2. Insurance Settlement Proceeds Beverly has a warehouse and sales office in the Gulf Coast Region....

2. Insurance Settlement Proceeds

Beverly has a warehouse and sales office in the Gulf Coast Region. The damage caused by Hurricane William (Hurricane), a Category 5 hurricane, has rendered the warehouse inoperable and has also forced the company to rent temporary office space in Houston to accommodate its sales force. Beverly reached a settlement with its insurance carrier related to the damage from the hurricane and received proceeds of $15 million from its insurance carrier in connection with its claim for reimbursement. Beverly plans to use the insurance proceeds to fund its defined-benefit pension plan, rather than to rebuild the destroyed facility.

ASC 230, Statement of Cash Flows (Statement of Cash Flows).

Required:
a. Determine the appropriate cash flow statement treatment — classification (e.g., operating, investing,
financing) — for the above transactions.

b. What international accounting standard (IFRSs) applies to cash flow statement presentation?
In general, how do those guidelines compare to U.S. GAAP in these particular situations?

Expert Solution

a.) The receipt of $15million from Insurance settlement should be classified as investing activities in the cash flow statement.

Transactions such as the destruction of a building or damage to an equipment are to be reported as investing activities in the cash flow statement.

b) IAS 7 deals with cash flow presentation.

Comparison of cash flow guidelines between US GAAP and IFRS are mentioned below:

IFRS	US GAAP
Interest and dividend (received/paid) can be classified under any head. However, this method should be applied consistently each year.	Interest received or paid is classified as operating activity. Dividend paid is classified as financing activity Dividend received is classified as operating activity
tax paid is classified as operating activity, unless it can be specifically traced to financing or investing activity	tax paid is classified as operating activity
-Silent-	Restricted cash is to be included in cash and cash equivalents
Bank overdraft is inclued in cash and cash equivalents	Bank overdraft is considered as current liability

ekkarill92 answered 2 years ago

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