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Case 08-01
Go With the Flow INC.
Insurance Settlement Proceeds
According to ASC 230-10-45-12, “All of the following are cash inflows from investing activities:
• a. Receipts from collections or sales of loans made by the entity and of other entities' debt instruments (other than cash equivalents and certain debt instruments that are acquired specifically for resale as discussed in paragraph 230-10-45-21) that were purchased by the entity
• b. Receipts from sales of equity instruments of other entities (other than certain equity instruments carried in a trading account as described in paragraph 230-10-45-19) and from returns of investment in those instruments
• c. Receipts from sales of property, plant, and equipment and other productive assets
• d. not used
• e. Receipts from sales of loans that were not specifically acquired for resale. That is, if loans were acquired as investments, cash receipts from sales of those loans shall be classified as investing cash inflows regardless of a change in the purpose for holding those loans.
For purposes of this paragraph, receipts from disposing of loans, debt or equity instruments, or property, plant, and equipment include directly related proceeds of insurance settlements, such as the proceeds of insurance on a building that is damaged or destroyed.”
Based on the above principal, the proceeds from the insurance company for the destroyed building should be considered investing activities because the money received was an insurance settlement and the proceeds of the insurance were on a building that was destroyed.
Sale of Accounts Receivable
According to ASC 230-10-45-14, “All of the following are cash inflows from financing activities:
• a. Proceeds from issuing equity instruments
• b. Proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing
• c. Receipts from contributions and investment income that by donor stipulation are restricted for the purposes of acquiring, constructing, or improving property, plant, equipment, or other long-lived assets or establishing or increasing a permanent endowment or term endowment
• d. Proceeds received from derivative instruments that include financing elements at inception, whether the proceeds were received at inception or over the term of the derivative instrument, other than a financing element inherently included in an at-the-market derivative instrument with no prepayments
• e. Cash retained as a result of the tax deductibility of increases in the value of equity instruments issued under share-based payment arrangements that are not included in the cost of goods or services that is recognizable for financial reporting purposes. For this purpose, excess tax benefits shall be determined on an individual award (or portion thereof) basis.”

Based on above principle, it can be seen that the proceeds received from borrowing from the securitization vehicle falls under financing activities in the cash flow statement. As seen in b above, the proceeds from the notes falls into the financing category.

Acquisition of Property, Plant, and Equipment on Account
According to ASC 230-10-45-13, “All of the following are cash outflows for investing activities:
• a. Disbursements for loans made by the entity and payments to acquire debt instruments of other entities (other than cash equivalents and certain debt instruments that are acquired specifically for resale as discussed in paragraph 230-10-45-21)
• b. Payments to acquire equity instruments of other entities (other than certain equity instruments carried in a trading account as described in paragraphs 230-10-45-18 through 45-19)
• c. Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets, including interest capitalized as part of the cost of those assets. Generally, only advance payments, the down payment, or other amounts paid at the time of purchase or soon before or after purchase of property, plant, and equipment and other productive assets are investing cash outflows. However, incurring directly related debt to the seller is a financing transaction (see paragraphs 230-10-45-14 through 45-15), and subsequent payments of principal on that debt thus are financing cash outflows.”

Based on above principal, it can be seen that that the purchase of the manufacturing equipment and machinery will be considered investing activities in the statement of cash flows as the company plans to pay it off soon, in January, which means it falls under c.

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