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CFA Session 8
Accounting
98
Finance
Undergraduate 4
01/28/2010

Additional Finance Flashcards

 


 

Cards

Term
FASB revenue recognition rules
Definition

FASB: revenue is recognize in the income statement when:

(a) realized or realizable and

(b) earned.

 

The SEC has further listed four criteria to determine whether revenue should be recognized.

 

1. arrangement between buyer & seller

2. product delivered/service rendered

3. price is determined or determinable

4. reasonably sure of collectibility

Term
percentage of completion method
Definition

revenue recognition principle used for long term contracts spanning several years EX: construction

 

Each year, revenues are recognized based on the percentage completion of the project based determined by costs

 

yearly cost/total cost = % complete * TR = yearly rev

 

*involved cost estimates--smooths earnings

 

*more agressive than completed contract method because it recognizes more revenue today

Term
completed contract method
Definition

revenue recognition method with no expenses, revenues, or profits recognized until project is completed

 

*more conservative--recognizes no revenue today

Term
installment method
Definition

revenue recognition principle associated with installment sales--where firm finances a purchase with payments made over time EX: real estate

 

profit is recognized each year as percentage of profit based on sales * sales for the period

 

EX: 1000 price 800 cost --> profit = 20%

period 1 pmt * 20% = profit recognized year 1

 

*more aggressive because we recognize revenue today

Term
cost recovery method
Definition

revenue recognition method where no profit is recognized until all costs are recovered

 

EX: first two years revenue = total costs, then the remaining years revenue is pure profit--no profit reported in first two years

 

*more conservative--no revenue recognized today

Term
barter transaction
Definition

essentially trading of identical goods

 

can revenue be recognized in this transaction?

only if firm has historically received cash in these types of transactions

 

Under IFRS, revenue from barter transactions must be based on the fair value of revenue from similar non-barter transactions with unrelated parties.

Term
gross vs. net revenue reporting
Definition

gross--identify sales and COGS separately

 

net--identify only net sales (TR - TC) --no mention of COGS.

 

ex) a travel agent who arranges a first-class ticket for a customer which costs $10,000. Gross-reporting: the Agent would recognize $10,000 in revenues, and $9000 in cost, equaling $1,000 in profit.

If using Net Revenue, The agent would simply recognize $1,000 revenue and no expense.

Term
criteria for gross revenue reporting (GAAP)
Definition

bear inventory & credit risk

primary obligor under contract

able to choose supplier

reasonably establish price

Term
matching principle
Definition

in accrual accounting, expenses are recognized in the same period as the revenues to which they're related.

 

ex) Inventory. Usually, inventory uses the matching principle. It recognizes both the revenues and the costs associated with that revenue in the period they're sold, not when your purchase.

Term
double declining balance method
Definition

accelerated depreciation method--recognizes more depreciation early in asset life (more useful period)

 

rate is 2X straight line rate--for 10 years will be 2/10

 

DDB= (2/useful life)*(cost-accumlated depreciation)

 

*applies depreciation rate to declining book value

 

*after depreciated to residual value, depr for remaining years is 0

Term
FIFO
Definition

inventory ID method--assumes first items purchased were first sold. 

 

thus, ending period inventory computed based on most recent purchase prices

 

*common for goods with shelf lives (food)

 

*allowed under GAAP and IFRS

Term
LIFO
Definition

inventory ID method--assumes latest purchases are the first sold

 

ending period inventory computed based on earliest purchase prices

 

*goods with no shelf lives--EX: coal--sold off top of pile

 

*some prefer LIFO because in inflationary environment, COGS is higher--meaning lower taxable income

 

*ONLY allowed under GAAP

Term
weighted average cost
Definition

inventory cost ID method--add total cost of available units/number of available units--same unit cost for all

 

*allowable under GAAP and IFRS

 

*gives COGS & end inventory in between FIFO & LIFO

 

**Note: refer to page 58, for a diagram

Term
Financial Implications for Revenue and Expense Recognition
Definition

Revenue recognition: All recognition requires a bit of estimation. Since estimates are involved, it is possible for firms to delay or accelerate the recognition of revenues. Delayed recognition can inflate income now, or inflate revenues later when it is most convenient for companies.

 

Expense Recognition: All expenses require estimations as well. Delayed expenses can have the opposite of revenue recognition deflating income now, or deflating income later when it is most convenient for companies.

 

**Look at Notes to financial statements for policies and changes within recognition policies.**

Term
amortization
Definition

used to decrease value of intangible assets over their useful lives--use straight line

 

goodwill has indefinite life--tested for impairment each period.

 

If impaired, a expense equal to impairment is recognized on the income statement.

Term
discontinued operations
Definition

operations planned to be disposed of, but have not been yet, or has been disposed of in the current period after the operation had generated income or losses

 

*income or losses reported net of tax, under income from continuing operations

 

*past income statement presented must be restated, separating income or loss from the discontinued op.

Term
unusual or infrequent items
Definition

included in income from continuing ops and included before tax.

 

Analytical Implications: Even though income from continued operations is affected by unusual or infrequent items, analysts may want to review them to determine if they will be indicative of future earnings.

Term
extraordinary items
Definition

both unusual AND infrequent items

 

*reported after income from continuing ops, net of tax.

 

IFRS does not allow extraordinary items to be separated fro operating results in the income statement.

 

Financial Implications: some companies appear to have be "accident prone" and have extraordinary items every year to make manipulate EBT

Term
change in accounting principle
Definition

EX: FIFO to LIFO--change in method--must be applied retroactively to old financials

 

*this is more likely to affect cash flows

Term
change in accounting estimate
Definition

EX: asset useful life--does not have to be applied retroactively

 

*usually won't affect cash flows

Term
prior period adjustment
Definition

correction of some past accounting error--makes current information correct

 

*made by restating all prior period results presented in current financial statements--also report effect on net income

Term
EPS for firms with simple capital structure
Definition
firms with no potentially dilutive securities--no convertible securities--only required to report basic EPS
Term
EPS for firms with complex capital structures
Definition
contain convertible securities--must report basic EPS and diluted EPS
Term
Basic EPS
Definition

(net income-preferred dividends)/weighted avg # common shares outstanding

 

net income- preferred div = income available to common shareholders (IAC)

 

*EPS based on earnings available to COMMON shareholders--therefore, common dividends not subtracted

 

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Term
weighted avg number of shares
Definition

number of shares outstanding during the year--weighted by the proportion of the year they were outstanding

 

*stock dividends and splits apply to all previous shares issued--but not future

Term
dilutive securities
Definition
securities that would decrease EPS if exercised or converted to common stock
Term
anti-dilutive securities
Definition
securities that would increase EPS if exercised or converted to common stock
Term

diluted EPS

Definition

preferred stock--convertible preferred dividends must be added back to the numerator & weighted avg. number of shares increases by common shares created by conversion

 

convertible bonds--numerator increases by interest savings * (1-t)--denominator increases by common shares created through conversion

 

diluted EPS= adjusted IAC/weighted avg common and potential common shares outstanding

 

*each potentially dilutive security must be examined separately to see if it is in fact, dilutive.

 

*if it's anti-dilutive, ignore it--if it's diluted, use it to recalculate diluted EPS

Term
Straight Line Depreciation
Definition

Most widely used depreciation method. In the early stages of an asset's life, depreciation expense will be lower compared to the accelerated method.

Later in its life, the straight-line will be more than accelerated, resulting in deflated numbers in the long run.

 

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Term
treasury stock method
Definition

when dealing with options that are in the money, we must consider dilution if they are exercised

 

the treasury stock method assumes that all proceeds from the transaction will be used to buy back shares at the average market price over the course of the year

 

effect: only denominator changes--it should increase

 

*if exercise price is less than average market price for the year, the option is in the money and will be dilutive

Term
comprehensive income
Definition

includes all changes to equity other than owner contributions and distributions (aggregates net income and other comprehensive income)

 

includes:

-foreign currency translation gains/losses

-minimum pension liability adjustments

-unrealized gains/losses on cash flow hedging derivatives

-available-for-sale securities

 

*these items affect the equity section of the balance sheet but have no effect on net income

Term
Assets = Liabilities + Equity
Definition

Balance Sheet Equation:

 

Assets: Provide probable future economic benefits controlled b an entity as a result of previous transactions.

 

Liabilities: Obligations owed by an entity from previous transactions that are expected to result in an outflow of economic benefits in the future.

 

Equity: residual interest in assets that remains after subtracting a firm's liabilities. Also known as "net assets."

 

Term
Commons Balance Sheets Terms
Definition

Cash adn equivalents 

Accounts Receivables

Inventory

Prepaid expenses

Investments

PPE

Intangible assets

Deferred tax assets

Pension Assets

Term
Common Liability Accounts
Definition

Accounts Payable

Accrued expenses 

Unearned revenues

Notes payable 

Bonds payable

Capital (financial) lease obligations

Pension Liabilities

Deferred tax liabilities

Term
Common Equity Accounts
Definition

Capital Stock

Additional paid-in capital (capital in excess of par)

Treasury stock

Retained earnings

Accumulated other comprehensive income

Term
Account Format
Definition

Account format is a layout in which assets are presented on the left hands side of the page and liabilities and equity are presented on the right hand side. 

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Term
Report Format
Definition

One of two accounting formats. Report format , the assets, liabilities, and equity are presented in one column.

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Term
Classified Balance Sheet
Definition

Groups together similar items to arrive at significant subtotals.

For ex) current assets are grouped together and current liabilities are grouped together.

Term
Accrual Method of Accounting
Definition

DEF: measures the performance and position of a company by recognizing economic events of when cash transactions occur.

- The Superior form of Accounting compared to Cash Accounting

- Under accrual accounting, revenue recognition and expense recognition do not necessarily coincide with cash receipts and cash payments:

 

Here are some of the accounts for Accrual Method:

- Cash received in advance for work to be done.

- so we increase in assets (cash) and increase in liabilities (unearned revenue). Once cash in received then we lower liabilities (unearned rev) and increase retained earnings (revenues).

Term

Current Assets

&

Operating Cycle

Definition

Current Assets (CA): Include cash and other assets that are likely be converted into cash or used up within one year or one operating cycle.

 

Operating Cycle: Is the time  it takes to produce or purchase inventory,, sell the product, and collect the cash.

Term
Current Liabilities and Working Capital
Definition

Current Liabilities: Obligations that will be satisfied within one year or one operating cycle, whichever is greater.

 

Working Capital (WC): Current Assets minus Current Liabilities:

EQ) CA-CL = WC

 

Not enough working capital may signal liquidity issues. Too much working capital may be a indication of inefficient use of assets.

Term

Non-current Assets

&

Non-current Liabilities

Definition

Non-current Assets:Any assets that will not be consumed within one year or less. Non-current assets provide information about the firm's investing activities, which for the foundation upon which the firm operates.

 

Non-current Liabilities: Liabilities provide information about the firm's long-term financing activities.

 

 

Term
Minority Interest
Definition

The Pro-rata share of the subsidiary's net assets (equity) not owned by the parent company.

Firm must have a controlling interest in a subsidiary that is not 100% owned by the parent company

 

DEF) of Pro Rata: Used to describe proportionate allocation. A method of assigning an amount to a fraction, according to its share of the whole.

 

Under IFRS, minority interest in reported in equity section of BS. Under US GAAP, minority interest can be reported under liabilities, equity section, or "mezzanine section" of the balance sheet.

Term
Historical Cost Method
Definition
Historical Cost is the value that was exchanged at the acquisition date. It is verifiable and OBJECTIVE; however, its relevance to investment analysis declines over time as prices change.
Term
Fair Value Method
Definition

Amount at which an asset can be bought or sold, or a liability can be incurred or settled, between knowledgeable, willing parties in an arm's-length transaction.

Fair Value is SUBJECTIVE to a significant extent.

 

A mixture of a mixture of measurement basis,  BS value of total assets should not be interpreted as the value of the firm. Rather,  analyst must adjust the balance sheet to better assess a firm's investment potential or creditworthiness.

Term
Inventory
Definition

Reported at the lower of cost, or net realizable value.

 

- Net realizable value is the selling price of the inventory less the estimated cost of completion and disposal costs.

 

Term

Standard Costing vs. Retail Method 

Measures for inventory

Definition

Standard costing: often used by manufacturing firms, involves assigning predetermined costs to goods produced.

 

Firms that use the retail method measure inventory at retail prices and then subtract gross profit in order to reflect cost.

 

 

Term
Current Liabilities
Definition

Obligations that will be satisfied within one year or operating cycle, whichever is greater.

 

Here are some of the accounts:

Accounts Payable (trade payables) are amounts owed to suppliers for goods or services purchased on credit.

 

Notes payable obligations in the form of promissory notes owed to creditors. These notes can be included in the current liabilities if they matures in less than 1 year.

 

Current Portion of Long-Term Debt: Principal portion of debt due within one year or the firm's operating cycle, whichever is greater.

 

Taxes Payables: Current taxes that have been recognized int eh income statement but have not yet been paid.

 

Accrued Liabilities: are expenses that have been recognized in the income statement but are not yet contractually due. 

 

Unearned Revenue: cash collected in advance of providing goods and services. 

 

 

 

 

 

 

 

Term
Tangible Assets
Definition

Long-term assets which physical substance are known as tangible assets. Tangible assets are reported the balance sheet at historical cost less accumulated depreciation or depletion. 

 

Note: Historical Cost includes the original cost of the asset plus all costs necessary to get the asset ready for use(e.g. installation).

Term
Intangible Assets
Definition

Long-term assets that lack physical substance. FInancial securities are not considered intangible assets. 

 

Identifiable intangibles include legal protection such as copyright, patnet, etc which exists of a finite period.

 

Unidentifiable Assets cannot be purchased separately and may have an infinite life.  These assets are not amortized, but are tested for impairment  at least annually.

 

Best example is GOODWILL.

 

Some analysts disregard intangibles, but they need to be assessed before they can be evaluated or disregarded.

Term
Goodwill
Definition

Goodwill is the excess of purchase price over the fair value of the identifiable assets and liabilities acquired in a business acquisition.

 

Problem: Wood corporation paid $600 million for stock of Pine Corp. Balance sheet of Pine is below:

CAssets $80

PPE, net 760

Goodwill 30

Liabilities  400

Equity 470

Fair value of PP&E was $120 mil over its recorded Book value. Calculate Goodwill on its balance sheet.

 

Answer:

Book Value (millions)

CAssets $80

PP&E 880 (760+120)

Liabilities 400

FV of net assets 560

 

Purchase Price $600

FV of net assets (560)

Goodwill 40

Term
Goodwill
Definition

Goodwill is created in a purchase acquisition. Internally generated goodwill is expensed as incurred. 

  • Goodwill is not amortized but most be tested for impairment at least annually.
  • If impaired, goodwill is reduced and a loss is recognized in the income statement.
  • Impairment loss does not affect cash flow. In fact, if it doesn't impair, it will stay on the balance sheet forever.
Firm's can manipulate NI because of goodwill. It can be manipulated by applying identifiable assets to goodwill to lower depreciation.

Analysts should remove goodwill from the balance sheet when doing financial ratios and analysis.

Term
Financial Assets/Liabilities
Definition

Financial Assets include investment securities, stocks and bonds, derivatives, loans, and receivables.

 

Financial Liabilities include derivatives, note payable, and bonds payable.

 

SOme financial assets/liabilities can be reported at HC or FV.

 

Reporting assets and liabilities at fair value is known as "marking-to-Market." Certain marketable investment securities and derivatives are subject to marking-to-market adjustments.

Term
Held to Maturity Securities
Definition

debt securities acquired with the intent that they will be held to maturity.

 

Held-to-Maturity securities are reported on the balance sheet at amortized cost. Amortized cost is equal to the face (par) values less any unamortized discount or plus any unamortized premium.

 

No market value are required.

Term
Trading Securities
Definition

Debt and Equity securities acquired with the intent to profit over the near term.

  • Trading securities are reported on the balance sheet at fair value
  • Unrealized gains and losses, that is changes in market value before the securities are sold, are reported in the income statement.

Term
Available for Sale Securities
Definition

Debt and Equity securities that are not expected to be held to maturity or traded in the near term.

  • Like trading securities, available-for-sale securities are reported on the balance sheet at fair value.
  • However, any unrealized gains and losses are not recognized in the income statement but are reported in other comprehensive income as a part of stockholders' equity.

 

Term

Chart of Investment Security Classification:

(how to account for Trading, available 4 sale, and Held to maturity)

Definition

 

 

Below is a summary chart of Investment Security Classifications.

 

 

 

 

    Trading Available-for-Sale Held-to-Maturity
         
Balance Sheet: Fair Value Fair Value Amortized Cost
         
Income Statement: Dividends Dividends  
    Interest Interest Interest
    Realized gains/losses Realized gains/losses Realized gains/losses
    Unrealized gains/losses    
Term
Contributed Capital
Definition

Total amount paid by the common and preferred shareholders.

 

Preferred Shareholders have certain rights and privileges not possessed by common shareholders. They are usually paid dividends at a specified rate, and have priority over the claims of common shareholders in the event of liquidation.

Term
Authorized Shares, Issued shares, and outstanding shares
Definition

Authorized shares: number of shares tha tmay be sold under the firm's articles of incorporation.

 

Issued shares: are the number of shares that have actually been sold to shareholders.

 

Outstanding shares: equal to the issued shares less shares that have been reacquired by the firm.

Term
Minority Interest, Retained earnings, Treasury stock, AOCI
Definition

Minority interest (noncontrolling interest) is the minority shareholders' pro-rata share of the net assets (equity) of a subsidiary that is not wholly owned by the parent.

 

Retained Earnings: undistributed earnings (net income) of the firm since inception, the cumulative earnings that have not been paid out the shareholders as dividends.

 

Treasury Stock is stock that has been reacquired by the issuing firm but not yet retired. Treasury stock reduces stockholders' equity.

 

Accumulated other comprehensive income (AOCI) includes all changes in stockholders'; equity except for transaction recognized in the income statement and transaction with shareholders such as: issuing stock, reacquiring stock, paying dividends.

Term
Comprehensive Income
Definition

Comprehensive Income aggregates net income and certain special transactions that are not reported in the income statement but that affect stockholders' equity. Special transactions comprise what is known as "other comprehensive income."

 

NOTE: it is easy to confuse the two terms "comprehensive income" and "accumulated other comprehensive income."

 

  • Comprehensive income is an income measure over a period of time. It includes net income and other comprehensive income for the period.
  • However, Accumulated other comprehensive income does not include net income but is a component  of stockholder's equity at a point in time.

Term
Statement of Changes in Stockholders Equity
Definition

Summarizes all transaction that increase or decreases the equity accounts for the period.

This sheet includes the changes in capital stock, additional paid in capital, retained earnings, and AOCI.

 

In addition, the components of accumulated other comprehensive income are disclosed (i.e., unrealized gains and losses form available for sale securities, cash flow hedging derivative,s For X securities.

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Term

Dividends Paid vs. Dividends Received

Interest paid vs. Interest Received

Definition

Not that the acquisition of Debt and Equity investments are INVESTING Activites; however, income from those investments (interest and dividends received) are OPERATING Activities.

 

Interest Paid is an OPERATING activity. However, the principal part borrowed in a FINANCING activity.

 

Dividends Paid to the firm's shareholders are FINANCING activities.

Term
Operating Activities Inflows
Definition
  • Cash collected from customers
  • Interest and dividends received
  • Sale proceeds from trading securities
Term
Operating Activities Outflows
Definition
  • Cash paid to employees and suppliers
  • Cash paid for other expenses
  • Acquisition of trading securities
  • Interest Paid
  • Taxes Paid
Term
Investing Activities Inflows
Definition

Sale proceeds from fixed assets

Sale proceeds from debt and equity investments

Principal received from loans made to others

Term
Investing Activities Outflows
Definition
  • Acquisition of fixed assets
  • Acquisition of debt and equity investments
  • Loans made to others
Term
Financing Activities Inflows
Definition
  • Principal amounts of debt issued
  • Proceeds from issuing stock
Term
Financing Activities Outflows
Definition
  • Principal paid on debt
  • Payments to reacquire stock
  • Dividends paid to shareholders
Term
Advantage of direct method
Definition
Provides more information by presenting the firm's operating cash receipts and payments
Term
Advantage of the indirect method
Definition
Provides useful link to the income statement when forecasting future operating cash flow by focusing on differences in net income and operating cash flow
Term
Noncash Investing and Financing Activities
Definition

Are not reported in the cash flow statement since they DO NOT RESULT IN INFLOWS OR OUTFLOWS OF CASH!

 

Ex) a firm buy real estate and financing is provided by the seller. Since no cash was exchanged, you do not report this on the cash flow statement.

 

Also, liken it to buying a fleet of cars from Larry H. Miller provided by financing by the dealership. You invest in your company by buying cars, but buy the financing from the same dealership, no CASH CHANGED POCKETS.

Term
Cash paid for new asset (equation)
Definition
cash paid for new asset = ending gross asset + gross cost of old asset sold - beginning gross assets
Term
Cash from asset sold (equation)
Definition
cash from asset sold = book value of the asset + gain/loss on sale
Term
Financing cash flows (CFF) is sum of...
Definition

1) Net cash flows from creditors

2) Net cash flows from shareholders

Term
Net cash flows from creditors (equation)
Definition
net cash flows from creditors = new borrowings - principal amounts repaid
Term
Net cash flows from creditors (equation)
Definition
net cash flows from shareholders = new equity issued - share repurchases - cash dividends paid
Term
Direct Method
Definition

Identify actual cash inflows and outflows; e.g. collections from customers, amount to suppliers.

 

Start from cash inflows and cash outflows to sum up to Operating/INvesting/Financing Cash Flows.

 

Advantages of Direct Method is direct method provides more information than the indirect method. It presents the firm's operating cash receipts and payments, while the indirect method only presents the net result of these receipts and payments.

Term
Indirect Method
Definition

Begin with net income and make necessary adjustments to get operating cash flow.

 

These adjustments include adjusting for non cash expenses (i.e. depreciation and amortization), non-operating items (gains and losses), and changes in balance sheet accounts resulting form accrual accounting events.

 

Benefits of Indirect: focuses on difference between net income and operating cash flow.

Term
Benefits of Cash Flow Statement Analysis
Definition
  • Do regular operations generate enough cash to sustain the business?
  • Is enough cash generated to pay off maturing debt?
  • Ability to meet unexpected obligations?
  • Highlights the need for additional financing
  • The flexibility to take advantage of new business opportunities
Term
Free Cash Flow to Firm (equations)
Definition

FCFF = NI + noncash charges + [int exp * (1-tax rate)] - Δ NWC - capital expenditures

 

FCFF = CFO + [int exp * (1-tax rate)] - capital expenditures

 

NI: Net income

NCC = noncash charges (depr & amort)

Int = INterest exp.

FCInv= fixed capital investment (net capital expenditures)

WCInv = working capital investment.

Term
Free Cash Flow to Equity (equations)
Definition

FCFE = CFO - Capital expenditures + net debt increase

 

 

Term
Cash flow-to-revenue ratio
Definition

CFO/net revenue

 

measures the amount of operating cash flow generated for each dollar of revenue

Term
cash return-to-assets ratio
Definition

CFO/average total assets

 

Measures the return of operating cash flow attributed to all providers of capital

Term
Cash return-on-equity ratio
Definition

CFO/average total equity

 

Term
Cash-to-income ratio
Definition

CFO/operating income

 

Measures the ability to generate cash from firm operations.

Term
Cash flow per share (ratio)
Definition

(CFO-preferred dividends)/weighted average # of common shares

 

 

Term
debt coverage ratio
Definition

CFO/total debt

 

Measures financial risk and leverage

Term
interest coverage ratio
Definition

(CFO + interest paid + taxes paid)/interest paid

 

Measures the firm's ability to meet its interest obligations

Term
reinvestment ratio
Definition

CFO/cash paid for long-term assets

 

Measures the firm's ability to satisfy long-term debt with operating cash flow.

Term
debt payment ratio
Definition

CFO/cash long-term debt repayment

 

Ability to satisfy long-term debt with operating cash flow

Term
dividend payment ratio
Definition

CFO/dividends paid

 

Firm's ability to make dividend payments from operating cash flow

Term
investing and financing ratio
Definition

CFO/cash outflows from investing and financing activities

 

Firm's ability to purchase assets, satisfy debts, and pay dividends.

Term
Contrast Cash Flow Statement Under US GAAP and IFRS
Definition

US GAAP: dividends and interest received from investments is an OPERATING cash flow. Dividends paid to the firm's shareholders are reported as FINANCING activities. Interest paid is OPERATING.

 

Income Taxes Paid: Under GAAP,  all taxes paid are reported as operating activities, even taxes related to investing and financing transactions.

 

IFRS: Interest and Dividends received may be classified as OPERATING or INVESTING. Dividends and interest paid may be classified as OPERATING or FINANCING.

 

Income taxes paid: Under IFRS, income taxes are reported as operating activities unless the expense is associated with an investing or financing transaction!

 

Ex) Land is sold at $1 mil. Taxes are $160,000. GAAP would report $1mil in cash flow from INvesting and outflow of cash from operating of $160,000.

IFRS would report a net inflow of $840,000 from investing.

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