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SCF, Investing Activities For Upload
SCF, Investing Activities For Upload
G. Statement of Cash Flows, Investing Activities. The analysis of CYAN Company’s non-
current assets at December 31, 2019 are shown below:
(1) Buildings
There were two transactions affecting the PPE account for the year: (1) A sale of a
building costing P3,000,000 (with a carrying value of P1,700,000) yielding a loss of
P200,000, and (2) acquisition of a new building for an undisclosed amount.
(2) Patents
Required: Compute for CYAN’s net cash from/(used in) investing activities for the
year ended December 31, 2019.
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Discussion on Problem G
Before we answer the problem, let us discuss first the nature of the T-accounts for
property, plant and equipment and patents.
At the end of the reporting period, the property, plant and equipment is measured at
cost less any accumulated depreciation, meaning, at their carrying values. The
breakdown of the T-accounts for the cost and accumulated depreciation of PPE are
as follows:
ACCUMULATED DEPRECIATION
Acquisition of building only affects the cost of the building, not the accumulated
depreciation. Any amount paid for the acquisition of the building is a cash outflow from
investing activities.
The sale of a building, on the other hand, affects both the cost and accumulated
depreciation of the building since a portion of the cost and the accumulated
depreciation is derecognized or taken out of the books pertaining to the asset sold. If
the net proceeds from the sale of building (which is a cash inflow from investing
activities) is greater than the carrying value of the building sold, then it will result in a
gain on sale. Conversely, if the net proceeds from the sale of the building is less than
the carrying value of the building sold, then it will result in a loss on sale.
B. Intangible assets
At the end of the reporting period, the intangible asset is measured at cost less any
accumulated amortization, meaning, at their carrying values. The breakdown of the T-
accounts for the cost and accumulated amortization of an intangible asset are as
follows:
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PATENTS (at cost)
Acquisition of patent only affects the cost of the building, not the accumulated
amortization. Any amount paid for the acquisition of a patent is a cash outflow from
investing activities.
The sale of a patent, on the other hand, affects both the cost and accumulated
amortization of the patent since a portion of the cost and the accumulated depreciation
is derecognized or taken out of the books pertaining to the asset sold. If the net
proceeds from the sale of a patent (which is a cash inflow from investing activities) is
greater than the carrying value of the patent sold, then it will result in a gain on sale.
Conversely, if the net proceeds from the sale of a patent is less than the carrying value
of the patent sold, then it will result in a loss on sale.
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Solution to Problem G
A. Building
(1) There is a need to work back to get the net proceeds from the sale of the
building. In a normal scenario:
However, since the net proceeds is not provided, to compute for it, we have to
understand that there was a loss on sale amounting to P200,000 and that the
carrying value of the building sold was P1,300,000 (Cost of P3,000,000 minus
accumulated depreciation of P1,700,000). So if there is a loss on sale, the net
proceeds should be less than the carrying value of the asset sold; hence,
So, how much will the acquisition be in order to keep the T-account in balance?
Therefore, the amount of the acquisition during the year is P6,000,000.
B. Patents
(3) It is important to know that there were no sale of patents during the year,
therefore, the only reason why the accumulated amortization account
increased during the year is because of the recorded amortization expense.
But you may very well know that amortization expense is a non-cash expense,
so you may ignore it on your analysis.
(4) Also, you noted that there was an increase in the cost of the patent during the
year. We analyze again the T-account as follows:
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PATENTS (at cost)
So, how much will the acquisition be in order to keep the T-account in balance?
Therefore, the amount of the acquisition during the year is P300,000.
To get the net cash generated from/(used in) investing activities, summarize all the
cash inflows and outflows affecting the non-current assets during the year:
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