Cash Flow Statement - Part 2

The investment was acquired two years earlier (not later) for £1 million, sorry :)

“The company has not made any entries in its books concerning these investments” It's not clear whether "these investments" includes the first ones mentioned in point 1 If the question is looking for you to put through all the double entry for these two points, then that's what you must do. However, I find it inconceivable that a company dealing in $millions has not recorded the receipt of $3.5 million Cash! On the sale of point 1 investments, the double entry SHOULD have been: Dr Cash 3.5 Cr Investment 1.0 Cr Profit on disposal 2.5 Entries for a statement of cash flows will be a negative flow of 2.5 in arriving at cash from operating activities, a positive flow of 3.5 cash flow from investing activities Point 2 - I find it equally inconceivable that an investment of $500,000 on 20 december should have risen by $250,000 in 11 days! Or another one has decreased by $100, 000 in the same period! However, if that's what the question says, that's what we must work on Record the double entry first: Dr Investments $1 million Cr Cash $1 million Incidentally, "available for sale" is no longer an available choice of categorisation under IFRS 9 At the end of the year, put in the double entry: Dr Investments $250,000 Cr Profit or Loss $250,000, and Dr Profit or Loss $100,000 Cr Investments $100,000 Now think about the statement of cash flows Deduct the non-cash profit as a negative flow in arriving at the figure for Operating Activities of $250,000 and add back the non-cash loss of $100,000 Show in Investing Activities the cash outflow of $1 million Now we face another problem! The values that you have given ($4,500 2012 and $8,000 2011) don't include certainly the activities from point 2 and may not include the activities from point 1 - I don't know If neither of these points has so far been entered, then the company has apparently sold investments which had cost in the past $3,500,000. But I have no idea how much was the proceeds from that sale so I can help you no further! OK?

The resulting difference can't it be a loss on fair value for the OTHER equity investments, I mean, what I am asking is: An equity investment asset can go up with: - purchases of new equity investments - gains on fair value adjustments and It can go down with: - disposals of equity investments - losses on fair value adjustments right? I added the difference (assuming all those entries were accounted for), which was 8,000 (beginning balance)-1000 (disposal) + 1,000 (purchase) + 250 (increase on FV) - 100 (decrease in FV) + x = 4500 (ending balance) => x = - 3,650 to the operating cash flow and it worked, it balanced :-S

Well there you go. Yes it could be a loss on other investments held through profit or loss and, if so, that loss needs to be added back to arrive at cash flow from operating activities OK?

Great! Many thanks, Mike!! Just one more thing I want to clarify - about that loss on the available-for-sale equity investments - we added it back to arrive at cash flow from operating activities, but I am confused about is: doesn't a fair value change in available-for-sale equity investment go in the Equity section (Other Comprehensive Income) and not the P&L? If so, it means that it was not included when arriving at the net profit on P&L, therefore, why do we add it back? I thought that only fair value adjustments for investments through profit and loss are included when arriving at the net profit on I.S. ...

Hmmm. But I've already told you that the classification of "available for sale investments" is no longer accepted! If you're trying an old example - pre IFRS 9 - then yes, you're correct. But strange though the idea may be, I'm trying to stay up-to-date :-)