Buck's Dilemma
Solution 1 — Classification with the Statement of Cash Flows
Buck should present the borrowing and payment activity as a cash flow from financing activities.
ASC 230-10-45-14 states that “proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing” are a cash inflow from financing activities. Similarly, ASC 23010-45-15 states that “repayments of amounts borrowed” are a cash outflow for financing activities. Solution 2 — Gross versus net presentation
Scenario 1
Net presentation is appropriate. Buck may classify the activity as a $50 million net cash inflow
($100 million in total draws less the $50 million repayment) within the financing activities section of the statement of cash flows.
Buck’s activities in Scenario 1 are broadly consistent with the requirements for net presentation under ASC 230-10-45-8 and 45-9. Specifically, the draws and payments on the facility can be considered large in relation to the maximum borrowing capacity (Buck actually reached its maximum borrowing capacity before making any repayments). The volume of the transactions is assumed to be large (note, in practice, this determination typically involves judgment and is dependent upon individual facts and circumstances). In addition, the terms of both draws stipulate that all amounts are due on demand; therefore, Buck should consider the draws as having original maturities of three months or less. ASC 230-10-45-9 only permits net presentation when borrowings have original maturities of three months or less.
Scenario 2
The activity related to Buck’s first draw and subsequent repayment should be presented on a gross basis within the financing activities section as a $60 million inflow for the draw on July 15,
2010, and a $60 million outflow for the repayment on December 15, 2010.
The activity related to Buck’s second draw and subsequent repayment may be presented on a net basis within the financing activities section. The
Buck should present the borrowing and payment activity as a cash flow from financing activities.
ASC 230-10-45-14 states that “proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing” are a cash inflow from financing activities. Similarly, ASC 23010-45-15 states that “repayments of amounts borrowed” are a cash outflow for financing activities. Solution 2 — Gross versus net presentation
Scenario 1
Net presentation is appropriate. Buck may classify the activity as a $50 million net cash inflow
($100 million in total draws less the $50 million repayment) within the financing activities section of the statement of cash flows.
Buck’s activities in Scenario 1 are broadly consistent with the requirements for net presentation under ASC 230-10-45-8 and 45-9. Specifically, the draws and payments on the facility can be considered large in relation to the maximum borrowing capacity (Buck actually reached its maximum borrowing capacity before making any repayments). The volume of the transactions is assumed to be large (note, in practice, this determination typically involves judgment and is dependent upon individual facts and circumstances). In addition, the terms of both draws stipulate that all amounts are due on demand; therefore, Buck should consider the draws as having original maturities of three months or less. ASC 230-10-45-9 only permits net presentation when borrowings have original maturities of three months or less.
Scenario 2
The activity related to Buck’s first draw and subsequent repayment should be presented on a gross basis within the financing activities section as a $60 million inflow for the draw on July 15,
2010, and a $60 million outflow for the repayment on December 15, 2010.
The activity related to Buck’s second draw and subsequent repayment may be presented on a net basis within the financing activities section. The