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Chapter 5 — Noncash Investing and Financing Activities

Chapter 5 — Noncash Investing and Financing Activities

Chapter 5 — Noncash Investing and Financing Activities

Investing and financing activities that affect recognized assets or liabilities but that do not result in actual cash receipts or payments should be disclosed as noncash investing and financing activities. Such disclosures should be summarized in a schedule or in narrative form on the face of the statement of cash flows or in another section of the financial statements that refers to the statement of cash flows. Some examples of noncash investing and financing activities include:
  • Converting debt to equity.
  • Acquiring long-lived assets through the assumption of directly related liabilities (e.g., purchasing a building by incurring a mortgage to the seller).
  • Obtaining an asset through a finance lease (under ASC 842) and sale-leaseback transactions, when less than the full amount of the consideration is paid/received as of the closing date. (See Sections 7.6.1.1 and 7.6.3 for further discussion of seller financing and lease transactions.)
  • Receiving a building or other asset as a gift.
  • Exchanging noncash assets (e.g., inventory or accounts receivable) or liabilities for other noncash assets or liabilities.
  • A transferor’s beneficial interest obtained in a securitization of financial assets.
As discussed above, acquisitions paid for by stock that are accounted for as business combinations under ASC 805 are considered noncash investing and financing activities and should be disclosed in a narrative or summarized in a schedule in the financial statements. Correspondingly, acquisitions paid for in part by cash and in part by stock are split between the cash and noncash aspects of the transaction. Only the cash portion is reported as an investing activity in the statement of cash flows. The stock portion is disclosed in a manner consistent with that discussed above. The amount of cash paid, net of the acquiree’s cash and cash equivalents, is presented as an investing cash outflow. Consider the following examples: