Non-cash investing and financing activities

Statement of cash flows reports only those operating, investing and financing activities that affect cash or cash equivalents. However, some non-cash investing and financing activities may be much important for the users of financial statements because they may have a significant impact on the current and future performance in terms of revenues, profits and the ability of the entity to generate positive cash flows. Therefore, both IFRS and US GAAP require companies to disclose all significant non-cash investing and financing activities either at the bottom of the statement of cash flows as a footnote or in the notes to the financial statements.

Examples:

Some examples of non-cash investing and financing activities that may become significant for the users of financial statements are given below:

  1. Issuance of stock to retire a debt
  2. Purchase of an asset by issuing stock, bonds or a note payable.
  3. Exchange of non-cash assets.
  4. Conversion of debt to common stock.
  5. Conversion of preferred to common stock.
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Disclosure:

The general approach is to disclose a schedule of non-cash investing and financing activities at the bottom of the statement of cash flows. They can, however, also be included as a separate schedule or in the notes to the financial statements. Both the approaches are in practice and both are in accordance with IFRS and US-GAAP. The proper disclosure is illustrated in the following example.

Example:

(1). Disclosure at the bottom of the statement of cash flows:

The following presentation shows a schedule of significant non-cash investing and financing activities at the bottom of the statement of cash flows:

non-cash-investing-and-financing-activities-img1

(2). Disclosure in a separate note:

The following is an example of the disclosure of significant non-cash investing and financing activities as a separate note to the financial statements:

non-cash-investing-and-financing-activities-img2

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2 Comments on Non-cash investing and financing activities

  1. Joseluis

    The paragon of unadestdnring these issues is right here!

  2. bongeka

    treatment of replacement of damages assets in the cashflow

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