t.x .sset 21?;9A$$D icre.se i icome t.x recei(.ble [email protected]/ '.i$recei(e$ for icome t.xes 7

Recocili.tio of Pro'ert) Pl.t .$ E5#i'met "et%DO'ei! B.l.ce 7=@199A$$itios !i(e 212>9E$i! B.l.ce !i(e ";1;;2%Loss o $is'os.l !i(e ";>=%

Procee$s o $is'os.l !i(e "2@9%&e'reci.tio ex'ese force -919-=

Tot.l $e'reci.tio .$ .morti.tio recor$e$ 7-91229Less $e'reci.tio for c.'it.l .ssets ".bo(e% "-919-=%Amorti.tio for fr.c/ises 7 29?

"@% Recocili.tio of Fr.c/ises "et%DO'ei! B.l.ce 7 -1>--Amorti.tio recor$e$ ".bo(e% "29?%E$i! B.l.ce !i(e "=1;>-%A$$itios force 7"21?8?%

"?% Recocili.tio of B.4 Lo.sDO'ei! B.l.ce 7;1299Ne0 lo.s $#ri! t/e )e.r 21299E$i! B.l.ce !i(e "=1299%

Re'.i$ $#ri! t/e )e.r "7-99 + -2% 7-1299

olutions Manual -(" Chapter

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Recocili.tio of S/.re C.'it.lDO'ei! B.l.ce 7 ?21>?@Procee$s from s.le of s/.res -=1;>;Procee$s from s.le of 0.rr.ts 8>>Stoc4 $i(i$e$ -1999E$i! B.l.ce 7 >12@

"b%<eo'.r$) Ic

Cosoli$.te$ St.temet of C.s/ Flo0s "'.rti.l%

For t/e e.r E$e$ A'ril ;91 29-="7999 omitte$%

C.s/ flo0s from o'er.ti! .cti(itiesNet loss 7"2;19@%A$6#stmets to recocile et loss to et c.s/ #se$ i o'er.ti! .cti(itiesD

&e'reci.tio ex'ese 7-919-=Amorti.tio ex'ese 29?Loss o im'.irmet of !oo$0ill -21;Loss o s.le of c.'it.l .ssets ;>=Loss o e5#it) i(estmet [email protected] i .cco#ts recei(.ble "@1;=@%Icre.se i i(etor) "=1@22%Icre.se i icome t.x recei(.ble "-=@%&ecre.se i 're'.i$ ex'eses 2--&ecre.se i .cco#ts '.).ble

.$ .ccr#e$ li.bilities "-1=?>

%Icre.se i $eferre$ t.x .sset "21?;9% --1>?>

Net c.s/ #se$ b) o'er.ti! .cti(ities 7"--1988%

olutions Manual -($ Chapter

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"c% Memo to Presi$et

<eo'.r$) Ic is ex'erieci! . se(ere c.s/ cr#c/ i s'ite of /.(i! .cce't.ble li5#i$it) r.tios .$ se(er.l o,c.s/ex'eses o its icome st.temet T/e follo0i! is . list of f.ctors1 0/ic/ /.(e cotrib#te$ to t/is 'roblemD

- T/ere .re $ist#rbi! tre$s i t/e m..!emet of 0or4i!c.'it.l T/is is e(i$ece$ from t/e o'er.ti! .cti(ities of t/e st.temet of c.s/ flo0s 're'.re$ #si! t/e i$irectform.t <eo'.r$) /.$ si!ific.t icre.ses i .cco#tsrecei(.ble .$ i(etor) combie$ of "7>18?% 0/ile .t t/e

s.me time re$#ctio i .cco#ts '.).ble of 7-1=?> 0ere.c/ie(e$ T/is re'resets . $eterior.tio .mo#ti! to7--; millio i 0or4i! c.'it.l 'ositio i oe fisc.l )e.r

2 Si!ific.t '#rc/.ses of lo!,term i(estmets1 re'orte$.t .mortie$ cost 0ere m.$e $#ri! t/e )e.r "7-1@-?%1.lt/o#!/ i(estmets $i$ !eer.te some c.s/ fromiterest We s/o#l$ loo4 c.ref#ll) .t t/e r.tes of itereste.re$ o t/ese i(estmets1 com'.re$ to t/e r.tes of

iterest '.i$ o o#r $ebt

; Alt/o#!/ t/e com'.) recor$e$ icome t.x beefits o t/eicome st.temet from its losses1 .$ t/e corres'o$i!.$$itios to $eferre$ t.x .ssets o t/e st.temet of fi.ci.l 'ositio "721?;9%1 0e 0ere #.ble to reco(er ic.s/ .) t.xes '.i$ i t/e '.st T/e c.rr)b.c4 of losses0.s $is.llo0e$ bec.#se of t/e coti#e$ losses ic#rre$i t/e '.st

= T/e m.6orit) of t/e c.s/ obt.ie$ from selli! s/.res .$0.rr.ts to s/.re/ol$ers 0.s cos#me$ i o'er.ti!.cti(ities Closer .ttetio to costs 0ill /.(e to be '.i$ ior$er to restore 'rofit.bilit) .$ corres'o$i! 'ositi(ec.s/ flo0s from o'er.tios

olutions Manual -(% Chapter

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PROBLEM 22-2

".%

M. Cor'St.temet of C.s/ Flo0s "I$irect Met/o$%


C.s/ flo0s from o'er.ti! .cti(itiesNet e.ri!s 72=91999A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities

&e'reci.tio ex'ese "-% 7-8-1999 Loss o s.le of e5#i'met "2% 21999

E5#it) i e.ri!s of Bli!/ Cor' ";% "221999% Icre.se i .cco#ts recei(.ble ">199% Icre.se i i(etor) "=21?99% &ecre.se i .cco#ts '.).ble "?-1999% &ecre.se i icome t.x '.).ble ">1999% ";-1;99%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 298199

C.s/ flo0s from i(esti! .cti(itiesDProcee$s from s.le of e5#i'met =21999

Lo. to TMC Cor' "28@1999%Prici'.l collecte$ of lo. recei(.ble ;;1@99Net c.s/ #se$ b) i(esti! .cti(ities "29>1@99%

C.s/ flo0s from fi.ci! .cti(itiesDIcre.ses i b.4 lo. ?>199&i(i$e$s '.i$ "8@1999%

Net c.s/ #se$ b) fi.ci! .cti(ities "-@1;99%

Net $ecre.se i c.s/ "-?1-99%

C.s/1 <.#.r) -1 29-= ==1=99C.s/1 &ecember ;-1 29-= 7281;99

No,c.s/ i(esti! .$ fi.ci! .cti(itiesDIss#.ce of le.se obli!.tio for e5#i'met 7291999

olutions Manual -(& Chapter

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PROBLEM 22,2 "Coti#e$%

A$$itio.l $isclos#resD

&#ri! t/e )e.r M. Cor' /.$ t/e follo0i! o'er.ti! c.s/flo0s rel.ti! to iterestDIterest '.i$ o o'er.ti! lie of cre$it

.$ fi.ce le.seD 7-=1>99Iterest collecte$ o lo.s to TMC Cor' >1=99

Icome t.xes '.i$ $#ri! t/e )e.r -@-1999

"-% C.lc#l.tio of $e'reci.tio ex'eseDOri!i.l cost of e5#i'met sol$ 7 91999C.rr)i! .mo#t of e5#i'met sol$ "==1999%Acc#m#l.te$ $e'reci.tio e5#i'met sol$ 2?1999Acc#m#l.te$ $e'reci.tio <. -1 29-= "-19-91999%Acc#m#l.te$ $e'reci.tio &ec ;-1 29-= -1-?@1999&e'reci.tio ex'ese 7 -8-1999

"2% C.lc#l.tio of !.i o $is'os.l of e5#i'metDProcee$s o s.le of e5#i'met 7 =21999

C.rr)i! .mo#t of e5#i'met sol$ "==1999%Loss o $is'os.l of e5#i'met 7 21999

";% C.lc#l.tio of #$istrib#te$ e.ri!s of Bli!/ Cor'Net icome of Bli!/ Cor' 7 881999Percet.!e o0e$ b) M. Cor' 2@*$istrib#te$ e.ri!s of Bli!/ Cor' 7 221999

olutions Manual -(' Chapter

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"b%

"V999 7% 29-= 29-;

c/.!

ePro'1 'l.t1 .$ e5#i'met 7;19??= 7218??= Acc#m#l.te$ $e'reci.tio "-1-?@9% "-19-99%

-1>9-= -18@?= 7=@

&e'reci.tio ex'ese -8-Loss o s.le of e5#i'met 2Procee$s o s.le of e5#i'met =2

22@ No,c.s/ fi.ce le.se "29%

7"=@%

"c% At first !l.ce1 . fi.ci.l st.temet re.$er of t/e c.s/ flo0st.temet mi!/t come to t/e 5#ic4 cocl#sio t/.t .ll of t/ec.s/ flo0s !eer.te$ from o'er.tios 0ere #se$ #' ii(esti! .cti(ities t/is is re.ll) ot t/e c.se T/e c.s/!eer.te$ from o'er.tios is .lmost ex.ctl) t/e .mo#t .st/e c.s/ #se$ i i(esti! .cti(ities T/is m.4es it .''e.r .s

if M. Cor' is le.(i! itself (er) little c.s/ to .llo0 it .)flexibilit) i $e.li! 0it/ f#t#re c.s/ $em.$s T/erecocili.tio bri!s ito t/e (ie0 t/e o,c.s/ fi.ci!i(esti! tr.s.ctio of t/e fi.ce le.se of 7291999 T/isc. t/e be e.sil) com'.re$ 0it/ t/e .mo#t of t/e$e'reci.tio o 'ro'ert) 'l.t .$ e5#i'met recor$e$$#ri! t/e )e.r T/is com'.riso is ofte #se$ to .ssess if m..!emet is 'ro'erl) $e.li! 0it/ t/e timel) re'l.cemetof .!ei! c.'it.l .ssets

"$% Sice M. Cor' follo0s IFRS1 iterest '.i$ .$ recei(e$c. be reco!ie$ .s o'er.ti! flo0s o t/e b.sis t/e) .reicl#$e$ i $etermii! et icome Alter.ti(el)1 iterest'.i$ co#l$ be . fi.ci! o#tflo0 0/ile iterest .$ recei(e$co#l$ be cosi$ere$ i(estmet flo0s Oce t/e c/oice ism.$e1 it is .''lie$ cosistetl) from 'erio$ to 'erio$.

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"$% "Coti#e$%

H.$ M. Cor' cl.ssifie$ iterest '.i$ .s fi.ci!.cti(ities1 .$ iterest recei(e$ .s i(esti! .cti(ities1 t/ose.mo#ts 0o#l$ ee$ to become .$6#stmets to t/eo'er.ti! .cti(ities sectio of t/e st.temet of c.s/ flo0s're'.re$ #si! t/e i$irect form.t .s t/ose .mo#t 0ereicl#$e$ i et e.ri!s T/ese .mo#ts .re f.irl) sm.ll"iterest '.i$ 7-=1>99 .$ iterest recei(e$ 7>1=99% .$0o#l$ icre.se t/e c.s/ flo0s from o'er.tios b) 7@1@99Corres'o$i!l)1 t/e i(esti! .cti(ities et o#tflo0 of c.s/0o#l$ $ecre.se b) 7>1=99 .$ fi.ci! .cti(ities o#tflo0

0o#l$ icre.se b) 7-=1>99 T/ese c/.!es .re mior1 .$0o#l$ ot im'.ct cocl#sios re.c/e$ coceri! M.3sli5#i$it) 'ositio .$ .bilit) to !eer.te c.s/

"e% M. Cor' /.s (er) lo0 c.s/ 'ositios .t its st.temet of fi.ci.l 'ositio $.tes It .lso .''e.rs .s if some l.r!ec#rret li.bilities m#st be '.i$1 i .mo#ts t/.t .re f.r l.r!er t/. t/e .mo#t of c.s/ o /.$ T/.t bei! t/e c.se1 M.rem.is .ble to meet t/ese obli!.tios bec.#se it /.s

sec#re$ . lie of cre$it 0/ic/ /.s . #''er limit of 7?991999It is e(er t/e itetio of m..!emet to #se t/e lie of cre$it to t/e limit1 b#t r.t/er #se it for t/e s/ort termfi.ci! of o'er.ti! ee$s T/e b.l.ces of t/e term lie.t t/e st.temet of fi.ci.l 'ositio $.tes .re ot o#t of lie 0/e com'.re$ to ot/er im'ort.t b.l.ces s#c/ .s t/e.mo#t of .cco#ts recei(.ble I f.ct t/e .cco#tsrecei(.ble .re li4el) sec#ri! t/e o'er.ti! lie of cre$it

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PROBLEM 22-3

".% Prelimi.r) c.lc#l.tios .$ recocili.tiosD

A Recocili.tio of lo!,term i(estmet .t e5#it)DO'ei! B.l.ce 7=991999E5#it) i e.ri!s of i(estee ?21999&i(i$e$ recei(e$ "$eri(e$% "==1999%E$i! B.l.ce 7=-81999

B Recocili.tio of i(estmet icomeDTot.l i(estmet icome o icome st.temet 7>91999LessD E5#it) i e.ri!s of i(estee "?21999%Iterest icome o i(estmets 7281999

C Recocili.tio of E5#i'metDO'ei! B.l.ce 7?=91999Ori!i.l cost of e5#i'met sol$ "=?1999%E$i! b.l.ce "?;21999%P#rc/.ses of e5#i'met "$eri(e$% "7;81999%

& Recocili.tio of .cc#m#l.te$ $e'reci.tio e5#i'metDO'ei! B.l.ce "7-;@1999%Acc#m#l.te$ $e'reci.tio of e5#i'met sol$ ;21999E$i! b.l.ce -?91999&eri(e $e'reci.tio for )e.r 7@1999

E C.rr)i! .mo#t of e5#i'met sol$ "7-=1999% Procee$s o s.le of e5#i'met "$eri(e$% ;1999Loss o $is'os.l "7--1999%

F Recocili.tio of commo s/.resDO'ei! b.l.ce 7???1999Stoc4 $i(i$e$s -81999S/.res iss#e$ $#ri! )e.r "$eri(e$% ?21999E$i! b.l.ce 7=?1999

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PROBLEM 22,; "Coti#e$%

".% "Coti#e$%

G Recocili.tio of ret.ie$ e.ri!sDO'ei! b.l.ce 72>=1999A$$ et icome ->@1999Less stoc4 $i(i$e$s "-81999%C.s/ $i(i$e$s $ecl.re$ "$eri(e$% "@-1999%E$i! b.l.ce 7=291999

H Recocili.tio of $i(i$e$s '.).bleO'ei! b.l.ce 7@91999A$$ $i(i$e$s $ecl.re$ "G% @-1999C.s/ $i(i$e$s '.i$ "$eri(e$% "8-1999%E$i! b.l.ce 7291999

L.fl.mme IcSt.temet of C.s/ Flo0s "I$irect Met/o$%

for t/e )e.r e$e$ &ecember ;-1 29-=C.s/ Flo0s from O'er.ti! Acti(itiesNet Icome 7->@1999

A$6#stmets to recocile et icome

to et c.s/ 'ro(i$e$ b) o'er.ti!

.cti(itiesDLoss o s.le of e5#i'met 7--1999&e'reci.tio B#il$i!s =91999&e'reci.tio E5#i'met "&% @1999Amorti.tio P.tet @1999Amorti.tio of bo$ $isco#t =1999E5#it) i e.ri!s i lo!,term i(estee "?21999%

&i(i$e$s recei(e$ from LT i(estee "A% ==1999Icre.se i .cco#ts recei(.ble "1999%&ecre.se i 're'.i$ is#r.ce ->1999Icre.se i i(etor) "=81999%&ecre.se i s#''lies =1999Icre.se i .cco#ts '.).ble -@1999&ecre.se i icome t.x '.).ble ">1999%

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Icre.se i .ccr#e$ li.bilities -?1999 ->1999Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 2-=1999PROBLEM 22,; "Coti#e$%

".% "Coti#e$%C.s/ Flo0s from I(esti! Acti(ities

P#rc/.se of l.$ 7"=91999%P#rc/.se of b#il$i! ";91999%P#rc/.se of e5#i'met "C% ";81999%Procee$s from s.le of e5#i'met ;1999

Net c.s/ #se$ i i(esti! .cti(ities "-9@1999%

C.s/ Flo0s from Fi.ci! Acti(ities

Procee$s from iss#.ce of 'referre$ s/.res 2=1999

Procee$s from iss#.ce ofcommo s/.res "F% ?21999

Re'.)met of lo!,term otes 'rici'.l "=91999%&i(i$e$ '.i$ "H% "8-1999%

Net c.s/ #se$ i fi.ci! .cti(ities ";@1999%

Icre.se i c.s/ .$ c.s/ e5#i(.lets =1999

C.s/ .$ c.s/ e5#i(.lets b.l.ce &ec ;-1 29-; 81999C.s/ .$ c.s/ e5#i(.lets b.l.ce &ec ;-1 29-= 7821999

C.s/ .$ C.s/ E5#i(.letsD 29-= 29-;C.s/ 7=?1999 7@?1999C.s/ e5#i(.lets ;?1999 =@1999Tem'or.r) b.4 o(er$r.fts 9 ">;1999%

7821999 781999

Note +D &#ri! t/e )e.r t/e L.fl.mme Ic obt.ie$ l.$ /.(i!. f.ir (.l#e of 7-991999 for its 'referre$ s/.res

S#''lemet.l $isclos#res of c.s/ flo0 iform.tioDC.s/ '.i$ $#ri! t/e )e.r forD

Iterest 7>-1999Icome t.xes 7-9@1999


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"Icre.se of 7-2=1999 less Note + o,c.s/ fi.ci!i(esti! .bo(e of 7-991999 72=1999%

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"b%L.fl.mme Ic

St.temet of C.s/ Flo0s "&irect Met/o$%for t/e )e.r e$e$ &ecember ;-1 29-=

C.s/ Flo0s from O'er.ti! Acti(itiesC.s/ recei(e$ from c#stomers "-% 7>221999C.s/ recei(e$ from iterest s/ort term "B% 281999C.s/ recei(e$ from $i(i$e$s lo! term "A% ==1999P.)mets to s#''liers for !oo$s .$ ser(ices "2% ";21999%P.)mets to .$ o be/.lf of em'lo)ees ";% "2-21999%Iterest '.i$ "=% ">-1999%Icome t.xes '.i$ "@% "-9@1999%

Net c.s/ flo0s 'ro(i$e$ b) o'er.ti! .cti(ities 72-=1999

- C.s/ collecte$ from c#stomersDS.les re(e#e 7>>>1999Icre.se i .cco#ts recei(.ble "1999%

7>221999

2 P.)mets to s#''liers for !oo$s for res.leDCost of !oo$s sol$ 7;-=1999Icre.se i i(etor) =81999Icre.se i .cco#ts '.).ble "-@1999%O'er.ti! ex'eses -??1999

LessD&e'reci.tio B#il$i!s "=91999%&e'reci.tio E5#i'met "@1999%Amorti.tio P.tet "@1999%

&ecre.se i 're'.i$ is#r.ce "->1999%Icre.se i .ccr#e$ li.bilities "-?1999%&ecre.se i s#''lies "=1999%

7;21999

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"b% "Coti#e$%

; P.)mets to .$ o be/.lf of em'lo)eesD

S.les commissio ex'ese 7-981999S.l.ries .$ 0.!es ex'ese -9=1999

72-21999

= Iterest '.i$DIterest ex'ese 7>@1999Amorti.tio of bo$ $isco#t "=1999%

7>-1999@ Icome t.xes '.i$D

Icome t.x ex'ese 7>?1999&ecre.se i icome t.x '.).ble >1999

7-9@1999

"c% Laflamme follows ASPE and so does not have choices.

Companies that adopt IFRS do have some choices.*$er IFRS1 iterest '.i$ .$ recei(e$ .$ $i(i$e$s '.i$ .$recei(e$ c. be reco!ie$ .s o'er.ti! flo0sAlter.ti(el)1 iterest '.i$ c. be reco!ie$ .s .

fi.ci! o#tflo0 0/ile iterest .$ $i(i$e$s recei(e$ c.be reco!ie$ .s i(esti! iflo0s A c/oice is 'ermitte$for $i(i$e$s '.i$D . fi.ci! o#tflo0 .s . ret#r to e5#it)/ol$ers1 or . o'er.ti! o#tflo0 .s . me.s#re of t/e .bilit)of o'er.tios to co(er ret#rs to s/.re/ol$ers

"$% H.$ t/e c.s/ e5#i(.lets ot bee icl#$e$ i c.s/ .$c.s/ e5#i(.lets1 tr.s.ctios of '#rc/.ses .$ m.t#ritiesof 'rici'.l of t/ese i(estmets 0o#l$ /.(e bee tre.te$.s i(esti! .cti(ities o t/e st.temet of c.s/ flo0s

H.$ t/e tem'or.r) b.4 o(er$r.fts ot bee icl#$e$ ic.s/ .$ c.s/ e5#i(.lets1 tr.s.ctios of lo.s .$ c.s/.$(.ces b) t/e b.4 .$ re'.)mets of t/ese lo.s 0o#l$be tre.te$ .s fi.ci! .cti(ities o t/e st.temet of c.s/flo0s

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PROBLEM 22-4

".%<ese Limite$

St.temet of C.s/ Flo0s "I$irect Met/o$%For t/e e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7?1999A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese 7291999 G.i o F,NI i(estmets "2=1999% Loss o s.le of e5#i'met ;1999

Icre.se i .cco#ts recei(.ble "et% "-1@99% Icre.se i i(etor) "-=1999%&ecre.se i $eferre$ t.x .sset =1@99

Icre.se i .cco#ts '.).ble -21@99&ecre.se i .ccr#e$ 'esio li.bilit) "21@99%

Icre.se i icome t.x '.).ble 21999 "-?1999%Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities ?91999

C.s/ flo0s from i(esti! .cti(itiesP#rc/.se of F,NI i(estmets "@1999%

P#rc/.se of e5#i'met ";21999%Procee$s o s.le of F,NI i(estmets @91999Procee$s o s.le of e5#i'met ;1999Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities -?1999

C.s/ flo0s from fi.ci! .cti(itiesP.)met of lo!,term otes '.).ble "81999%&i(i$e$s '.i$ "=1999%Procee$s o iss#.ce of commo s/.res ;@1999

Net c.s/ #se$ b) fi.ci! .cti(ities "=1999%Net icre.se i c.s/ 2>1999C.s/1 <.#.r) -1 29-= @-1999C.s/1 &ecember ;-1 29-= 7891999 72-1999 : 7=1999 7-=1999 : 7;1999 7281999 7291999 7@>1999 72=1999 : 7@91999 7891999 7@1999

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PROBLEM 22,= "Coti#e$%

No,c.s/ i(esti! .$ fi.ci! .cti(ities

Iss#.ce of commo s/.res for l.$ 7-@1999

A$$itio.l $isclos#resD

&#ri! t/e )e.r <eso Limite$ /.$ t/e follo0i! o'er.ti! c.s/flo0s rel.ti! to iterest .$ icome t.xesD

Iterest '.i$ 7-91999Icome t.xes '.i$ ;81@99

"b%Net C.s/ Pro(i$e$ b) O'er.ti! Acti(ities

C.s/ recei(e$ from c#stomers "-% 7>[email protected]/ '.i$ to s#''liers for !oo$s .$

ser(ices "2% 7?-8189

9C.s/ '.i$ to .$ o be/.lf of

em'lo)ees ";% 2-;129

9Iterest '.i$ -91999

Icome t.xes '.i$ "=% ;81@99 8891@99Net c.s/ 'ro(i$e$ b) o'er.ti!

.cti(ities7 ?91999

"-% C.s/ recei(e$ from c#stomersS.les 7 >?91999Less icre.se i .cco#ts recei(.ble "->1@99%C.s/ recei(e$ from c#stomers 7 >=91@99

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"2% C.s/ '.i$ to s#''liers for !oo$s .$ ser(icesCost of !oo$s sol$ 7 ?991999

&e$#ctD $irect l.bo#r "--@1999%&e$#ctD 'esio ex'ese "--199%A$$D icre.se i i(etor) -=1999&e$#ctD icre.se i .cco#ts '.).ble "-21@99%P.)met to s#''liers for !oo$s for res.le ==1899O'er.ti! ex'eses 2@91999&e$#ctD s.l.ries .$ 0.!es ex'ese "?1999%&e$#ctD 'esio beefits ex'ese "81999%&e$#ctD $e'reci.tio ex'ese "291999%

&e$#ctD b.$ $ebt ex'ese "21999%P.i$ to s#''liers for !oo$s .$ ser(ices 7 ?-81899

";% C.s/ '.i$ to .$ o be/.lf of em'lo)ees&irect l.bo#r 7 [email protected] .$ 0.!es ex'ese ?1999Pesio beefits ex'ese ->199A$$D $ecre.se i .ccr#e$ 'esio li.bilit) [email protected]/ '.i$ to .$ o be/.lf of em'lo)ees 7 2-;1299

"=% Icome t.xes '.i$Icome t.x ex'ese 7 =@1999&e$#ctD $ecre.se i $eferre$ t.x .sset "=1@99%&e$#ctD icre.se i icome t.x '.).ble "21999%Icome t.xes '.i$ 7 ;81@99

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"c% *$er IFRS1 iterest '.i$ .$ recei(e$ .$ $i(i$e$s '.i$.$ recei(e$ c. be reco!ie$ .s o'er.ti! flo0s

Alter.ti(el)1 iterest '.i$ c. be reco!ie$ .s .fi.ci! o#tflo0 0/ile iterest .$ $i(i$e$s recei(e$ c.be reco!ie$ .s i(esti! iflo0s A c/oice is 'ermitte$for $i(i$e$s '.i$D . fi.ci! o#tflo0 .s . ret#r to e5#it)/ol$ers1 or . o'er.ti! o#tflo0 .s . me.s#re of t/e .bilit)of o'er.tios to co(er ret#rs to s/.re/ol$ers

"$% I s'ite of . (er) l.r!e $i(i$e$ '.i$ $#ri! t/e )e.r t/.t 0.s .lmost .s l.r!e .s et icome1 t/e com'.)m..!e$ to !eer.te si!ific.t .mo#ts of c.s/ from

o'er.tios .$ from t/e s.le of some of its i(estmetsT/e iss#.ce of .$$itio.l commo s/.res /el'e$ fi.cet/e '#rc/.se of e5#i'met .$ t/e .c5#isitio of l.$

"e%

T/e $i(i$e$ '.)o#t r.tio for t/e )e.r e$i!&ecember ;-1 29-= c. be e.sil) c.lc#l.te$ #si! .mo#tsre'orte$ o t/e st.temet of c.s/ flo0s T/e '.)o#t r.tiois > 7=1999 "$i(i$e$s '.i$% $i(i$e$ b) 7?19991 "eticome%Q From t/e 'ers'ecti(e of . i(estor1 t/is mi!/tbe . 0elcome$ r.tio1 .s i(estors .re reci'iets of t/isextremel) /i!/ ret#r o i(estmet O t/e ot/er /.$1'.)i! o#t more $i(i$e$s t/. t/e c.s/ flo0 fromo'er.tios mi!/t be 0orrisome1 .$ . s/.re/ol$er s/o#l$ot ex'ect t/.t to coti#e T/e 7@91999 'rocee$s o t/es.le of i(estmets mi!/t be '.rt of t/e re.so for s#c/ .l.r!e '.)o#t t/is )e.r1 b#t .!.i1 t/is is ot #s#.ll) .re'lic.ble "coti#i! t)'e of% c.s/ flo0 It 0o#l$ be

#re.listic to ex'ect t/e com'.) to s#st.i t/is .$$itio.lso#rce of c.s/ i t/e f#t#re

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PROBLEM 22-5

".%

As/le) Limite$St.temet of C.s/ Flo0sFor t/e e.r E$e$ &ecember ;-1 29-=

"&irect Met/o$%

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei(e$ from c#stomers "-% 7-1-@>1=@9&i(i$e$s recei(e$ 21=99Procee$s o s.le of F,NI

i(estmets -=1999

C.s/ '.i$ to s#''liers for !oo$s .$ ser(ices "2%

"88>1;@9%

C.s/ '.i$ to .$ o be/.lf of em'lo)ees ";%

">91999%

Icome t.xes '.i$ "=% ";;1=99%Iterest '.i$

"@-1@9% Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7---1;@9

C.s/ flo0s from i(esti! .cti(ities

Procee$s from s.le of l.$ @81999P#rc/.se of e5#i'met

"-2@1999% Net c.s/ #se$ b) i(esti! .cti(ities "?1999%

C.s/ flo0s from fi.ci! .cti(itiesProcee$s from iss#.ce of commo

s/.res 221@

99Prici'.l '.)met o lo!,term $ebt "-91999%&i(i$e$s '.i$

"->1=@9% Net c.s/ #se$ b) fi.ci! .cti(ities "?1>@9%

Net icre.se i c.s/ .$ c.s/ e5#i(.lets ;1=99C.s/ .$ c.s/ e5#i(.lets <.#.r) -1 29-= "-21999%C.s/ .$ c.s/ e5#i(.lets1 &ecember ;-1 29-= 72@1=99

&ecre.se i F,NI i(estmets 7-91999 : !.i of 7=1999 &ecre.se i l.$ of 7@91999 : !.i of 781999

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PROBLEM 22,@ "Coti#e$%

C.s/ .$ c.s/ e5#i(.lets cosist of c.s/ o /.$ .$b.l.ces 0it/ b.4s1 .$ tem'or.r) b.4 o(er$r.fts C.s/ .$

c.s/ e5#i(.lets icl#$e$ i t/e st.temet of c.s/ flo0scom'rise t/e follo0i! st.temet of fi.ci.l 'ositio .cco#tsD

29-= 29-;C.s/ 7 2@1=99 Tem'or.r) b.4 o(er$r.ft 7 "-21999%Tot.l c.s/ .$ c.s/ e5#i(.lets 7 2@1=99 7 "-21999%

"-% S.les Re(e#e 7-1-?91999Less icre.se i .cco#ts recei(.ble "@@9%C.s/ recei(e$ from c#stomers 7-1-@>1=@9

"2% C.s/ '.i$ to s#''liers for !oo$s .$ ser(ices

Cost of !oo$s sol$ 7=81999 A$$ icre.se i i(etor) 1999 Less icre.se i .cco#ts '.).ble "21999% C.s/ '.i$ to s#''liers for !oo$s for res.le @;1999 A$$ selli! ex'eses ->1299

A$$ .$miistr.ti(e ex'eses -2=199 Less $ecre.se i 're'.i$ ret ">1999% A$$ icre.se i 're'.i$ is#r.ce -1299 A$$ icre.se i office s#''lies 2@9 C.s/ '.i$ to s#''liers for !oo$s .$ ser(ices 788>1;@9

";% S.l.ries .$ 0.!es ex'ese 7>21999 Less icre.se i s.l.ries .$ 0.!es

'.).ble "21999%

C.s/ '.i$ to .$ o be/.lf of em'lo)ees 7>91999

"=% Icome t.x ex'ese 7;>1=99 Less icre.se i $eferre$ t.x li.bilit) "@1999% Less icre.se i icome t.x '.).ble "-1999% Icome t.xes '.i$ 7;;1=99

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Recocili.tio of Net Icome to Net C.s/Pro(i$e$ b) O'er.ti! Acti(itiesD

Net icome 7@818@9A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD

&e'reci.tio ex'ese 7;@[email protected] ex'ese @1999G.i o s.le of l.$ "81999%G.i o s.le of F,NI i(estmets "=1999%Procee$s from s.le of F,NI

i(estmets -=1999&ecre.se i 're'.i$ ret >1999Icre.se i icome t.x '.).ble -1999Icre.se i s.l.ries .$ 0.!es '.).ble 21999Icre.se i .cco#ts recei(.ble "@@9%Icre.se i i(etor) "1999%Icre.se i 're'.i$ is#r.ce "-1299%Icre.se i office s#''lies "2@9%Icre.se i .cco#ts '.).ble 21999Icre.se i $eferre$ t.x li.bilit) @1999 @21@99

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7---1;@9

"b% Ashley Limited follows ASPE and so does not have

choices. Companies that adopt IFRS do have some

choices.*$er IFRS1 iterest '.i$ .$ recei(e$ .$$i(i$e$s '.i$ .$ recei(e$ c. be reco!ie$ .so'er.ti! flo0s Alter.ti(el)1 iterest '.i$ c. bereco!ie$ .s . fi.ci! o#tflo0 0/ile iterest .$$i(i$e$s recei(e$ c. be reco!ie$ .s i(esti! iflo0sA c/oice is 'ermitte$ for $i(i$e$s '.i$D . fi.ci!o#tflo0 .s . ret#r to e5#it) /ol$ers1 or . o'er.ti!o#tflo0 .s . me.s#re of t/e .bilit) of o'er.tios to co(er ret#rs to s/.re/ol$ers


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"c% MemoAs/le) /.s m..!e$ to !eer.te s#fficiet c.s/ fromo'er.tios i t/e c#rret )e.r to o(ercome . c.s/ .$c.s/ e5#i(.let $eficiec) 0/ile .t t/e s.me time m.4i!s#bst.ti.l i(estmets i e5#i'met .$ '.)i! o#t$i(i$e$s of ;; of et icome for t/e )e.r A$$itio.licre.ses i c.s/ c.me from t/e s.le of l.$ .$ F,NIi(estmets .s 0ell .s f#rt/er i(estmets froms/.re/ol$ers t/ro#!/ t/e iss#.ce of s/.res

"$%

C.s/ '.)mets to s#''liers for !oo$s for res.leD

Cost of !oo$s sol$ 7=81999A$$D Icre.se i i(etor) 1999LessD Icre.se i .cco#ts '.).ble "21999%C.s/ '.i$ to s#''liers for !oo$s for res.le 7@;1999

C.s/ '.i$ to s#''liers for ser(icesD

Selli! ex'eses 7->1299A$miistr.ti(e ex'eses -2=199LessD &ecre.se i 're'.i$ ret ">1999%A$$D Icre.se i 're'.i$ is#r.ce -1299A$$D Icre.se i office s#''lies [email protected]/ '.i$ to s#''liers for ser(ices 7-;?1;@9

olutions Manual -1*" Chapter

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PROBLEM 22,?

".%

Commo S/.res "=1999 + 7;=29% -;?1899Cotrib#te$ S#r'l#s "Commo S/.res% 22199Ret.ie$ E.ri!s -81-99

C.s/ "=1999 + 7===9% -1?99

L.$ 2=91@99 C.s/ ;;1999

Commo S/.res "@1999 + 7=-@9% 291@99

*re.lie$ G.i or Loss , OCI ;1?@9F,OCI I(estmets ;1?@9

Ori!i.l cost of s/.res7?81=99F.ir (.l#e .$6 to be! of )e.r "21;@9%C.rr)i! .mo#t be! of )[email protected] (.l#e $.te of $ecl.r.tio?21=99F.ir (.l#e .$6#st re5#ire$7;1?@9

Loss o S.le of I(estmets ?1999

*re.lie$ G.i or Loss , OCI ?1999"Recl.ssific.tio 721;@9 : 7;1?@9%

Ret.ie$ E.ri!s ?21=99&i(i$e$s P.).ble ?21=99

&i(i$e$s P.).ble ?21=99F,OCI I(estmets ?21=99

Ret.ie$ E.ri!s 8@1@2Commo Stoc4 &i(i$e$s &istrib#t.ble8@1@2"=;1299 + @ + 7;>9%

olutions Manual -1*$ Chapter

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PROBLEM 22,? "Coti#e$%

Commo Stoc4 &i(i$e$s &istrib#t.ble 8@1@2Commo S/.res 8@1@2

L.$ =21999Cotrib#te$ S#r'l#s , &o.te$ L.$ =21999

S/.re S#bscri'tios Recei(.ble ;[email protected]/ "7;8@1999 + -9% ;81@99

Commo S/.res S#bscribe$ ;8@1999"-91999 + 7;8@9%

&i(i$e$ Ex'ese ;1899&i(i$e$s P.).ble ;1899

"b%C.s/ 'ro(i$e$ b) "#se$ i% o'er.tios

A$$ b.c4D o,c.s/ ex'esesDLoss o s.le of i(estmets 7?1999

C/.!es i o,c.s/ 0or4i! c.'it.lD&i(i$e$s '.).ble1 term 'referre$ s/.res ;1899

C.s/ 'ro(i$e$ b) "#se$ i% i(esti! .cti(itiesP#rc/.se of l.$ "Note x% ";;1999%

C.s/ 'ro(i$e$ b) "#se$ i% fi.ci! .cti(itiesCollectio of s#bscri'tio for s/.res ;81@99Commo s/.res re'#rc/.se$ "-1?99%

Note +D &#ri! t/e )e.r G.o Limite$ '#rc/.se$ l.$ 0it/ . f.ir (.l#e of 72=91@99 i exc/.!e for c.s/ of 7;;1999 .$ @1999

commo s/.res

olutions Manual -1*% Chapter

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PROBLEM 22,? "Coti#e$%

A$$itio.l $isclos#resDA 'ro'ert) $i(i$e$ i t/e .mo#t of 7?21=991 c/.r!e$ to

ret.ie$ e.ri!s1 0.s $ecl.re$ .$ $istrib#te$ to 'referre$s/.re/ol$ers

A -9 stoc4 $i(i$e$ for 78@1@2 0.s $ecl.re$ .$$istrib#te$ to t/e commo s/.re/ol$ers

&#ri! t/e )e.r1 . s/.re/ol$er $o.te$ l.$ .t . .''r.ise$(.l#e of 7=21999

"c% If G.o3s i(estmet i Tri(ex 0.s .cco#te$ #si! t/e f.ir

(.l#e t/ro#!/ icome mo$el1 t/e c/.!es i f.ir (.l#e0o#l$ /.(e bee icl#$e$ i et icome1 iste.$ of bei!re'orte$ i ot/er com're/esi(e icome T/ere 0o#l$ beo Acc#m#l.te$ ot/er com're/esi(e icome o t/est.temet of fi.ci.l 'ositio .t October ;-1 29-=1 .$t/erefore o recl.ssific.tio etr) 0o#l$ be ee$e$follo0i! t/e $ecl.r.tio of t/e 'ro'ert) $i(i$e$ As for t/e st.temet of c.s/ flo0s1 t/e .mo#ts re'orte$ 0o#l$ot c/.!e1 b#t t/e c.'tios .$ $escri'tios 0o#l$

c/.!e to F,NI1 iste.$ of F,OCI"$% If G.o 0ere #si! ASPE1 it 0o#l$ be ot be .llo0e$ to follo0

t/e F,OCI mo$el

olutions Manual -1*& Chapter

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PROBLEM 22-7

".%Net C.s/ Flo0 from O'er.ti! Acti(ities

C.s/ recei(e$ from c#stomers "-% [email protected]/ '.i$ to s#''liers for !oo$s .$

ser(ices "2% 7@=@1>2

@Icome t.xes '.i$ ";% =91@99 "@8?1=2@%Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7 =-1=2@

"-% C.s/ recei(e$ from c#stomersS.les re(e#e 7 ?=91999

Less icre.se i .cco#ts recei(.ble "-21-@9%C.s/ recei(e$ from c#stomers 7 ?218@9 7?1@99 : 7?91999 : 7212@9 7-1@99 7@1=99 ex'ese

"2% C.s/ '.i$ to s#''liers for !oo$s .$ ser(icesCost of !oo$s sol$ 7 ;891999A$$D icre.se i i(etor) ?1999&e$#ctD icre.se i .cco#ts '.).ble "@12@9%P.)met to s#''liers for !oo$s for res.le ;[email protected] i .ccr#e$ li.bilities "-12@9%O'er.ti! ex'eses -891=@9&e$#ctD $e'reci.tio ex'ese "81?2@%&e$#ctD b.$ $ebt ex'ese "@1=99%P.i$ to s#''liers for !oo$s .$ ser(ices 7 @=@1>2@

";% Icome t.xes '.i$Icome t.x ex'ese 7 =91999

A$$D $ecre.se i icome t.x '.).ble @99Icome t.xes '.i$ 7 =91@99

olutions Manual -1*' Chapter

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PROBLEM 22, "Coti#e$%

"b%

Sec.$. IcSt.temet of C.s/ Flo0s "I$irect Met/o$%


C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7;1@9A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD

&e'reci.tio ex'ese 7 81?2@ Loss o F,NI i(estmets -1999 Loss o s.le of m.c/ier) 899

Icre.se i .cco#ts recei(.ble "et% "?1@9% Icre.se i i(etor) "?1999% Icre.se i .cco#ts '.).ble @12@9

Icre.se i .ccr#e$ li.bilities -12@9 &ecre.se i icome t.x '.).ble "@99% ;1?@

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities =-1=2@

C.s/ flo0s from i(esti! .cti(itiesP#rc/.se of i(estmets "1@99%P#rc/.se of m.c/ier) "-@1999%

A$$itio to b#il$i!s "--12@9%Procee$s from s.le of i(estmets 2;1@9Procee$s from s.le of m.c/ier) 21299

Net c.s/ #se$ b) i(esti! .cti(ities "1899%

C.s/ flo0s from fi.ci! .cti(itiesPrici'.l '.)mets o lo!,term

ote '.).ble "@1999%&i(i$e$s '.i$ "2@1;@%

Net c.s/ #se$ i fi.ci! .cti(ities ";91;@%

Net icre.se i c.s/ ;[email protected]/1 <.#.r) -1 29-= ;;[email protected]/1 &ecember ;-1 29-= 7;1999 72=1@9 : 72;12@9 7=91@99 71@99 7-81@9 7;1@9 7;91999

olutions Manual -1*( Chapter

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PROBLEM 22, "Coti#e$%

"c% Memo

Fello0 i(estmet cl#b membersD

T/e follo0i! is . s/ort s#mm.r) of t/e /i!/li!/ts from .c#rsor) re(ie0 of t/e o'er.tios of Sec.$. Ic1 0/ic/ t/ecl#b is cosi$eri! for i(estmet

From . i(estor3s 'ers'ecti(e1 0e .re itereste$ i t/e'rofit.bilit)1 fi.ci.l st.bilit) .$ $i(i$e$ '.)i! .bilit) of Sec.$. B.se$ o t/e 'erform.ce for t/e )e.r e$i!&ecember ;-1 29-=1 Sec.$. /.s $emostr.te$ . extremel)stro! $i(i$e$ '.)i! .bilit) I f.ct t/e com'.) 0.s .bleto $istrib#te ? of t/e et e.ri!s .s c.s/ $i(i$e$s

"72@1;@ 7;1@9% T/is is . (er) /i!/ $i(i$e$ '.)o#t r.tioO(er .$ .bo(e t/e c.s/ $i(i$e$s '.i$ o#t1 Sec.$. .lso$istrib#te$ . 29 stoc4 $i(i$e$ Alt/o#!/ t/is $i(i$e$ $i$ot 'ro(i$e c.s/ to t/e s/.re/ol$ers1 it $i$ .llo0 t/em torecei(e .$$itio.l commo s/.res1 0/ic/ t/e) c. c/oose tosell T/e st.temet of c.s/ flo0s $emostr.tes some 'ositi(etre$s1 '.rtic#l.rl) i t/e c.s/ flo0s !eer.te$ fromo'er.tios Sec.$. m..!e$ to icre.se its c.s/ 'ositio b)t/e e$ of t/e fisc.l )e.r1 0/ile m.4i! some s#bst.ti.li(estmets i m.c/ier) .$ i b#il$i!s

"$%

C.s/ '.i$ to s#''liers for !oo$s for res.leCost of !oo$s sol$ 7 ;891999A$$D Icre.se i i(etor) ?1999LessD Icre.se i .cco#ts '.).ble "@12@9%%P.)met to s#''liers for !oo$s for res.le 7 ;891@9

C.s/ '.i$ to s#''liers for ser(icesO'er.ti! ex'eses -891=@9LessD Icre.se i .ccr#e$ li.bilities "-12@9%LessD &e'reci.tio ex'ese "81?2@%LessD B.$ $ebt ex'ese "@1=99%P.)mets to s#''liers for ser(ices 7 -?@1-@

olutions Manual -1*) Chapter

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PROBLEM 22-8

".%

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 7-=@1999A$6#stmets to recocile et icome to

to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD &e'reci.tio ex'ese 7;81999 Loss o s.le of e5#i'met -?1@99

G.i o s.le of i(estmet .t f.ir (.l#e0it/ !.is .$ losses i et icome "@1@99%

&ecre.se i .cco#ts recei(.ble -@1999

Icome from i(estmet .cco#te$#si! t/e e5#it) met/o$ "-91899%

&i(i$e$s recei(e$ from i(estmet.cco#te$ #si! t/e e5#it) met/o$ -1-29 @=1;29

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7->>1;29

Ot/er commetsD

No - t/e 'rocee$s from t/e s.le of t/e e5#i'met 0ill be s/o0

.s c.s/ recei(e$ from i(esti! .cti(ities1 b#t t/e loss or 7-?1@99 "72;1@99 71999% m#st be . .$$e$ b.c4 to icome

No 2 is s/o0 .s . c.s/ iflo0 from i(esti! .cti(ities of 7291999 "s.le of -99 Lotel Cor'or.tio s/.res .t 7299 'er s/.re% .$ t/e !.i of 7@1@99 is $e$#cte$ from et icome i t/eo'er.ti! sectio

No ; $oes ot .ffect t/e st.temet of c.s/ flo0s .s it $oes ot

i(ol(e or $oes it .ffect c.s/No = is . o,c.s/ ex'ese "B.$ &ebt Ex'ese% i t/e icomest.temet B.$ $ebt ex'ese is ot /.$le$ se'.r.tel) 0/e#si! t/e i$irect met/o$ It is '.rt of t/e c/.!e i et.cco#ts recei(.ble


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No @ is . si!ific.t o,c.s/ i(esti! .$ fi.ci! .cti(it)

No ? $e'reci.tio is .$$e$ to icome 0/e #si! t/e i$irectmet/o$

No .$ 8 t/e e5#it) 'ic4,#' is $e$#cte$ .$ t/e $i(i$e$srecei(e$ .re .$$e$ to et icome Aot/er .lter.ti(e is to ett/e Com'.)3s 'ro,r.t. s/.re of t/e $i(i$e$ .!.ist t/e icomefrom e5#it) met/o$ .mo#t re'orte$ i t/e c.s/ flo0s fromo'er.ti! .cti(ities

No > is ot s/o0 o . st.temet of c.s/ flo0s

No -9 $i(i$e$s of 721@99 o term 'referre$ s/.res 'ro'erl)re'reset c.s/ o#tflo0s i t/e o'er.ti! .cti(ities1 icl#$e$ it/e c.lc#l.tio of et icome1 0/ile t/e rem.ii! $i(i$e$s of 71@99 0o#l$ be s/o0 .s o#tflo0s i t/e fi.ci! .cti(itiessectio of t/e st.temet of c.s/ flo0s

"b% If Neilso Cor' 0ere follo0i! IFRS1 t/ere 0o#l$ be

c/oices .(.il.ble o t/e tre.tmet of $i(i$e$s .$iterest '.i$ or recei(e$ *$er IFRS1 iterest '.i$ .$recei(e$ .$ $i(i$e$s '.i$ .$ recei(e$ c. bereco!ie$ .s o'er.ti! flo0s Alter.ti(el)1 iterest '.i$c. be reco!ie$ .s . fi.ci! o#tflo0 0/ile iterest .$$i(i$e$s recei(e$ c. be reco!ie$ .s i(esti! iflo0sA c/oice is 'ermitte$ for $i(i$e$s '.i$D . fi.ci!o#tflo0 .s . ret#r to e5#it) /ol$ers1 or . o'er.ti!o#tflo0 .s . me.s#re of t/e .bilit) of o'er.tios to co(er ret#rs to s/.re/ol$ers Ho0e(er m..!emet (ie0s t/eses'ecific flo0s1 oce t/e c/oice is m.$e1 it is .''lie$cosistetl) from 'erio$ to 'erio$.


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PROBLEM 22-9

(a)

Recocili.tio of tr.s.ctios to F.ir .l#e t/ro#!/ Ot/erCom're/esi(e Icome "F,OCI% I(estmets .cco#tD

B.l.ce <. -1 29-= .t f.ir (.l#e"cost 7=91999 #re.lie$ loss to $.te 721=99% 7;1>99

*re.lie$ !.i to $.te of s.le "7=91999 7;1>99% 21-99Procee$s from s.le of .ll s/.res "=91999%P#rc/.se of e0 s/.res .s i(estmet 2;1?99*re.lie$ !.i to &ecember ;-1 29-= =99

B.l.ce &ec ;-1 29-= 72=1999

Recocili.tio of tr.s.ctios to Acc#m#l.te$ Ot/erCom're/esi(e IcomeD

B.l.ce <. -1 29-= , #re.lie$ loss"7;1>99 , 7=91;99% 7"21=99%

*re.lie$ !.i to $.te of s.le "7=91999 7;1>99% 21-99Tr.sfer to Ret.ie$ E.ri!s re.lie$ loss ;99

*re.lie$ !.i to &ecember ;-1 29-= =99B.l.ce &ec ;-1 29-= 7 =99

"b%O'er.ti! .cti(itiesD &irect I$irectC.s/ recei(e$ for $i(i$e$s 7299Loss o s.le of f.ir (.l#e t/ro#!/ ot/er

com're/esi(e icome i(estmets 7;99

I(esti! .cti(itiesDProcee$s from s.le of f.ir (.l#e t/ro#!/ot/er com're/esi(e icome i(estmets 7=91999 7=91999

P#rc/.se of f.ir (.l#e t/ro#!/ ot/ercom're/esi(e icome i(estmets "2;1?99% "2;1?99%


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PROBLEM 22,> "Coti#e$%

"c% If MFI Ic3s i(estmets 0ere .cco#te$ #si! t/e f.ir (.l#e t/ro#!/ et icome "F,NI% mo$el1 t/e .mo#ts

re'orte$ o t/e st.temet of fi.ci.l 'ositio 0o#l$rem.i t/e s.me1 b#t t/eir c.'tios for $escri'tio 0o#l$c/.!e .ccor$i!l) All of t/e i(estmet icome1 icl#$i!t/e $i(i$e$s recei(e$ 0o#l$ /.(e bee icl#$e$ i eticome T/e c/.!es i f.ir (.l#e 0o#l$ .lso /.(e beeicl#$e$ i et icome1 iste.$ of bei! re'orte$ i Ot/er Com're/esi(e Icome T/ere 0o#l$ be o Acc#m#l.te$Ot/er Com're/esi(e Icome o t/e st.temet of fi.ci.l'ositio

T/ere 0o#l$ t/erefore be o ee$ to recocile t/e .cti(it) tot/e Acc#m#l.te$ Ot/er Com're/esi(e Icome .s !i(e i'.rt ".% of t/e 5#estio

As for '.rt "b% of t/e 5#estio1 t/e .mo#ts i t/e st.temetof c.s/ flo0s 0o#l$ ot c/.!e1 b#t t/e c.'tios .$$escri'tios 0o#l$ c/.!e to F,NI1 iste.$ of F,OCI

"$% If MFI Ic 0ere to follo0 ASPE1 it 0o#l$ be ot be .llo0e$ to

follo0 t/e F,OCI mo$el


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PROBLEM 22-10

".%

SAMSON INCSt.temet of Fi.ci.l Positio&ecember ;-1

29-= 29-;Lo!,term I(estmets

I(estmets1 .t f.ir (.l#e 0it/ !.is .$ losses i OCI 7 8212=@ 788;1=99

S/.re/ol$ers3 E5#it)Acc#m#l.te$ ot/er com're/esi(e

icome "loss% 7-9128 7"-91-99%

"b%SAMSON INC

Icome St.temet For t/e e.r e$e$ &ecember ;-1 29-=

Ot/er re(e#es .$ !.is&i(i$e$ re(e#e 7;1@99

G.i o s.le of i(estmets ;1@>2SAMSON INC

St.temet of Com're/esi(e IcomeFor t/e e.r e$e$ &ecember ;-1 29-=

Net icome "icl#$i! items .bo(e% 7 xOt/er com're/esi(e icomeD

*re.lie$ !.is o F,OCI i(estmets $#ri! )e.r "7=1;@9 : 7->1?29% 72;1>9

Recl.ssific.tio .$6#stmet for re.lie$ !.is ";1@>2%Ot/er com're/esi(e icome 291;8

Com're/esi(e icome 7 x : 291;8


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PROBLEM 22,-9 "Coti#e$%

SAMSON INCSt.temet of C/.!es i Acc#m#l.te$ Ot/er Com're/esi(e

IcomeFor t/e e.r e$e$ &ecember ;-1 29-=

Acc#m#l.te$ ot/er com're/esi(e icome "loss%1<.#.r) -1 29-= 7"-91-99%

Ot/er com're/esi(e icome1 29-= 291;8Acc#m#l.te$ ot/er com're/esi(e icome "loss%1

&ecember ;-1 29-= 7 -9128"c%

<#e ;91 29-=

C.s/ ;1@99&i(i$e$ Re(e#e ;1@99

&i(i$e$s recei(e$ from A$erso Cor'

A#!#st -@1 29-=I(estmet i A$erso Cor' =1;@9

*re.lie$ G.i or Loss , OCI =1;@9F.ir (.l#e .$6#stmet for t/e ;1999 s/.res sol$

C.s/ 91?9@I(estmet i A$erso Cor' 91?9@

S.le of ;1999 A$erso Cor' s/.res

*re.lie$ G.i or Loss , OCI ;1@>2G.i o S.le of I(estmet ;1@>2

Recl.ssific.tio .$6#stmet to tr.sfer #re.lie$

!.is to re.lie$ !.isNo(ember ;1 29-=

I(estmet i A$erso Cor' ;@1=89C.s/ ;@1=89

P#rc/.se of 21999 s/.res of A$erso Cor'


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"$%O'er.ti! .cti(itiesD &irect I$irect

C.s/ recei(e$ for $i(i$e$s 7;[email protected] o s.le of f.ir (.l#e t/ro#!/ ot/er

com're/esi(e icome i(estmets 7";1@>2%

I(esti! .cti(itiesDProcee$s from s.le of f.ir (.l#e t/ro#!/

ot/er com're/esi(e icome i(estmets 791?9@ 791?9@P#rc/.se of f.ir (.l#e t/ro#!/ ot/er

com're/esi(e icome i(estmets ";@1=89% ";@1=89%

S.mso co#l$ /.(e .$o'te$ t/e 'r.ctice of cl.ssif)i! t/e$i(i$e$s recei(e$ .s i(esti! c.s/ flo0s1 so lo! .s t/.tcl.ssific.tio 0.s follo0e$ cosistetl) from )e.r to )e.r

"e% If S.mso Ic3s i(estmets 0ere .cco#te$ #si! t/e f.ir (.l#e t/ro#!/ et icome mo$el1 t/e .mo#ts re'orte$ ot/e st.temet of fi.ci.l 'ositio 0o#l$ rem.i t/e s.me1b#t t/eir c.'tios for $escri'tio 0o#l$ c/.!e .ccor$i!l)All of t/e i(estmet icome1 icl#$i! t/e $i(i$e$s

recei(e$ 0o#l$ /.(e bee icl#$e$ i et icome T/ec/.!es i f.ir (.l#e 0o#l$ .lso /.(e bee icl#$e$ i eticome1 iste.$ of bei! re'orte$ i Ot/er Com're/esi(eIcome T/ere 0o#l$ be o Acc#m#l.te$ Ot/er Com're/esi(e Icome o t/e st.temet of fi.ci.l'ositio

As for '.rt "$% of t/e 5#estio1 t/e c.s/ flo0 st.temet0o#l$ ot c/.!e i .mo#ts re'orte$1 b#t t/e c.'tios

.$ $escri'tios 0o#l$ c/.!e to F,NI1 iste.$ of F,OCI"f% If S.mso Ic 0ere to follo0 ASPE1 it 0o#l$ be ot be

.llo0e$ to follo0 t/e F,OCI mo$el


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PROBLEM 22-11

".%&.(is Ic s/o#l$ be re'orti! i t/e st.temet of c.s/ flo0s t/ec/.!e i c.s/ .$ c.s/ e5#i(.lets C.s/ e5#i(.lets .res/ort,term1 /i!/l) li5#i$ i(estmets t/.t .re re.$il) co(ertibleto 4o0 .mo#ts of c.s/ .$ .re s#b6ect to . isi!ific.tris4 of c/.!e i (.l#e T/e b.l.ces of c.s/ e5#i(.lets for &.(is Ic .t t/e fisc.l )e.r e$s follo0

M.rc/ ;-29-= 29-;

C.s/ 7 @1299 7=1=99I(estmets ;9 $.) T,Bills 291999 ?1299Tot.l c.s/ .$ c.s/ e5#i(.lets 72@1299 7-91?99

&.(is Ic 0ill be ex'l.ii! t/e icre.se i c.s/ .$ c.s/e5#i(.lets of 7-=1?99 "72@1299 7-91?99%


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PROBLEM 22,-- "Coti#e$%

"b%

&.(is IcSt.temet of C.s/ Flo0s "P.rti.l I$irect Met/o$%For t/e e.r E$e$ M.rc/ ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesNet icome 721?@9A$6#stmets to recocile et icome to et c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD

&e'reci.tio ex'ese [email protected] of '.tets -1@99

Amorti.tio of bo$ $isco#t @9G.i o retiremet of bo$s "-?1?99%*re.lie$ !.i o F,NI i(estmets ";1999%E5#it) i e.ri!s of <ess. Lt$ "-21@99%&i(i$e$s recei(e$ from <ess. Lt$ 21999Icre.se i .cco#ts recei(.ble "21899%Icre.se i i(etor) "?1299%&ecre.se i 're'.i$ ex'eses [email protected] i 're'.i$ ret "=1999%&ecre.se i .cco#ts '.).ble "-1=99%&ecre.se i s.l.ries .$ 0.!es '.).ble "899%&ecre.se i icome t.x '.).ble "-?1@99%Icre.se i iterest '.).ble [email protected] i .ccr#e$ 'esio li.bilit) -1?99Icre.se i $eferre$ t.x li.bilit) -91;99 ";81@99%

Net c.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7 ;=1-@9


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"c%- C.s/ '.)mets to .$ o be/.lf of em'lo)ees

S.l.ries .$ 0.!es ex'ese 7 ?=1@99LessD icre.se i 'esio li.bilit) "-1?99%A$$D $ecre.se i s.l.ries .$ 0.!es '.).ble 899C.s/ '.i$ to .$ o be/.lf of em'lo)ees 7 ?;199

2 C.s/ recei(e$ from c#stomersS.les re(e#e 7=@91999LessD icre.se i .cco#ts recei(.ble "21899%C.s/ recei(e$ from c#stomers 7==1299

; Icome t.xes '.i$Icome t.x ex'ese 7 ;91299A$$D $ecre.se i icome t.x '.).ble -?1@99LessD icre.se i $eferre$ t.x li.bilit) "-91;99%Icome t.xes '.i$ 7 ;?1=99

= C.s/ '.)mets to s#''liers for !oo$s .$ ser(icesCost of !oo$s sol$ 72?91999A$miistr.ti(e ex'eses 2-1999Ret ex'ese -81999A$$D icre.se i i(etor) ?1299LessD $ecre.se i 're'.i$ ex'eses "-@9%A$$D icre.se i 're'.i$ ret =1999A$$D $ecre.se i .cco#ts '.).ble -1=99P.)mets to s#''liers for !oo$s .$ ser(ices 7;-91=@9

@ Iterest '.i$Bo$ Iterest ex'ese 7 ?1@9LessD icre.se i iterest '.).ble "-1@99%LessD bo$ $isco#t .morti.tio "@9%Iterest '.i$ 7 =1@99


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"$%T/e s#m of t/e c.s/ flo0s .rri(e$ .t i '.rt "c% #si! t/e $irectmet/o$ /.s oe item omitte$ to .rri(e .t et c.s/ 'ro(i$e$ fromo'er.ti! .cti(ities T/is omissio is for t/e $i(i$e$s recei(e$from &.(is3 i(estee <ess. Lt$ i t/e .mo#t of 721999

C.s/ recei(e$ from c#stomers 7==1299P.)mets to s#''liers for !oo$s .$ ser(ices ";-91=@9%C.s/ '.i$ to .$ o be/.lf of em'lo)ees "?;199%Iterest '.i$ "=1@99%Icome t.xes '.i$ ";?1=99%

;[email protected]/ recei(e$ from $i(i$e$s 21999C.s/ 'ro(i$e$ from o'er.ti! .cti(ities 7 ;=1-@9


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PROBLEM 22-12

".%

SORUIN CORPORATIONSt.temet of Fi.ci.l Positio Acco#tsCom'.r.ti(e &ecember ;-1 29-= .$ 29-;

"7 i millios%29-= 29-;

C.s/ "from st.temet of c.s/ flo0s% 78 7 2-

F,NI i(estmet "2% ;9 Acco#ts recei(.ble "7->= 7=% ->9 ->=

I(etor) "7299 : 7@% 29@ 299

Pre'.i$ ex'eses "7-2 72% -9 -2

Lo!,term i( i s/.res of Sto4es Ic "-% -;9 -2@

L.$ "7-@9 : 7=? ote - of st.temet of c.s/ flo0s% ->? -@9B#il$i!s .$ e5#i'met ";% =-2 =99Acc#m#l.te$ $e'reci.tio "=% ">% "-29%P.tets ?9 ?9

Acc#m#l.te$ .morti.tio ";9% "28%Goo$0ill "7?9 729% =9 ?9

Tot.l .ssets 7-12;; 7-19=

Acco#ts '.).ble "7?@ 7-@% 7@9 7?@

S.l.ries .$ 0.!es '.).ble "7-- 7@% ? --

Bo$ iterest '.).ble "7= : 7=% 8 =

Icome t.x '.).ble "7-= 72% -2 -=

&eferre$ t.x li.bilit) "78 : 7;% -- 8

Le.se obli!.tio 82 Bo$s '.).ble "72@9 7?9 : 7;% ->; 2@9


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Note '.).ble 2; Preferre$ s/.res @ Commo s/.res "@% @-; =>@

Cotrib#te$ s#r'l#s "?% ; Ret.ie$ e.ri!s "% 2@ 22Tot.l li.bilities .$ e5#it) 7-12;; 7-19=


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- O'ei! b.l.ce L Term I(est I Sto4es 7-2@I(estmet icome from L Term E5#it) I( --

&i(i$e$s recei(e$ from Sto4es "?% B.l.ce &ecember ;-1 29-= 7-;9

2 O'ei! b.l.ce F,NI i(estmet ,P#rc/.se$ for c.s/ 72@*re.lie$ !.i for 29-= @B.l.ce &ecember ;-1 29-= 7 ;9

; O'ei! b.l.ce B#il$i!s .$ e5#i'met 7=99E5#i'met .c5#ire$ 0it/ fi.ce le.se 82E5#i'met cost lost i floo$ "9% B.l.ce &ecember ;-1 29-= 7 =-2

= O'ei! b.l.ce Acc#m#l.te$ $e'reci.tio "7-29% Acc $e'r of e5#i'met lost i floo$ "belo0% =2&e'reci.tio ex'ese o icome st.temet "->% B.l.ce &ecember ;-1 29-= "7>%

E5#i'met cost lost i floo$ 79Loss recor$e$ "-8% Procee$s obt.ie$ from $.m.!e$ e5#i'met "-9% Acc $e'reci.tio of e5#i'met lost i floo$ 7=2

@ O'ei! b.l.ce Commo s/.res 7=>@Stoc4 $i(i$e$ "= M s/.res + 7@9 'er s/.re% ;9Price '.i$ for s/.res re'#rc/.se$ "-2%

B.l.ce &ecember ;-1 29-= 7 @-;


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PROBLEM 22,-2"Coti#e$%

? O'ei! b.l.ce Cotrib#te$ s#r'l#s

Price '.i$ for s/.res re'#rc/.se$ 7">%Wei!/te$ .(er.!e ori!i.l cost of s/.res -2 B.l.ce &ecember ;-1 29-= 7 ;

O'ei! b.l.ce Ret.ie$ e.ri!s 722Net icome ?&i(i$e$s '.i$ "oe '.).ble% "%

Stoc4 $i(i$e$ see item @ .bo(e ";9% B.l.ce &ecember ;-1 29-= 72@

"b%SORUIN CORPORATION

St.temet of C.s/ Flo0s "&irect Met/o$% O'er.ti! Acti(itiesFor t/e e.r E$e$ &ecember ;-1 29-=

C.s/ flo0s from o'er.ti! .cti(itiesC.s/ recei'ts from c#stomers "-% 7=-=C.s/ recei'ts for $i(i$e$s "2% ?

P.)mets to s#''liers for !oo$s .$ ser(ices ";% "->8%P.)mets to .$ o be/.lf of em'lo)ees "=% "9%P.)mets for iterest "@% "2-%Icome t.xes '.i$ "?% "2?%

C.s/ 'ro(i$e$ b) o'er.ti! .cti(ities 7-9@

- S.les 7=-9&ecre.se i .cco#ts recei(.ble = 7=-=

2 I(estmet icome from LT E5#it) I( 7--Icome from e5#it) i(estmet "--%Recei't of $i(i$e$ from e5#it) i(estmet ? 7?


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"b% "Coti#e$%; Cost of !oo$s sol$ 7-@8

Icre.se i i(etor) @&ecre.se i .cco#ts '.).ble -@A$miistr.ti(e ex'eses 22&ecre.se i 're'.i$ ex'eses "2% 7->8

= S.l.ries .$ 0.!es ex'ese 7?@&ecre.se i s.l.ries .$ 0.!es '.).ble @ 7 9

@ Bo$ iterest ex'ese 728

Icre.se i bo$ iterest '.).ble "=%Amorti.tio of bo$ $isco#t ";% 7 2-

? Icome t.x ex'ese 72Icre.se i $eferre$ t.x li.bilit) ";%&ecre.se i icome t.x '.).ble 2 7 2?

"c% If t/e seller of t/e l.$ $oes ot .t t/e s.me time becomet/e cre$itor "b) t.4i! b.c4 . ote for ex.m'le% i t/e s.le of

t/e l.$1 t/e . t/ir$ '.rt)1 i t/is c.se t/e mort!.!ecom'.)1 0o#l$ /.(e become t/e cre$itor A se'.r.te .$.$$itio.l tr.s.ctio 0o#l$ /.(e bee recor$e$ for t/eborro0i! of 72; millio i c.s/ from t/e mort!.!ecom'.) T/.t fi.ci! tr.s.ctio 0o#l$ be re'orte$ ot/e st.temet of c.s/ flo0s $irectl) .s . iflo0 of c.s/from fi.ci! .cti(ities Eteri! ito . fi.ci!.rr.!emet .t t/e s.me time .s b#)i! 'ro'ert) is oftecof#se$ .s bei! combie$ T/is is $#e to t/e f.ct t/.t t/ec.s/ tr.s.ctios i(ol(e$ flo0 t/ro#!/ t/e tr#st .cco#t of

t/e l.0)er /.$li! t/e co(e).ce of t/e 'ro'ert) I t/ec.se of Sor4i Cor'or.tio1 ol) t0o etities 0ere i(ol(e$Cose5#etl) /.$li! t/e tr.s.ctio 0it/ . ote$isclos#re for t/e o,c.s/ 'ortio of t/e tr.s.ctio is.''ro'ri.te


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PROBLEM 22-13

".% Seec. Cor'or.tioSt.temet of C.s/ Flo0s "I$irect Met/o$%


C.s/ flo0s from o'er.ti! .cti(itiesProfit "-% 7-?199A$6#stmets to recocile et icome to et

c.s/ 'ro(i$e$ b) o'er.ti! .cti(itiesD

Loss o s.le of e5#i'met "2% 7 [email protected] from floo$ $.m.!e "-1999%&e'reci.tio ex'ese ";% ;1>@9

P.tet .morti.tio -12@9

G.i o s.le of i(estmet

";1;99%Icre.se i .cco#ts recei(.ble "et%

"-1>@9%Icre.se i i(etor)

"-1@99%Icre.se i .cco#ts '.).ble -1-99

Iterest '.i$ icl#$e$ i e.ri!s 21299&i(i$e$s '.i$ "?1999% "21?99

%Net c.s/ flo0 'ro(i$e$ b) o'er.ti! .cti(ities

-=1-99

C.s/ flo0s from i(esti! .cti(itiesProcee$s o s.le of F,NI i(estmets @1899

Procee$s o s.le of e5#i'met 21?99

P#rc/.se of e5#i'met "-1999%Procee$s from floo$ $.m.!e to b#il$i! 2;1999

Net c.s/ 'ro(i$e$ b) i(esti! .cti(ities -=1=99

C.s/ flo0s from fi.ci! .cti(itiesP.)met of iterest "21299%

P.)met of s/ort,term ote '.).ble

"?99 % Net c.s/ #se$ b) fi.ci! .cti(ities

"21899%

Icre.se i c.s/ [email protected]/1 <.#.r) -1 29-= -;1999C.s/1 &ecember ;-1 29-= 7;8199


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S#''lemet.l $isclos#res of c.s/ flo0 iform.tioDC.s/ '.i$ $#ri! t/e )e.r forD

Icome t.xes @1?99


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PROBLEM 22,-; "Coti#e$%No,c.s/ i(esti! .$ fi.ci! .cti(itiesD

Retire$ ote '.).ble b) iss#i! commo s/.res 7-91999P#rc/.se$ e5#i'met b) iss#i! ote '.).ble -@1@99

72@1@99S#''orti! Com'#t.tiosD

- E$i! ret.ie$ e.ri!s 72-199Be!ii! ret.ie$ e.ri!s

"@1999%

Profit 7-?199

2 Cost of e5#i'met sol$ 7-91@99Acc#m#l.te$ $e'reci.tio "@9 + 7-91@99%

"@12@9

%C.rr)i! .mo#t of e5#i'met sol$ @12@9Procee$s from s.le of e5#i'met

"21?99%

Loss o s.le of e5#i'met 7 21?@9

; Acc#m#l.te$ $e'reci.tio o e5#i'met sol$ 7@12@9&ecre.se i .cc#m#l.te$ $e'reci.tio "-1;99

%

&e'reci.tio ex'ese 7;1>@9 "b% 29-= 29-;

c/.!e

B#il$i!s 72199 Acc#m#l.te$ $e'reci.tio "@199% E5#i'met 7=91@99 -81@99Acc#m#l.te$ $e'reci.tio "21999% ";1;99%

7;81@99 7;1299 7-1;99

&e'reci.tio ex'ese 7;1>@9 Loss o s.le of e5#i'met [email protected] o floo$ $.m.!e "-1999%

Procee$s o s.le of e5#i'met 21?99P#rc/.se of e5#i'met "-1999%

Procee$s o $is'os.l ofb#il$i! 2;1999


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-=1299 No,c.s/ '#rc/.se of e5#i' "-@1@99%

7"-1;99%PROBLEM 22,-; "Coti#e$%

"c% At first !l.ce1 . fi.ci.l st.temet re.$er of t/e st.temetof c.s/ flo0s mi!/t come to t/e 5#ic4 cocl#sio t/.t e5#.l.mo#ts of c.s/ flo0s 0ere !eer.te$ from o'er.ti! .$i(esti! .cti(ities t/is is re.ll) ot t/e c.se T/e c.s/!eer.te$ from o'er.tios "7-=1-99% is .lmost ex.ctl) t/es.me .mo#t .s t/e c.s/ !eer.te$ from i(esti!.cti(ities "7-=1=99% T/is m.4es it .''e.r .s if Seec. is otrei(esti! ito t/e b#siess to re'l.ce .!ei! c.'it.l

.ssets T/e recocili.tio o t/e ot/er /.$ t.4es ito.cco#t t/e o,c.s/ i(esti! .$ fi.ci! tr.s.ctio of t/e e5#i'met of 7-@1@99 Alt/o#!/ some of t/ere'l.cemets of .ssets 0ere ecessit.te$ from t/e floo$$.m.!es1 Seec. /.s $emostr.te$ t/e .bilit) to obt.i t/efi.ci! to .c5#ire t/e ecess.r) c.'it.l .ssets

"$% A 'ortio of t/e 'rofit c.me from t/e !.i recor$e$ o t/e$estr#ctio of t/e b#il$i! from . floo$ T/e 'rocee$s fromt/e is#r.ce cl.im tot.lli! 72;1999 0ere cl.ssifie$ .si(esti! .cti(ities1 .$ !.i /.$ to be $e$#cte$ fromicome to .rri(e .t c.s/ flo0s from o'er.ti! .cti(itiesSimil.rl) t/e !.i o t/e s.le of t/e i(estmets m#st be$e$#cte$ from icome .s t/e 'rocee$s from t/e s.le of i(estmets .re .lso cl.ssifie$ .s i(esti! .cti(ities T/eset0o items /el' ex'l.i 0/) t/e c.s/ flo0 from o'er.ti!.cti(ities 0ere lo0er t/. 'rofit

C.s/ flo0s from i(esti! .cti(ities 'ro(i$e$ .ot/er l.r!e

c.s/ icre.se for t/e )e.r1 .s .ssets sol$ or $estro)e$ 0ereot .ll re'l.ce$ T/e ol) si!ific.t o#tflo0 of c.s/ for i(estmets 0.s rel.te$ to '#rc/.ses of e5#i'met

Some refi.ci! from $ebt to e5#it) too4 'l.ce .s 0ell1 .st/ere 0.s o,c.s/ fi.ci! of f#rt/er .c5#isitios of


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e5#i'met O#tst.$i! $i(i$e$s from t/e 're(io#s )e.r 0ere '.i$

olutions Manual -1"* Chapter

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PROBLEM 22,-; "Coti#e$%

"e% *$er IFRS1 iterest '.i$ .$ recei(e$ .$ $i(i$e$s '.i$.$ recei(e$ c. be reco!ie$ .s o'er.ti! flo0s

Alter.ti(el)1 iterest '.i$ c. be reco!ie$ .s . fi.ci!o#tflo0 0/ile iterest .$ $i(i$e$s recei(e$ c. bereco!ie$ .s i(esti! iflo0s A c/oice is 'ermitte$ for $i(i$e$s '.i$D . fi.ci! o#tflo0 .s . ret#r to e5#it)/ol$ers1 or . o'er.ti! o#tflo0 .s . me.s#re of t/e .bilit)of o'er.tios to co(er ret#rs to s/.re/ol$ers Ho0e(er m..!emet (ie0s t/ese s'ecific flo0s1 oce t/ecl.ssific.tio c/oice is m.$e1 it is .''lie$ cosistetl) from'erio$ to 'erio$.

"f% "-% For . se(erel) fi.ci.ll) tro#ble$ firmD

O'er.ti!D Prob.bl) . sm.ll c.s/ iflo0 or . c.s/o#tflo0

I(esti!D Prob.bl) . c.s/ iflo0 .s .ssets .resol$ to 'ro(i$e ee$e$ c.s/

Fi.ci!D Prob.bl) . c.s/ iflo0 from $ebtfi.ci! "borro0i! f#$s% .s . so#rceof c.s/ .t /i!/ iterest cost

"2% For . recetl) forme$ firm 0/ic/ is ex'erieci! r.'i$!ro0t/DO'er.ti!D Prob.bl) . c.s/ iflo0I(esti!D Prob.bl) . l.r!e c.s/ o#tflo0 .s t/e

firm ex'.$sFi.ci!D Prob.bl) . l.r!e c.s/ iflo0 to fi.ce

ex'.sio

For Seec.1 excl#$i! t/e ##s#.l tr.s.ctio of t/e floo$1

t/e com'.) is li4el) t)'e "2%1 . com'.) ex'erieci!!ro0t/

olutions Manual -1"1 Chapter

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PROBLEM 22,-; "Coti#e$%

"!% At first !l.ce1 . i(estor mi!/t come to t/e 5#ic4cocl#sio t/.t Seec.3s et c.s/ flo0 'ro(i$e$ b) o'er.ti!

.cti(ities "7-=1-99% is less t/. Seec.3s .ccr#.l b.sis 'rofit"7-?199%1 .$ t/.t t/e et c.s/ flo0 'ro(i$e$ b) o'er.ti!.cti(ities $oes ot s#''ort t/e .mo#t of .ccr#.l b.sis 'rofitt/.t t/e com'.) /.s re'orte$ Seec.3s re'orte$ 'rofit1 0/ic/is .ffecte$ b) estim.tes .$ m..!emet3s c/oice of .cco#ti!'olicies1 m.) be 6#$!e$ to be of lo0er 5#.lit) .$ 'er/.'s lessreli.ble Ho0e(er #'o ..l)i! Seec.3s et c.s/ flo0'ro(i$e$ b) o'er.ti! .cti(ities1 t/e i(estor m.) ote t/.t .

si!ific.t ret#r to s/.re/ol$ers "$i(i$e$s '.i$ of 7?1999% iscl.ssifie$ .s . o'er.ti! .cti(it) .$ t/.t t/e .mo#t 0.s ot$e$#cte$ i t/e com'.)3s c.lc#l.tio of .ccr#.l b.sis 'rofitT/e i(estor m.) cocl#$e t/.t Seec.3s 5#.lit) of e.ri!sm.) be /i!/er1 0it/ . lo0er m.r!i of 'oteti.l misst.temet


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CASES

NoteD See t/e C.se Primer o t/e St#$et 0ebsite1 .s 0ell .s

t/e S#mm.r) of t/e C.se Primer i t/e frot of t/e text Notet/.t t/e first fe0 c/.'ters i (ol#me - l.) t/e fo#$.tio for fi.ci.l re'orti! $ecisio m.4i!

CA 22,- P.'.$o'o#los Lt$

:verview

- Ahe bank is the main user of the financial statements and will use them to

assist in determining whether a loan will be granted.

- 23 financial statements will enhance credibility and reliability.

- Ahe financial statements prepared will be different from the statements

prepared in the past <ta4 basis=.

- 0urther, the statement prepared by Aonya does not conform with 23

and must therefore be converted.

ecommendations and 2nalysis

;efore any issues are dealt with, the statement must be redrafted as follows7apadopoulos 6td.

tatement of Cash 0lows<for the year-ended +ecember "1, *1$=

Cash from operations7ales

F"%*,**

*urchases of inventory <%*,***=

:perating e4penses <net ofdepreciation=

<)*,***=

/nterest income 1*,***/nterest on debt <"*,***=Cash used in operating activities F<1*,***=

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CA 22,- "Coti#e$%

Cash from investing7Aerm deposit cashed in F1**,***0i4ed asset purchases

<1**,***=/nvestment purchase <%%,***=Aruck purchase <%*,***=Cash used in investing activities <1*%,***=

Cash from financing7hareholder loan

F1%*,***Aruck financing %*,***Cash from financingactivities

**,***

Det cash inflows

F(%,***

- Ahis statement shows that operations are not generating cashG rather,

cash is re#uired to maintain operations.

- Ahis will be looked upon in a negative light by the bank, since internally

generated cash from operations is what the company should be using to

repay any loan granted.

- However, since it is only the second year of operations, the company is

profitable, and the cash re#uired to run operations is not that great, thebank may be somewhat fle4ible.

- Ahat the company is li#uidating what appear to be non-essential assets

<term deposit= and using the money to buy productive assets to be used to

generate income will be seen in a positive light.

- Ahat e4cess cash is being invested will also be seen in a positive light as

good management <i.e., will ma4imiBe return on e4cess cash by investing=.

- Ahe e4cess cash is only present, however, due to a shareholder loan.

- Ahis is better than outside borrowings since the shareholders <all family=

may be more fle4ible if the company cannot make interest and principal

repayments on time.

/n conclusion, when the financial statements are redrafted, 6 will be seen in anunfavourable light by the bank primarily because it is a new company and the

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cash flow from operations is negative. Ahe only reason there is e4cess cash isdue to a shareholder loan.

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IC 22,- E.rt/com

:verview- ublic company and therefore /0 is a constraint

- hares are declining in value due to the loss of one of the companysmaEor assets, therefore the pressure to make things look more positive

<potential for bias=.

- 6oss of C0:8 auditors will have to be careful.

- High risk for auditors who will have to ensure assetsIincome are not

overstated.

- 2s controller <since C0: has left= it is better to be safe and provide

transparency during this time of crisis. Conservatism would be the safest

route especially since the share price has already plummeted.

2nalysis and recommendations/ssue7 /mpairment of telecommunications lines

6eave as is ecogniBe impairment- Company is in the process of

doing a substantial amount of

work to recover the services.

- :nce this is done 9 the asset

would retain its value.

- Do reason to think that they

will not be able to find the

problem.

- Dote disclosure would suffice.

- everance of line represents an event

that reduces the potential future

benefits of the asset.

- Cannot provide services to customers

and therefore not able to generatefuture benefits.

- Customers have currently lost service.

- Company uncertain as to how long <if

at all= it will take to restore service as

do not have backup plan.

- Ahey stand to lose customers over this

9 many customers threatening to sue.

- Ahe company is already restoring

other lines using better and newer

technology and so these older lines

will likely be obsolete and receive less

and less use as time goes on.

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IC 22,- "Coti#e$%

ecommendations7 /t is too early to tell if the asset is indeed impaired. 0ull notedisclosure should suffice at this point. Care should be taken at the ne4t #uarterwith this valuation since by then the company will have a better idea as to the

feasibility of restoring service.

/ssue7 How to treat the amounts spent on lawyers and consultants regardingsevered line.

CapitaliBe costs 34pense

- Without these e4penditures,

significant goodwill will be lost.

- Many customers may also leave

the company8 this is anopportunity to show how the

company deals with a crisis.

- 34penditures do not add any future

value.

- eally Eust maintaining reputation.

- /nternally generated goodwill may

not be capitaliBed.

ecommendations7 More conservative to e4pense as these costs are really to

maintain the status #uo and do damage control.

/ssue7 How to account for e4penditures to track down the problem

CapitaliBe costs 34pense

- May argue that the work beingdone is creating an asset with

future benefits 9 this will allow them

to deal with any problems in a

much more e4pedient way in the

future.

- 2s long as this has future benefit <it

does 9 as noted above= 9 it is

accounted for as an asset.

- eally being spent Eust to restoreservice and put its assets back into

use.

- /s not an asset, i.e., it will not

necessarily make the service better

or more enhanced.

- With high tech e#uipment,

maintenance of the technology is

an ongoing cost of doing business

9 there is always a risk that the

technology will fail or become

outdated. Ahe company must keep

on top of this on an annual basis.

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IC 22,- "Coti#e$%

ecommendations7 certain costs may add value <mapping= and may be

capitaliBed. Ahose costs that are being spent Eust to restore capacity to prior level

are maintenance and must be e4pensed./ssue7 How to present the funds spent on upgrading old telecommunications lines

CapitaliBeItreat as investing activity on

the statement of cash flows

34penseItreat as operating activity on

the statement of cash flows

- Must be able to argue that these

e4penditures will provide future

benefit.

- Ahis sounds like it is a maEor

upgrade and given fast-paced

technology it could be argued that

this is an asset.

- May have to treat as separate

component for depreciation

purposes if the amount is

significant the e4pected life and

usage differs from the lines.

- Ahis will show as an investingactivity on the cash flow statement

as the company is investing in its

future.

- 2ll significant assets such as these

degrade over time and need to be

maintained.

- Ahis is merely part of the ordinary

ongoing activities of the company

to maintain the service potential of

its assets.

- Ahis will show as an operating

activity on the cash flow statement

as this is a normal ongoing cost of

doing business that will likely recur

annually or fre#uently due to the

high tech nature of the assets.

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IC 22,- "Coti#e$%

ecommendation7 May be able to argue that these are capitaliBable due to

changes in technology and therefore capitaliBation and presentation as investing

activity is acceptable.

/ssue7 6awsuit

2ccrue +o not

- Company will want to settle #uickly

to minimiBe uncertainty in

marketplace especially since the

company at present does not have

a leader.

- May want to accrue a reasonable

amount for settlement so that it can

hire a new C0: and move forward

to deal with the crisis.

- Aoo early to be able to assess

probability and measurement.

ecommendation7 Aoo early to tell on this one. +o not recogniBe. Ahere is no

lawsuit. Ahe news will likely already be in the marketplace via newspapers, etc.Ahe company can best deal with this by putting a new C0: in place <not really a

financial reporting issue=.

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A/M3 2D+ !:3 :0 W/A/DJ 2/JDM3DA

W2 -1 <Aime "*9"% minutes=

urpose8to help the student identify and indicate whether a transaction createsa cash inflow or a cash outflow. Ahe student must also discuss the proper reporting of the transaction under /0.

W2 -

<Aime "*9"% minutes=

urpose8to help the student identify the appropriate treatment of some comple4transactions for the statement of cash flows under /0. Ahe student is re#uiredto indicate whether a transaction belongs in the investing, financing, or operatingsection of the statement.

W2 -"

<Aime 1%9* minutes=

urpose8to provide the student the opportunity to provide advice to thepresident on the effects of transactions, desperately arrived at as the means togenerate cash flows from operations in order to secure a loan. 3thical issuesmust be considered by the student in arriving at the advice to the president.

W2 -$ <Aime "*9$* minutes=

urpose8to identify and e4plain reasons and purposes for preparing astatement of cash flows and to identify the categories of activities reported in thestatement of cash flows. Ao identify and describe the two methods of reportingcash flows from operations, and to describe the presentation of non-cashtransactions. Ahe student is re#uired to e4press a preference on which format heor she believes to be preferable, and to comment on the cash flow statementsuse from the perspective of an investor.

W2 -% <Aime "*9$* minutes=

urpose8to provide the student with the opportunity to become familiar with thecurrent international accounting trends and issues. Ahe student is re#uired to

research /2; proEect and to identify discussions relevant to statements of cashflows.

W2 -& <Aime 1%9* minutes=

urpose8to provide the student with an opportunity to understand thedifferences between 23 and /0 and the conceptual reasons for anydifferences.

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SOL*TIONS TO WRITING ASSIGNMENTS

WA 22,-

1. <a= Ahe earnings are treated as a source of cash and should be reported aspart of the net cash flow from operating activities in the statement of cash flows.

<b= Ahere should be F(**,*** of income shown in operating activities as thefirst item on the statement of cash flows.

. <a= Deither.

<b= ;ecause depreciation is an e4pense it was deducted in the computationof net income. 2ccordingly, the F"1%,*** must be added back to incomein the operating section. Ahis is because it was deducted in determining

earnings, but it was not a use of cash.". <a= Deither.

<b= 2n adEustment to income is only necessary if the net receivable amountincreases or decreases. ;ecause the net receivable amount is the samebefore and after the write-off, an adEustment to income would not bemade. 2lthough bad debt e4pense is not usually treated as a separateitem to be added back to income from operations, it is accounted for byanalyBing the accounts receivable at the net amount and then makingthe necessary adEustment to income based on the change in the netamount of receivables.

$. <a= Ahe F),*** gain realiBed on the sale of the machine is a gain to bereported on the income statement. Ahe gain itself does not involve anycash flows, but the proceeds from the sale do involve cash inflows.

<b= Ahis F),*** gain must be deducted from net income to arrive at net cashprovided by operations. Ahe proceeds of F%$,*** <F'%,*** 9 F"*,*** F),***= are shown as a cash inflow from investing activities.

%. <a= Ahe change in fair value is a non-cash event so it is neither a source nor use of cash.

<b= Ahis is no adEustment re#uired to the net income in the statement of cashflows since this unrealiBed gain was allocated to :C/ and not net

earnings.

&. <a= Deither. Ahe F$%,*** loss in value is not a cash transaction.

<b= Ahe loss in fair value for investment properties would have beendeducted in the computation of net income. 2ccordingly, the F$%,***must be added back to income in the operating section. Ahis is becauseit was deducted in determining earnings, but it was not a use of cash.

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WA 22,- "Coti#e$%

'. <a= F'%,*** use of cash should be reported as a cash outflow frominvesting activities.

<b= Ahe F**,*** issuance of common shares and the F$%,***issuance of the mortgage note, neither of which affects cash, shouldbe reported as non-cash financing and investing activities. Dotedisclosure is re#uired to e4plain this transaction detailing the assetpurchased and the nature and total of consideration paid.

(. <a= Deither.

<b= Ahe conversion is a significant non-cash financing activity and shouldbe reported in a separate schedule or note.

). <a= Ahis redemption is a use of cash in the amount of the redemption

price of )).% or F)),%**.<b= Ahe redemption will be reported under the operating activities section

of the statement as an adEustment to income for the loss e4periencedon the conversion of F1,%** <F1**,*** less balance of discountF,*** compared to the redemption price of F)),%**=. Ahe loss will beadded back to income as that portion of the transaction does notinvolve cash. /n the financing activities section of the statement, theoutflow of F)),%** will appear.

1*. <a= Ahe proceeds from issuing bonds are a source of cash.

<b= Ahe proceeds of F%*%,*** should be reported as a cash inflow from

financing activities.

11. <a= Deither.

<b= F$),*** of accrued e4pense will be added back to income because itwas deducted in determining earnings, but it was not a use of cash.


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WA 22,2

<a= /ncome earned as interest and dividends from these investments that arepurchased for trading purposes and have been classified at fair valuethrough net income is included in income for the year. !nder /0, the

interest received and dividends received should be disclosed separatelyon the statement of cash flow and shown as an operating activity as thisincome relates to investments held for trading purposes. /f the indirectapproach is used, then the interest income and dividend income will bededucted from net earnings and the actual amount of interest anddividends received will be shown separately. /n addition, assuming theindirect method is used, gains on disposals will have to be deducted fromincome, Eust as losses will need to be added back. 2ny gains or lossesfrom disposals of these investments would be left out of the cash flowstatement, if the direct method were adopted. 2mounts accrued for unrealiBed gains and losses will re#uire adEustment to income as they do

not involve cash. 2ny proceeds from sale or cash spent on theseinvestments would be reported as cash flows in the operating activitiessection of the cash flow statement as these investments were ac#uiredfor trading purposes.

<b= /ncome earned from dividends on e#uity investments classified as fair value through :C/ would be included in net income for the year.However, the amount of dividends received must be separately disclosedand can be shown as either an operating or investing activity. Aherefore,if the indirect method is used, dividend income will be deducted from netincome in the operating activities and the dividends received can be

shown as either operating or investing. 2ny proceeds from the sale or purchase of these investments are treated as investing flows. 2mountsaccrued for unrealiBed gains and losses or gains or losses on disposalwill not re#uire adEustment to income as they are not included in incomeon the income statementG they are taken to :C/ and never recycled to netincome.

<c= 2n investment in bonds reported at amortiBed cost will have the interestearned reported on the income statement using the effective interestmethod. Ahis amount will be deducted from net earnings under operatingactivities if the indirect method is used. Ahe actual amount of the interest

received can then be either reported as an investing or an operatingactivity. 2ny cash used to buy these bonds will be reported as aninvesting activity.

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WA 22,2 "Coti#e$%

<d= +evelopment costs incurred and paid would be reported as investingactivities outflows on the cash flow statement. Ahe obligation for themines retirement increases both the mines carrying amount and the

asset retirement obligation. Ahis amount is a non-cash investing andfinancing transaction and would be disclosed in the notes. Ahe intereste4pense for the year <that increased the liability= would have to be addedback to net income in the operating activities section <under the indirectmethod= as it was a non-cash e4pense.

<e= tock options granted as compensatory rewards to top e4ecutives wouldre#uire a charge on the income statement and a corresponding increasein e#uity, although no cash was given up or received. ince the amountappears on the income statement as an e4pense, the e4pense will beadded back to income as an adEustment if the indirect format of the cash

flow statement is used to report cash flows from operations. +etails of the transaction would nonetheless be reported in the notes to thefinancial statements.

<f= Ahe total compensation e4pense would have been calculated on thegrant date, based on the fair value, and recogniBed during the serviceperiod. 2t e4ercise date, there will be a cash inflow amounting to theoption price per share multiplied by the number of shares issued. Ahiswould be reported as cash inflows in financing activities. 2dditionaldisclosures regarding the stock options, such as values of optionse4ercised, would be made.

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WA 22,;

<a= elling current assets, such as receivables to factors and selling rawmaterial inventories, will generate cash flows for the company although for amounts less than their carrying values. Ahe sale and leaseback of

e#uipment will not achieve the goal of increasing cash flow fromoperations, re#uired by the bank. ather, this transaction will lead to thereductions in future operating cash flows from the future payments of rents. Cash obtained from selling off e#uipment will be reported as a cashinflow from investing activities. 2ny gains generated from the sale will bedeferred and not help profitability immediately.

<b= Ahe transactions that are suggested by 6araine do not cure the systemiccash problems for the organiBation. /n short, it may be a bad businesspractice to li#uidate assets, thereby incurring e4penses and losses, inorder to Lwindow dress the cash flow statement.

Ahe ethical implications are that +urocher creates a short-term cash flowat the longer-term e4pense of the companys operations and financialposition. 6araines idea creates the illusion that the company issuccessfully generating positive cash flows.

<c= 6araine +urocher should be told that if she e4ecutes her plan thecompany may not survive. While the factoring of receivables and theli#uidation of inventory will indeed generate cash, the actual amount of cash the company receives will be less than the carrying amount of theseassets. Ahe sale and leaseback will also generate cash which may be

more or less than the related propertys carrying amount, depending on itsfair value less costs to sell. /n addition, the company would still have thefuture e4penditure of replenishing its raw materials inventories at a costhigher than the sales price, plus the additional e4pense of rent from thelease of the e#uipment.

2s the companys <ethical= accountant, it is your responsibility to work withthe companys chief financial officer to devise a coherent strategy for improving the companys cash flow problems. :ne strategy may be todownsiBe the organiBation by selling e4cess property, plant, ande#uipment to repay long-term debt. /n addition, +urocher Juitar may be a

good candidate for a partial reorganiBation.

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WA 22,=

<a= Ahe primary purpose of the tatement of Cash 0lows is to provideinformation concerning the cash receipts <cash inflows= and cash payments<cash outflows= of a company during the period. Ahe information contained

in the statement, together with related disclosures in other financialstatements, may help investors and creditors7

1. assess the companys ability to generate future net cash inflows.. assess the companys ability to meet its obligationsG e.g., pay dividends

and meet needs for e4ternal financing.". analyBe the differences between net income and the associated cash

receipts and payments.

<b= Cash is defined as cash on hand and demand deposits. Cash e#uivalentsincludes highly li#uid investments with maturity dates of " months or less

from their date of purchase, and that have insignificant risk of change invalue. Ahese definitions are the same for /0 and 23. 34amples of these types of investments would be treasury bills and commercial paper and money market funds. 23 does not allow any e#uity investment to beincluded in cash e#uivalents. /0 allows one type and that is a mandatoryredeemable preferred share that will be redeemed within " months of ac#uisition date. ;ank overdrafts may only be included in cash and cashe#uivalents if they are an integral part of the companys cash managementpolicies and the overdraft fluctuates between negative and positivebalances throughout the year. /f the bank overdraft has been in an overdraftposition for the entire year, it will not be allowed to be included in cash and

cash e#uivalents. Ahis treatment is also the same under /0 and 23.

<c= Ahe statement of cash flows classifies cash flows as those resulting fromoperating activities, investing activities, and financing activities.

Cash inflows from operating activities include receipts from the sale of goodsand services, and interest and dividends that appear on the incomestatement. !nder /0, the organiBation may choose to report interest anddividends received as either operating or investing activities. 2lso includedare all other receipts <for e4ample from rents and royalties= that do not arisefrom transactions defined as financing and investing activities. Cash

outflows from operating activities include payments to buy goods for manufacture, resale payments to or on behalf of employees for services, ta4payments, and all other payments that do not arise from transactions definedas financing and investing activities. Cash inflows and outflows related to thesale and purchases of loans and e#uity securities that are purchased for trading purposes are also included in operating activities. ayments tocreditors for interest can be included as a financing or operating activity

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WA 22,= "Coti#e$%

under /0. !nder 23, the interest paid will be an operating activity if thedebt is classified as a liability and a financing activity if the debt is classifiedas e#uity. !nder /0, dividends paid may be classified as an operating

activity or a financing activity. !nder 23 dividends paid are financingactivities if charged to retained earnings <operating if a Ldividend e4pense=.

Cash inflows from investing activities include receipts from collections or sales of debt instruments of other companies that are reported at amortiBedcost, and receipts from the sales of various property, plant, and e#uipment.Cash outflows for investing activities include payments for shares of other companies, purchases of productive property, plant and e#uipment, anddebt instruments of other companies. ales and purchases of debtinstruments or shares of other companies not purchased for tradingpurposes are included in investing activities. 2lso under /0, investing

activities could include dividends and interest received on theseinvestments, if this choice is made.

Cash inflows from financing activities include proceeds from the companyissuing its own shares or its own debt. Cash outflows for financing activitiesinclude payments to shareholders for dividends <unless these dividendswere reported as e4penses on the income statement, in which case theywould be reported in operating activities= or payments to debt holders for retirement of its own shares and bonds. /nterest paid may also be classifiedas a financing activity under /0. 2dditionally, under /0, the companymay report dividends paid as an operating activity. !nder 23, only if the

debt is classified as e#uity, can the interest paid be reported under financingactivities.

Cash flow activities directly relate to the statement of financial position inthat the changes in the 0 accounts ultimately translate into the change incash over the business cycle of an entity.

<d= Cash flows from operations may be presented using the direct method or the indirect method. !nder the direct method, the maEor classes of operatingcash receipts and cash payments are shown separately. Ahe indirectmethod involves adEusting net income to net cash flow from operating

activities by removing the effects of deferrals of past cash receipts andpayments, accruals of future cash receipts and payments, and non-cashitems from net income. ;oth are permitted under /0 and 23, althoughboth standards strongly encourage the use of the direct method. /naddition, new standards being considered under /0 would allow only thedirect method to be used.

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WA 22,= "Coti#e$%

Ahe information obtained from the indirect format can be easily linked backto the statement of financial position and the income statement andtherefore is useful from this standpoint. :n the other hand, the direct format

allows for better information on gross cash flows from customers, and tosuppliers and employees, which enables better forecasting of future cashflows.

<e= 2ll significant non-cash investing and financing transactions are notreported on the statement but are re#uired to be disclosed elsewhere on thefinancial statements. 34amples of common non-cash transactions are theconversion of debt to e#uity and the ac#uiring of assets by assumingdirectly related liabilities or issuing e#uity. 0or transactions that are partcash and part non-cash, only the cash portion should be reported in thetatement of Cash 0lows.

<f= 0rom the perspective of an investor, while it is true that it is difficult toassess the impact of estimates and Eudgement used in the preparation of the income statement, using the cash flow from operations of the statementof cash flow alone is not recommended when making investment decisions.

2 great deal of insight into the nature of the transactions reported on allfinancial statements can be derived from reading the notes to the financialstatements. 2s well, financial statements must be viewed together in order to properly assess performance, financial position, and ability to generateincome and cash into the future to best ensure a return on investment to theshareholder. While cash flow from operating activities is a strong indicator

and a very good tool, it should not be used in isolation. 2lso note thatalthough net income is arrived at by using estimates, it is important toconsider the trade-off between relevance and reliability of financialinformation. /f net income were to be based solely on historic costs that canbe determined reliably, the relevance of this information to investors wouldbe poor in helping to determine the true value of the company.

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WA 22,= "Coti#e$%

eaders should also be aware that accounting policies can affect the cashflows from operations. Consider a company that defers much Lcapital-type

e4penditure versus another company that e4penses many similar ones. Ahefirst company ends up reporting the cash outflow as an investing flowwhereas the other reports lower operating cash flows. Ahis reinforces thefact that cash flow from operations can be influenced by accounting policychoice. 2nother e4ample is the treatment of leases. :perating leasepayments are reflected as an operating outflow, but payments on capitalleases are shown partially as an operating outflow <the interest portion= andpartially as a financing outflow <the principal portion of the payment=.ecuritiBation of receivables is another e4ample. When receivables aresecuritiBed, the cash inflows are reported as operating activities and willresult in an increase in operating cash flows. Ahis is, of course, not

sustainable cash flow since the sale of receivables has only resulted fromhastening the collection of the receivables and the change in receivablescannot recur annually.

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WA 22,@

Ahe +iscussion aper proposes that the statement of financial position,statement of comprehensive income and statement of cash flows shouldhave similar categories as outlined below.

Statement of Financial

Position

Statement of

Comprehensive Income

Statement of Cash Flows

B#siess:perating assets andliabilities/nvesting assets andliabilities

B#siess:perating income ande4penses/nvestment income ande4penses

B#siess:perating cash flows/nvestment cash flows

Fi.ci!0inancing assets0inancing liabilities

Fi.ci!0inancing asset income0inancing liability

e4penses

Fi.ci!0inancing asset cashflows

0inancing liability cashflows

Icome T.xes Icome T.xes oncontinuing operations<business N financing=

Icome T.xes

&iscoti#e$o'er.tios

&iscoti#e$o'er.tios1 et of t.x

&iscoti#e$o'er.tios

Ot/er Com're/esi(eIcome1 et of t.x

E5#it) E5#it)

Ahis consistency across all the statements will assist users in providing aclearer picture of the organiBation in the financial statements, and a morecohesive picture of the organiBations activities.

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WA 22,@ "Coti#e$%

T/e St.temet of C.s/ Flo0s

Ahe following is a list of the changes and format proposed for the statement of

cash flows7• Ahe direct method would be used <no longer would there be a choice to

use the indirect approach=. Ahe reasons for deciding that this method wasthe best were7 to improve user understandabilityG to provide better predictive valueG to increase transparencyG and to enable users to seetrends that were not clear under the indirect method.

• Ahe classification would still be operating, investing and financing, butwould be based on the classification that was used for the related assetsand liabilities on the statement of financial position.

• Ahe statement of cash flow would reconcile the beginning and ending

balance of cash <and not cash and cash e#uivalents=.• Cash receipts and payments are to be disaggregated within each section

to provide information for users. Cash flows are to be disaggregatedbased on the purchase or sale of assets based on their nature, and theissuance or settlement of liabilities, based on their nature.

• /n a later taff paper, dated 0ebruary 1, *1*, the ;oard decided that thecash flow line items did not have to line up e4actly with the line items onthe statement of comprehensive income.

Recocili.tio of t/e St.temet of C.s/ Flo0s to t/e St.temet of

Com're/esi(e Icome

2n entity would present a schedule that reconciles the line items on thestatement of cash flows to the line items on the statement of comprehensiveincome. Ahat schedule would include the line-item captions for each of thosestatements and disaggregate the differences in amounts into components thathave different predictive values, as e4plained below. 2s illustrated on pages 1"(and 1") of the Discussion Paper , the resulting schedule would be a multi-columnreconciliation.

Ahis schedule is to disaggregate the comprehensive income into the following

components7• Cash received or paid < e4cluding cash transactions with owners=G

• 2ccruals and systematic allocations such as depreciationG

• ecurring changes in fair value or other recurring valuation changesG

• :ther - which might include non-recurring valuation adEustments.

Ahis schedule would be provided in the notes.

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WA 22,?

Ahere are only some minor differences between /0 and 23 with respect tothe statement of cash flows. rimarily, 23 has been written using historicalCanadian practice, and has not adopted some of the differences under /0.Ahe following highlights the maEor differences7

• Cash e#uivalents e4clude all e#uity investments under 23. /n contrast,/0 allows preferred shares that will be redeemed within three monthsfrom the time of purchase to be included in cash e#uivalents.

• /nterest and dividends received are included in operating cash flows under 23. /0 allows a choice for interest and dividends received to beeither operating or investing. 2lso, /0 re#uires that these amounts be

disclosed separately.• !nder 23, interest and dividends paid are operating cash flows only if

recogniBed in net incomeG otherwise they are included in financing cashflows as a result of being charged to retained earnings. /f these amountsare included in financing, then separate line disclosure is re#uired. !nder /0, companies have a choice to report interest and dividends paid aseither operating or financing cash flows and these amounts must beshown as separate line items on the statement.

• /0 re#uires that income ta4 paid be disclosed separately. 23 doesnot have this re#uirement but re#uires supplemental disclosure.

• !nder both 23 and /0, the amount of restricted cash must be

disclosed. /0 re#uires additional disclosure e4plaining the restrictions. 23 does not re#uire this, as the goal is to reduce re#uired disclosure inprivate enterprises financial statements.


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RESEARCH AN& FINANCIAL ANALSIS

RA22,- S/o''er &r#! M.rt

(a) 2 comparison of the maEor categories of sources and uses of cash for *11

and *1* is provided below.

<C+DF in thousands= 29-- 29-9Det cash from operating activities )'",("( ((,*1

Det cash used in investing activities <"$),1'= <$$,&'%=

Det cash used in financing activities <%'*,$%$= <"(",%&"=

Det increase in cash %$,1 1),)&"Cash beginning of the year &$,"%$ $$,")1

Cash at end of year 11(,%&& F&$,"%$

Ahe cash flows from operations have been very steady over the past two years

with minor fluctuations in amount. /n *1*, the company had a positive cash

flow and in *11, this remained positive. Ahe main reason for this is steady

cash inflows from net earnings, and the adEustments related to non-cash

charges for depreciation and amortiBation.

Cash flows for investing activities were negative in both years. /n *11, inparticular, the net cash outflow from investing activities was F"$),1'

thousand compared to F$$,&'% thousand in *1*. Ahe main reason for this is

due to the fact that +M made fewer ac#uisitions and development of property

and e#uipment.

2s for the financing activity outflow increase in *11, it is almost entirely

e4plained by the companys repurchase of common shares for a total of

F*&,'') thousand.

/n *11 and *1*, with strong positive operating cash flows that were able tocover investing and finance outflows, the company was able to increase net

cash by F%$,1 and F1),)&" thousand.

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RA22-1 (Continued)

<b= +M uses the indirect method to report operating cash flows in the

statement of cash flows. Ahe indirect approach is useful in giving the user information about how the net earnings of the company translate into cash.

Ahe indirect method provides adEustments to net income and arrives at a

single cash flow from operations line. /t does provide a useful link between

the statement of cash flows and the income statement and balance sheet.

Ahis format is the most commonly used format for public companies and

has the advantage of being a familiar format to users. /n contrast, the direct

approach would provide more detailed information on the various sources of

cash flows in operations, and provide more predictive value and more

transparency to users.

<c= !sing the details of the changes in working capital accounts taken from

Dote ' to the financial statement, the amounts can be calculated as below.

<C+DF inthousands=

5anuary 1,*11

balances

*11 Cashinflow

<outflow=

+ec. "1, *11;alances

Calculated

+ec. "1,*11

;alances 2ctual

Arade

receivable $",*() + <"&,$= $&(,""1 + $)",""(

/nventories 1,)%',%% + <($,$= ,*$1,'&' + ,*$,"*

2ccountspayable andaccruedliabilities

))*,$$ C 11),()1 1,11*,1"% C 1,1*),$$$

Ahere are insignificant differences between the calculated amounts and the

actual balances at +ecember "1, *11, e4cept for accounts receivable, as

follows7• Ahe calculated balance of trade receivables is lower by F%,**', likely due

to the change in the allowance for doubtful accounts.

• Ahe calculated balance of inventories is lower by F%"%G

• Ahe actual balance of accounts payable and accrued liabilities is lower by

F&)1.

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RA22-1 (Continued)

<d= Ahe interest paid must be deducted and the finance costs must be added

back to net income because the statement of cash flows must disclose the

actual interest paid. 2s seen in +Ms statement of cash flow, the interestpaid has been classified as operating cash flows and the amount of finance

e4pense is net of amounts capitaliBed based on +s weighted average

cost of borrowing <the capitaliBed amount is attributed to those items of 3

which meet the definition of a #ualifying asset that takes a substantial

period of time to get ready for its intended use=.

<e= ;ased only on the information provided in the financing section of the cash

flow statement, it is not possible to be sure whether the debt-to-e#uity ratio

increased or decreased in *11 or *1*. Ahis is because, although the

increase or decrease in debt from cash transactions can be determinedfrom this information, the net increase or decrease in e#uity involves other

amounts such as net income. 2lso, because the statement of cash flows

does not show non-cash financing transactions, this information is not

sufficient on its own to determine whether the debt to e#uity ratio increased

or decreased. /n addition, although there was F*&,'') thousand cash paid

to repurchase the companys own shares, this amount does not correspond

e4actly to the amount of the reduction in share capital that appears in the

consolidated balance sheet.

<f= +Ms operating capability was e4panding in *11 in two ways7 by

ac#uiring businesses <minimal amount= and by purchasing or developing

property and e#uipment and intangible assets. /n *1*, the amount of

capital e4penditures on property, plant and e#uipment was higher but not by

a significant amount and +M would still be considered to be e4panding its

operational capability.

Ahese investments are likely to increase the companys future operating

cash flows as the company can produce higher revenues leading to higher

income from operations. Ahe Company ac#uired properties that will beutiliBed as stores in the future, further contributing to future cash inflows,

offset somewhat by e4pected outflows for repayment of debt used to

finance the e4pansion, as financing cash outflows.

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RA22-1 (Continued)

<g= Ahe +ebt to Aotal 2ssets ratio is a solvency ratio that measures the

percentage of total assets provided by creditors <*11 O<",*",$(*I',"**,"1* O $1.%PQ. /t provides a measurement of whether a

company could add to its debt financing if needed. /n addition 0ree Cash

0low can be used to assess +Ms financial fle4ibility, based on cash

provided by operating activities in comparison to capital e4penditures and

dividends R)'",("( 9 <1*,$)& "$1,(&( %",("&= 9 11,$')Q. :verall the

free cash flow is #uite significant at F"%&,1%) thousand and the debtItotal

assets ratio seems #uite reasonable. /t is also relatively easy to assess

+Ms financial solvency and financial flexibility in general terms, as the

financial performance and cash flows have been quite steady the past two

years. In 2010 and 2011, the cash flows from operations were positive and

in substantial amounts which means that it was able to cover the capital

expenditures of the company.

In addition to solvency, it appears that the company’s liquidity did not

change significantly from 2010 to 2011. In 2010 the current ratio was 1.66

and in 2011 the ratio reduced to 1.52. The decline in the ratio is primarily

due to a current portion of long-term debt in the amount of $249,971

thousand coming due in the next year. The current ratio remains strong and

demonstrates that the company has flexibility to meet short term obligationsas they come due in spite of large amounts of debt coming due in the next

fiscal year. From an overall solvency perspective, the amount of total

liabilities continue to be much lower than the total amount of shareholders’

equity.

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RA22-2 BOMBARDIER INC

<a= ;ombardier /nc. manufactures and sells state-of-the-art trains and airplanes.

2s a result, they have a long manufacturing and cash cycle. 2s described innote 7

• evenues from long-term contracts related to designing, engineering or

manufacturing specifically designed products <including rail vehicles and

component overhaul= and service contracts are recogniBed using the

percentage-of-completion method.

• evenues from the sale of commercial aircraft are recogniBed when the

aircraft has been delivered, risks and rewards of ownership have been

transferred, the amount of revenue can be reliably measured, and collection

of the related account receivable is reasonably assured.

• evenues from the sale of aircraft fractional shares are considered together

with the related service agreement. o, revenues from these sales are

recogniBed over the period during which the related services rendered to the

customer, generally five years. 2t the time of sale, the proceeds from the

sale are initially recorded in other liabilities.

• evenues from sale of pre-owned aircraft and spare parts are recogniBed

when the goods have been delivered, risks and rewards of ownership have

been transferred to the customer, the amount of revenue can be reliably

measured, and collection of the related receivable is reasonably assured.

2s can be seen from the above, there may be significant timing differences

between the time that cash is received on a sale or from billings on long-term

construction contracts and the time revenue is recogniBed. /n addition, there will

also be significant differences in timing as to when cash payments are made for

costs and costs are reported in net income.

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RA22-2 (Continued)

<b= Ahe schedule below shows the net income and operating cash flows for each

year. Dote the change in year end from 5anuary "1, to +ecember "1, willaffect comparisons.

I *S7 millios 29-2 29--

"-- mot/s for some '.rts of Bomb.r$ier3s

b#siess%

Det income %)( ("'

Det cash flow from operating activities 1,"$( $"

+ifference '%* <%)$=

Year over year percentage increases<decreases= in net earnings

<)P= (P

Year over year percentage increases<decreases= in operating cash flows

$%%P <(&P=

0or *1 and *11, the net earnings were higherIlower than the operating cash

flows by !F'%* million and !F%)$ million, respectively. /t appears thatoperating cash flows do not trend by the same amount or in the same direction

as earnings as can been seen through the volatile figures. 0rom *1* to *11,

although net income increased by (P, operating cash flows actually declined by

(&P. 0rom *11 to *1, both net income and operating cash flows

declinedIincreased by significant amounts, <)P= for net income and $%%P for

operating cash flows.

Ahese large differences can be e4plained in part by the e4ceeding large

decrease in LDet change in non-cash balances in the *11 statement of cash

flows <an amount of over ! F1 ;illion=. 2s e4plained in note ( to the +ecember

"1, *11 financial statements this amount is made up in large part by a single

change related to the balances of advances and progress billings, in e4cess of

related long-term contract inventories.

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RA22-2 (Continued)

<c= Ahe schedule below highlights the causes of significant differences between

net income and operating cash flows. Dote ) <*1 financial statements=provides information for maEor differences in the non-cash balances.

!F millions *1 *11 5an."1,*11

Det income %)( ("' ''%

2mortiBation "'1 $1* "'1

Aotal of :ther Don-cash items <1'= () ()

C/.!es i o c.s/ 0or4i! c.'it.l ;>? "-1928% =@

Det cash flow from operating activities 1,"$( $" 1,&)

C/.!es i o c.s/ 0or4i! c.'it.l$

ignificant changes period over period<Dote below=7

*1 *11 5an."1,*11

Change in inventories <*%= <1$(= "*"

Change in trade and other payables "$( 1%& 1$"

2dvances and progress billings in e4cessof related long term contract inventories

1* <$"&= ")

2dvances on aerospace programs %)) <1(= <$'=

etirement benefits liability <((= <1'(= <*)=

Aotal of other items <"&*= <)$= '%

Det change in non-cash balances. ")& <1,*(= $%'

Dote7 :ften the change in the balance sheet account will not agree to thechange as reported in the cash flow statement due to non-cash transactions thatmight take place.

2s can be seen from the above schedule, there are significant changes ininventories, accounts payable, advances and billings in e4cess of long term

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contracts and advances on aerospace programs. 2ll of these accounts areimpacted by the timing of recogniBing revenue <and related costs= and cashreceipts from customers and payments for e4penses. Ahese large variationseach year indicate that cash flows for this particular company from operatingactivities are very different from reported earnings.

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RA22-2 (Continued)

<d= 2s seen from the above analysis, predicting of cash flows will be e4tremely

difficult given the large variations from year and year, with little tie to netearnings trends. /n this case, a direct approach might be more helpful, given

that the cash flows from customers and payments to suppliers and

employees would be more transparent. !sing the indirect approach, it is not

possible to calculate the cash receipts and cash payments from normal

operating activities.


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RA22,; Alt.G.s INC

<a=

/n thousand of F 29-2 29--

Cash inflow from operations 1$&,"%' 1(%,$*

Cash used in investing activities <1,&$,$&$= <%&$,"%(=

Cash provided by financing activities 1,$(',1$1 "(*,(*(

Det change in cash and cash e#uivalents ),*"$ 1,(%

2ltagas /nc. is not financing its capital investments using cash flow from

operations. 2s discussed in note " to the financial statements, cash in theamount of F''1,"1% was spent during the fiscal year ending +ecember "1,

*1 for the ac#uisition of emco. Ahis ac#uisition was financed by the

issuance of long-term debt and the issuance of common and preferred

shares.

Ahe cash flow from operations are similar to the amount of dividends paid

during the year to the common and preferred shareholders. +ividends paid

totaled F1$%,""" thousand.

Ao the e4tent that 2ltaJas can obtain the necessary financing from theissuance of debt and shares to finance e4pansion, it can continue to ac#uire

other business and pay out dividends to its shareholders.

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RA22-3 (Continued)

<b=

/n thousands of F F

:pening balance for property, plant and e#uipment ,$(&,*%*

+epreciation, depletion and amortiBation from income

statement

<1*,1(=

2c#uisition of property, plant and e#uipment from

statement of cash flows

'&(,&%1

;usiness ac#uisitions <per statement of cash flowsG

includes ac#uisition of emco <note "=

(*&,*1$

Calculated balance ",)%(,%('

!nreconciled difference <).$1=

Closing balance on Consolidated ;alance heet ",)$),1&&

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RA22,= ALLON THERAPE*TICS INC ERS*SONCOTHREON INC COMPARATIE ANALSIS

<a= 2llon Aherapeutics and :ncothyreon are in the biotechnology andpharmaceutical industries. Aheir primary obEective is the discovery and

development, through research, of new drugs and products for thetreatment of diseases. 2s such they are not manufacturers or distributorsof product and so their sources of revenue <if any= are from the sale of patents or technology developed through their efforts. +uring the manyyears in which the investment of the research is performed, very littlerevenue might be generated. Ahe statements of operations of :ncothyreon reveal revenue from collaborative and licensing of some of its technology to other research firms or to pharmaceutical companies.Ahe only source of income on the statement of operations for 2llonAherapeutics /nc. is from interest and other income.

;ecause of the modest amounts of revenue realiBed compared to thesignificant research and development costs e4pended, predictably, thesecompanies e4perience continued losses. ince the maEority of the activityis basic research, the e4penditures do not #ualify to be capitaliBed andlater amortiBed. Ahe conditions under which this would be allowed arevery restrictive and are usually only applicable at the end of thedevelopment phase of a product or process.

/n general, investors in this industry know and e4pect the operating resultsto be negative. Ahey continue to invest in these companies on the hopesof realiBing a substantial return on their investment in the future when a

powerful and lucrative drug is developed and sold to the giantpharmaceutical firms for subse#uent sale and distribution.

Ahe large and continued losses on the statements of operations aretherefore not a surprise to anyone and are not a sign of failure. uccess ismeasured rather in the progress towards the development of lucrativeproducts, which can bring large royalties or gains from the sale of theproduct andIor technology itself.

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RA22,= "Coti#e$%

<b= /n order to finance what are e4pected to be several years of losses,biotechnology companies must obtain long-term financing. ince debt isimpractical considering the risks surrounding the companys future ability

to repay debt, the sources of financing are generally from e#uity. 6argesums of cash are obtained from the sale of shares. hare offerings aredone every few years to replenish cash and cash e#uivalents to fund thecompany for the ne4t few years. er the statement of cash flows of 2llonAherapeutics, large cash inflows occurred in fiscal year *1* of F).)million from proceeds from convertible royalty and revenue agreement.Ahese inflows assisted in offsetting the cash outflows from operations of *1* and **) of F1".* million.Ahis approach to financing is similar for :ncothyreon, which had largeamounts of cash received from shares and warrants issues of F1".'million in *1*. Ahe statement of financial positions of both companies

show high levels of cash and short-term investments and capital stock.0or :ncothyreon, the warrants issued in *1* are reported as liabilities asthey have a price that may vary under certain circumstances and may bere#uired to be settled in cash. Ahe high levels of capital stock are neededto offset the huge deficits that have been accumulated over the years.

<c= 0or both companies, in the last two fiscal years, it appears cash wasmainly used for operations.

ince these companies do not make substantial investments in property,plant, and e#uipment, their investment activities are mostly restricted.

:ncothyreon invested cash from the issuance of common shares in short-term investments and later li#uidated to fund operations. /n *1*(:ncothyreon had large cash inflows from the issue of common shares andwarrants. /n both years, small amounts were invested in property, plantand e#uipment, representing F"$ thousand in *1*, F1.$ million in **)and F'$$ thousand in **(. /n both years, 2llon invested small amounts inproperty and e#uipment, totalling F1",1)% in *1* and F,%"" in **).

0or both companies, financing activities are principal sources of cash.Cash generated from the sale of common shares is used to financecurrent and future years operations. /t appears that 2llon invested the

cash from the issue of common shares in highly li#uid short-terminvestments, which were classified as cash and cash e#uivalents <e.g.short-term investments with terms to maturity when ac#uired for threemonths or less=, as the statement of financial position shows the largebalance of cash and cash e#uivalents and no account for short-terminvestments.

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RA22,= "Coti#e$%

<d= +ue to the nature of the operations and the e4pectations of shareholders,biotechnology companies do not have substantial investments in property,plant, and e#uipment. Aheir ability to obtain debt financing is restricted bythe risk involved concerning the companys ability to repay debt fromfuture operations. Aherefore, e#uipment might be financed through capitalleases or from the sale of e#uity instruments. 0acilities are rented insteadof owned. Ahis provides more fle4ibility to the companies involvedalthough the overall costs might be higher. Ahis strategy is confirmed bythe modest amounts of property and e#uipment reported on the balancesheets.

:ther businesses that are able to generate cash from operations anddemonstrate an ability to service debt can e4pect to be financed partiallywith debt. Ahey can therefore obtain the financing necessary to makelong-term investments in plant and facilities. /n those industries it wouldnot be surprising to find balance sheets with higher amounts in bothproperty, plant and e#uipment assets and long-term debt.

<e= ;ecause of the continued commitment on the part of shareholders toprovide the necessary e#uity financing re#uired by these companies tocontinue their research activity, 2llon and :ncothyreon are in fact veryli#uid companies. Ahey ensure that the amounts of cash and cashe#uivalents and short-term investments are at a level ade#uate tocontinue operating well into the future to reach their goals. o long as thebiotech firms can demonstrate progress toward reaching the discoveryand development of new products, investors will continue to fund thesebusinesses by purchasing more common shares and warrants. Ahise4plains why investors are not necessarily as concerned about thefinancial condition of the company in which they invest as they are aboutthe progress reports concerning research results provided by the firms ona regular basis.

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RA22,@ NESTL GRO*P

<a= Ahe amounts of cash inflows and outflows at the sub-total level in *1 and

*11 are presented below.

<in millions of wiss 0rancs or CH0= 29-2 29--

:perating 1%,'' 1*,1(*

/nvesting <1$,%('= <$,%*(=

0inancing <%'= <(,(1*=

Currency translations <&= 1)

Det increaseIdecrease )* <",11)=

Cash and Cash 3#uivalents, beginning of the year $,)"( (,*%'

Cash and Cash 3#uivalents, end of the year %,($* $,)"(

Ahe operating cash flows in *1 were enough to cover cash outflows from

both investing and financing activities. +uring *1 maEor investments were

made in the ac#uisition of businesses. 2fter considering an outflow due to

currency translations, the net impact was an increase of CH0 )* million in

cash and cash e#uivalents. Ahe maEor reason for the decrease in the cash

outflows from financing activities came from the purchase of treasury shares

in *11 <%,$(* CH0= vs. *1 <%" CH0= <together with the impact of the

issuance in *1 of bonds and other non-current financial debt of %,& CH0

vs. &(( CH0 in *11=

0or both *11 and *1, the company is using e4cess cash flows from

operations, after including the impact of investing cash flows to buy back

shares and pay dividends to shareholders.

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RA22,@ "Coti#e$%

<b= /nformation is taken from the statement of cash flows and note 1'.

I millios of CHF 29-2 29--rofit for the year <Dote 1'.1= 11,*&* ),(*$

hare of results of associates <1,*&*= <(&&=

+epreciation and amortiBation ",1%* ,)%

/nventories &( <1,(*=

Arade receivables <1)= <&(=

Arade payables (*' $)'

:ther current assets 1 <'""=

:ther current liabilities 1,*1* 1&1

Aotal of other smaller amounts &"$ "**

:perating cash flow 1%,'' 1*,1(*

2s can be seen from the above schedule, the profit each year and the large

amounts of depreciation, and amortiBation add backs resulted in significantoperating cash flow in *11 and *1, and accounted for much of the

increase in operating cash flow.

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RA22,@ "Coti#e$%

<c= /nvesting activities presented on DestlSs statements of cash flows show the

details of investing cash transactions for *1. Ahe maEor items are capital

e4penditures and business ac#uisitions, the latter being substantially higher in

*1 when compared to *11. Ahere was a small amount of inflow from the

disposal of a business and sale of assets and financial investments. Much of

the investment activity outflows made in *11 were funded by the sale of

short-term financial investments in *11.

Ahe maEority of the recurring outflows from financing activities occurred for the

payment of dividends. ources of cash came from the issuance of bonds and

other non-current financial debt, particularly in *1. Ahere were also sales

and repurchases of treasury shares, the latter being much more significant

during *11.

<d= 2s indicated in note 1' and cash flow statement, the company paid or

received the following amounts7

/n millions of CH0 2mount Classification

0inance e4pense <not necessarily amount

paid=

<%)1= :perating

0inancing income <not necessarily

amount received=

11* :perating

Aa4es paid <",*1= :perating

+ividends received from associates $$& :perating

+ividends paid <&,$1'= 0inancing

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