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ACC514 - Ch20-23

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ACC 514
Gwen Roberts

ACC514 SPRING/SUMMER 2013 Ch22 – Cash Flows - Operating = daily (income statement) - Financing = debt + equity - Investing = long term assets & investments (left side balance sheet) Difference between DIRECT (IFRS) & INDIRECT method = only in operating section - IFRS choice for interest & dividends classified as paid/receive = operating, received = investment, paid = financing - ASPE PE GAAP – interest & dividends as operating, if against retained earnings = financing Operating Activities - Collections from customers - Payments to suppliers - Payments to employees - Payments to CRA for tax Investing Activities - Acquisition & disposal of long term assets & investments o Purchase/disposal of capital assets o Acquire interest in another corporation Financing Activities - Changes in long term debt/equity capital o Issuing/repaying debt o Issuing/repurchase shares Non-cash Transactions = NOT REPORTED, if significant = include in notes - Asset purchased, paid for by debt/issue shares - Exchange of non-monetary assets - Conversion of debt to equity Indirect Method – accrual basis - Income statement items & changes in CA & CL = Operating, adjust net income for accruals, non- cash charges, non-operating gains/loss - Balance sheet changes in long term assets = investing - Debt & equity = financing ACC514 SPRING/SUMMER 2013 DIRECT METHOD Cash flows from operating activities: Cash received from customers (cash or on account) XX Cash paid: To employees XX To suppliers XX For interest XX For taxes XX (XX) Net cash flow from operating activities XX Cash flows from investing activities: Proceeds from sale of long-term investments XX Purchase of equipment (XX) Net cash flow from investing activities XX Cash flows from financing activities: Proceeds from issue common shares XX Payment to retire bonds payable (XX) Dividends paid (XX) XX Net cash flow from financing activities XX Change in Cash (net cash inflow) XX Cash beginning XX Cash end of year XX Cash from customers = Revenue from credit sales – increase in A/R Cash paid to suppliers = Cost of goods sold – increase in A/P – decrease in inventory Cash for taxes = income tax expense – increase in tax payable Current receivables/payable : ADD decreases SUBTRACT increases Prepaid/assets= add increase subtract decrease Add things you PAID for (eg. Inventory, prepaids) Dividends: IFRS choice for interest & dividends classified as paid/receive = operating, received = investment, paid = financing ASPE PE GAAP – interest & dividends as operating, if against retained earnings = financing ACC514 SPRING/SUMMER 2013 Ch20 – Leases Lease payments @ BEGINNING = annuity due Discount Rates - IFRS use % of lessor - PE GAAP use % LOWEST you (lessee) know; implicit rate Residual - Lessor always considers PV residual guarantee/unguarantees, want to recover @ end a % - Lessee only concern if WE guaranteed residual for lessor - If 3 party guarantee, lessee DON’T need to consider - If unguaranteed residual = no care Capital Lease – Depreciation only for lessee, otherwise lessor Sales Lease: Lessor -> residual NOT guaranteed -> account in COGS/Sales Minimum Lease Payment = Lease payment + bargain purchase option (use life of asset) + residual (if guaranteed, use life of lease) – Operating (executory) Costs Lease Classification Capital/Financing Lease (risk & ownership transfer, lessee accounts depreciation, has BPO, all economic benefits (GAAP 75%+ life), PV lease pmt = FV of leased asset or paid 90% of cost (GAAP), specialized asset) Lessee: Leased Equipment XX Lease Obligation XX Lessor: Lease Receivable (net) XX Equipment XX Operating Lease (rental, risk & ownership not transfer) Lessee: Rent Expense XX Cash XX Lessor: Cash XX Rental Income XX ACC514 SPRING/SUMMER 2013 Lessor calculate lease payments for required rate of return Cost/FMV of asset to be recovered 100,000 Less: PV Residual value (A-2) -0- Amount recovered through lease payments 100,000 Payments (A-5) n = #, i = # amount recovered / discount factor = pmt Total Lease payments = n x pmt Lessee: Capital Lease Entries (4) Record asset & liability @ LOWER of PV min lease pmt OR FMV leased asset Depreciation LIFE of asset if BPO or ownership transfers; Life of lease if title no transfer Initial Lease: Asset under capital lease XX Obligations und
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