Question

BE22.4 (LO 2, 10) Maddox Corporation had the following activities in 2020. Sold land for $180,000. Purchased an FV-NI investment in common shares for $15,000. Purchased inventory for $845,000 with cash. Received $73,000 cash from bank borrowings. Received interest for $11,000. Purchased equipment for $495,000 in exchange for common shares. Issued common shares for $350,000 cash. Recorded an unrealized gain of $3,000 on investments accounted for using the fair value through net income (FV-NI) model. Purchased investments in bonds, reported at amortized cost for $61,000. Declared and paid a dividend of $18,000 (charged to retained earnings). Investments in bonds reported at amortized cost, with a carrying amount of $410,000, were sold for $415,000. Dividends of $4,000 were received on FV-NI investments. Calculate the amount that Maddox should report as net cash provided (used) by investing activities on its statement of cash flows under (a) IFRS and (b) ASPE. Under IFRS, Maddox would adopt the policy of classifying interest and dividends paid as financing activities, and interest and dividends received as investing activities.

Answer 1

MADDOX CORPORATION

Cash flow from Investing activities - As per the provisions , cash flow from Investing Activities should include all transactions in cash & bank a/c which are related with Fixed Assets (Tangible and Intangible) and Investments (Long Term & Short Term)

Difference Between CFS as per IFRS and ASPE - The only difference in cash flow statement as Per IFRS and ASPE is the treatment of Interest and Deividend Paid/Received. In IFRS, company has the options to form Interest and Dividend as the part of Operating activities or Investing activity/ Financing activity. Whatever the poilicy followed need to be consistent throughout.

But as per ASPE, the treatment of Interest and Dividend received or paid will only form part of Cash Flow from Operating activities.

(a) CFS as per IFRS

Cash Flow From Investing Activities

for the year ended 2020

Particulars	Amount ($)
Sale of Land	180,000
Purchased FV-NI Investment in common shares	(15,000)
Interest Received	11,000
Purchased Investment in Bonds	(61,000)
Investments Sold	415,000
Dividend Recived from FV-NI Investments	4,000
CASH FLOW FROM INVESTING ACTIVITIES	534,000

Notes forming part of question:-

• Inventory purchased is a current asset, so it will not form part of Investing activity.
• Purchased equipment in exchange of common shares will also not form part of Investing activity, because there is only a settlement of Asset with Liability and not Cash Outflow or Inflow.
• Unreallized Gain on Investment dont show up in Investment Activities because it does not form part of cash.

(b) CFS as per ASPE

Cash Flow From Investing Activities

for the year ended 2020

Particulars	Amount ($)
Sale of Land	180,000
Purchased FV-NI Investment in common shares	(15,000)
Purchased Investment in Bonds	(61,000)
Investments Sold	415,000
CASH FLOW FROM INVESTING ACTIVITIES	519,000

Notes forming part of question:-

• Inventory purchased is a current asset, so it will not form part of Investing activity.
• Purchased equipment in exchange of common shares will also not form part of Investing activity, because there is only a settlement of Asset with Liability and not Cash Outflow or Inflow.
• Unreallized Gain on Investment dont show up in Investment Activities because it does not form part of cash.
• Interest and Dividend Received will not form part of Investing activity, it will be treated as Operating Activing as per ASPE.