Investment

The following tables show the appropriate NPV values of the proposed project assuming the discount rate is 15% as the literature states. Tables have also been included to represent discount rates of 10% if the project exceeds expectations or 30% if the project doesn’t meet forecast. The financial assessment method of NPV has been chosen as the primary assessment method as NPV includes all relevant cash flows irrespective of when they are expected to occur and takes into account date of flows with discount factors.

The discount factors take into account that a is worth less in a years time than its present value due to inflation so an investment to be worthwhile has to exceed inflation. NPV has a direct impact on the wealth of shareholders in the company and as a company’s main aim is to create wealth a positive NPV enhances a company’s wealth thus a negative NPV reduce company wealth. The NPV of the project shows positive figures for all the discount rates applied showing that even if the project doesn’t perform to expectations it will still produce a positive NPV even if 30% discount factors are used as a worst-case scenario.

Other Methods of Evaluating Project The pay back period or PP as it is often quoted could be used to show how long the project would take to payback the initial investment from the projects cash inflows. This could have been used only in the project to show how long the project would take to repay the initial investment in the vehicles. Payback period isn’t of any real benefit in this projects context, as PP doesn’t show profitability and only deals with cash flows until payback has been achieved.

PP also has no mechanism to deal with problems of risk or uncertainty relating to the project. Pay back as a method of analysing the project has been discounted because of its shortcomings in providing a complete analysis of the projects potential. Accounting Rate of Return or ARR method, which takes the average accounting profit that the investment will generate and expresses it as a percentage of the average investment over the life of the project.

This basically would show the percentage return of the capital at the end of the investment and ignore s cash flows. ARR is not really suitable to measure performance over the life of the project; it is cash flow rather than accounting profit that is important. Cash is the measure of economic wealth generated by an investment. This is particularly important with the TOSA Project, as cash is needed to buy the licence each year so cash flow is an important measurement when gauging the projects potential.

Internal Rate of Return or IRR have also been overlooked as an analysing method in assessment of the project as IRR doesn’t address the question of wealth generation although it would indicate the same signal as NPV as to whether a project should go ahead. IRR would also ignore the scale of investment made and assume that a high rate of return being preferable without taking into consideration cost of capital, which is an important investment decision in any project.

NPV and IRR have a lot of similarity, because that they are both based on discount cash flow. More specifically, they both consider the time value of money and future cash flow. Therefore they both can be used, and have been used, as a main criterion in decision-making. However, there can be ranking conflicts between NPV and IRR in the cases of two mutually exclusive projects in some circumstances, which makes us consider which method is preferred between NPV and IRR.

Generally speaking, NPV is more preferable than IRR in several ways. First of all, we should consider that the actual growth of company is in monetary unit instead of in percentage, and IRR ignores the size or the scope of a potential investment?. When dealing with two mutually exclusive investment proposals, only using IRR method can be extremely misleading. For example, 50% return on a $1,000 investment generates more money, than 100% return on a $10 investment. In this case, NPV method should be chosen rather than IRR. But in realistic, this kind of situation is very rare, as companies have increasing opportunities. Stock selection for instance, we would still rather prefer 100% on a $10 investment because we can invest the rest of money in other opportunities as long as they are not mutually exclusive.??

Second of all, the most vital limitation of IRR is its simplicity. As I have mentioned above, the discount rate in NPV method contains a wide range of factors, like opportunity cost, cost of capital, risk premium, inflation, interest rate et. While using IRR method merely need to estimate a require rate of return, based on whether experience or expectation. In this case, the NPV method can literally provide more accurate result than IRR method. However, IRR’s major limitation is also its greatest strength: it uses one single discount rate to evaluate every investment. (Investopedia, 2011) Besides, when facing a great number of projects, evidence suggests that directors prefer to use IRR because it is easier to understand and communicate.

Thirdly, we should consider the reinvestment rate assumption. Bothe the NPV rule and the IRR rule make implicit assumptions about the reinvestment rate. The NPV rule assumes that shareholders can reinvest their money at the market-determined opportunity cost of capital, while IRR rule assumes that investors can reinvest their money at the IRR for future project. In this case, it is obvious that NPV method is more logical, because NPV criterion uses the most realistic discount rate, the opportunity cost of funds (CFA curriculum, 2011, p.19).

Fourthly, we need to look at the timing problem. As every project is the opportunity cost of itself delayed in time, the gain of waiting should be taken in to account. For example, if a company need debt capital to invest a project, it is better to wait for a lower interest rate. In this case, NPV can more easily shows the change of value of project. Finally, the multiple IRR problem should be noticed. For conventional projects, this problem cannot occur. However, for nonconventional projects, there could be, mathematically, more than one IRR or none IRR. In this case, we should use modified IRR analyst to estimate IRR, or try to use another method to evaluate the projects.

However, we should also consider the cost of investment appraisal and the complexity of usage, which are crucial in practice but sadly ignored by most pure academic study. Although investors should use NPV as a prior method, IRR method is more simple and easy to use, which makes IRR more popular than NPV4. Nevertheless, in practice, we should choose a method more suitable to the specific company. NPV v Discounted Payback Period (DPP) There is no doubt that discounted cash flow method, e.g. NPV, is more accurate than non-discounted cash flow method, e.g. payback period, by taking into account the time value of money. However, can discounted payback period, which is also a discounted cash flow method by considering the time value of money and risk, replace NPV method?

As a matter of fact, DPP is more often used by small business (Bhandari, 2008, p.3), as this technique concentrates on cash flows, which are more objective than profit because that the long-term survival of small company depends heavily on its liquidity. Evidence suggests that ?sole traders may prefer a project with both lower NPV and DPP (Grinyer, 2003, p3), rather than another projects with tremendous NPV but would not generate any cash in the first 10 years, as they need money to meet their daily needs.

Another advantage of DPP is its simplicity in both computation and understanding, which allows quick and simple calculations that reduce the time and cost required for the initial screening of projects (Grinyer, 2003, p5). Especially in large corporation, it can easily facilitate communications among management. However, using merely DPP to evaluate an investment opportunity is obviously not enough, because that it always ignores these cash flows beyond the payback period. As the traditional payback period is shorter than discounted payback period, it would ignore even more cash flows. Therefore, DPP method can only reflect liquidity of a project instead of profitability, i.e. it cannot show whether the projects would gain the company’s value. For example, if a project can recover its initial cost in one year, but would make a loss every year thereafter, should we accept this project? Of Couse no. But its payback period will still be one year, which sounds pretty reasonable.

The other disadvantage of DPP is that it might cause conflict between junior and senior managers (Grinyer, 2003, p3). One potential reason could be that they are not given equivalent information. For example, project risks for subordinate managers are likely to be greater than those for their superiors, as the subordinate managers have fewer opportunities diversify the risk. Therefore, subordinate managers are more willing to accept the projects with shorter payback period to reduce their risk, regardless they may have lower NPV. Furthermore, subordinates managers may wish a quick promotion, by increasing short-term cash flows and reduce that of long term.

In practice, payback period is rarely used as a main method in investment appraisal, as it only evaluates the liquidity of projects. However, DPP can help management by supporting NPV or IRR. For example, if we have two projects with same NPV, the project with shorter payback period would be preferred, as longer recover time would generate more uncertainty.

Limitations of NPV The main limitation of NPV analysis is the difficulty of accurately forecasting future cash follow and discount rate (Michel, 2009). On one hand, a wide range of variables can affect future cash flow, like economic context, government policy, industry rotation, or even the project itself. Furthermore, a large group usually has a tremendous range of projects, and it is problematic to distinguish the cash flow from each project. On the other hand, discount rate depends on amount of influential factors from interest rate to inflation, to find a specific value is nearly impossible. The best analyst can do is to find a range of NPV by selecting higher and lower discount rates.

Another limitation is that, there is no possible way to measure the uncertainty risk, as it only provides the amount of cash flow possibly, and ignore the possibility to gain it. Even though we can add risk premium in NPV method, it is far from accurate because that risk premium is not normally proportional to present value of project. In fact, proportional change only appears when investors have unlimited capital and a well-diversified profile (Shimko, 2001). If an investor’s capital is limited, which is more likely, specific risk must be taken into account, which makes simply adding risk premium into discount rate inappropriate.

There are some other limitations of NPV in certain circumstances. For instance, when dealing with high-risk project or the market being overheated, the NPV method would obtain a value of project less than zero due to its high-risk premium. However, investors would usually not stop trading in this case based on greater fool theory, or because they simply believe the project is not absolutely worthless.

Two union-affiliated shareholders in Chipotle Mexican Grill on Tuesday said they would propose replacing the company’s chairman, Steve Ells, who founded Chipotle, with an independent director, piling on pressure after well-known activist Bill Ackman took a large stake in the company.

Amalgamated Bank and CtW Investment Group, both of which have previously sparred with Chipotle, filed a shareholder resolution on Tuesday to strip board leadership from Ells, who is also co-chief executive, by instituting an independent chair.

The non-binding proposal marks escalating pressure from investors who have previously challenged the formerly high-flying restaurant chain over corporate governance and executive compensation. Chipotle shares have plummeted to around $360, less than half their level in summer 2015, when they flirted with $750 before a series of food-borne illnesses at company restaurants.

Chipotle did not immediately respond to requests for comment. Any vote on the latest shareholder proposal would not occur until Chipotle’s 2017 annual meeting.

New York City Comptroller Scott Stringer, who oversees a pension fund that owns Chipotle shares, immediately backed the new proposal. Billionaire Ackman, whose hedge fund Pershing Square Capital Management unveiled a 9.9 percent stake in Chipotle in September, declined to comment.

The California Public Employees’ Retirement System, which holds 90,771 Chipotle shares, indicated the proposal is in line with its governance principles.

“As a matter of practice and in principle we support separating chairman and CEO roles consistent with the CalPERS Global Governance Principles,” a spokeswoman said.

Pershing Square has met with Chipotle, sources familiar with the matter said, but it has not publicly discussed its demands. A spokesman for the hedge fund declined to comment on the new proposal.

CtW, which led a successful shareholder referendum on lavish CEO pay in 2014, failed to get enough support to remove two longtime board members at the company’s annual meeting in May.

A New York City Pension Funds resolution making it easier for shareholders to nominate directors passed at this year’s annual meeting with the backing of activist investors, including CalPERS.

Since then, investors have grown more worried about Chipotle’s ability to rehabilitate its brand.

“Chipotle’s closed-off and limited governance structure is unsustainable and counterproductive, posing a direct risk to shareholders and the public at large,” Amalgamated Bank CEO Keith Mestrich said in a statement. The bank owns about 5,500 Chipotle shares. CtW works with funds that own about 55,000 shares.

People familiar with Ackman’s thinking suggest he also is taking aim at the board, demanding a substantial number of directors be replaced with people who have expertise in food safety, marketing, and digital engagement.

Troy Alstead, the former Starbucks Corp. chief operating officer who was instrumental in the coffee chain’s turnaround, could be a Chipotle board nominee, several people with ties to activist investors said. Alstead, who now sits on the board at apparel company Levi Strauss & Co., did not immediately respond to a request for comment.

Chipotle has hired investment banks Goldman Sachs Group Inc. and Morgan Stanley, as well as law firm Wachtell, Lipton, Rosen & Katz LLP and crisis public relations firm Joele Frank to defend against Ackman, people close to the matter have said.

CtW analyst Derrick Wortes said his group will begin reaching out to the company’s biggest shareholders, including Fidelity and Vanguard, to make its case for change. “It is time to steer the strategic changes that will help pull the company back from the edge,” Wortes said.

(Reporting by Svea Herbst-Bayliss in Boston and Lisa Baertlein in Los Angeles; Editing by David Gregorio and Leslie Adler)

The issue that must be settled in this paper is whether the company should proceed with the IPO as a mode equity financing in its planned acquisition of the production plant or should it lease the same if debt financing is used. The plan of either to use equity financing or debt financing will surely affect the capital structure of the company. Capital structure will in effect determine whether the company has good financial leverage or whether it is highly leveraged.

A good financial leverage is a sign of long-term health since it would mean that the company is solvent or stable it has enough equity to match its long term debt (Ross et. al, 1996). It is for the above reason that debt to equity ratio is the formula to measure the capital structure and the same time would tell about the level of financial leverage that the company has. What is ideal capital structure that would give the investors the message that the company has a good financial leverage the industry average.

The industry average on debt of equity ratio includes the ratios of the players in the same industry and one company that has a debt-equity ratio outside the said average may be considered be risks to too risky depending on the extent of the difference from the average. There is a trade-off between equity financing and debt financing. Equity financing which could be done by IPO will surely improve the capital structure of the company since the equity would be increased while leaving the long term debt unchanged. On the other hand resorting purely to debt financing will generally worsen the company’s capital structure.

There is however an advantage of using debt equity financing because of the tax shield provided by being able to deduct interest expenses for the debt in reducing cash outflows for tax purposes which cannot be done in the case of additional dividends due to equity financing (Brigham and Houston, 2002). There is therefore the expected benefit of higher of profitability in debt financing but the higher profitability could result to higher risk for the company up to a level that it debt-to-equity ratio may get outside the industry average or simply very highly leveraged from the point normal investors.

The company’s decision to either use equity financing or debt financing must strike a balance by approximating its optimum cost of capital by having a target capital structure that would support the same (Brigham and Houston, 2002). The company’s balance sheet would be impacted by debt financing rather using cash from IPO in terms higher financial leverage as expressed in debt-to-equity ratio since liabilities would increase while total equity would remain the same. The company’s return on equity could however be increased by utilizing more debt up to a certain point that company is not too risky to invest with.

To conclude, before the company should decide to either choose IPO or debt financing, it must know how much is the amount of investment needed for the plant acquisition and what would be its effect in the debt to equity ratio of the company. Using the IPO would increase only the equity while debt financing that would increase only the total liabilities (Ross et. al, 1996). The resulting debt to equity ratio should then be compared with industry average, and the option that will have lower debt to equity than the industry average should be chosen.

If the resulting debt equity ratios for both options are equal or lower than industry average, then it is safe to choose either option since it would mean that similar companies are having more or less the same capital structure. However, in such a case, it is better to choose the debt financing because of higher return on equity. If both options are above industry average, it would mean that company will have to defer plan for plant acquisition or it should increase its equity infusion to match those within the industry.

The equity infusion to acquire the plant should however be justified by the demand for company’s products which the company is presumed to have established or studied. Making equity infusion by IPO at that point however may not be favourable since the company is just entering the capital market. References: Brigham and Houston (2002) Fundamentals of Financial Management, Thomson South-Western, US Ross et. al (1996) Essentials of Corporate Finance, IRWIN, London, UK

        This paper seeks to prepare a private valuation for Teabucks, owned by Helen Troy, in the latter’ effort to have an initial public offering as way to finance the company has planned expansion.  This will therefore discuss several methods of valuation as a basis for advice to Helen Troy.  Analysis however will be limited to available information given the case study and other necessary assumption in order to make the paper accomplish its purpose.

        Valuation could be done using the P/E ratio of a company.  What is given only is net income for Teabucks at $40 million and this formula would require still having total outstanding shares as basis for earning per share.  Since the company is just organizing for IPO, no such figure could be used from the case facts.  If assuming that the industry average of 35 P/E is applied to the company, this would produce a total market value for Teabucks at $1.4.  If 14.0 million outstanding shares of stocks are assumed to be issued, the share value per share could be estimated at $100 per share for the purpose of the IPO.

        To use the Price/Sales ratio, and assuming that the company is within the industry average of 20, the total market value of Teabucks could be computed by multiplying 20 by total revenues of $750 million to produce $15 billion market capitalization. If the same amount of 140 outstanding shares is assumed, the price per share of its stocks could be estimated at $1071.4 per share.

  To use capital assets pricing model (CAPM) to calculate the discount rate using value from a proxy firm, it could be assumed that company is as big as a regular player on the industry and therefore within the industry.  To use the model requires cost of capital that involves the use of risk-free rate and risk premium as an added rate to compensate for the risk.  There is also need to know market rates for similar firms in the industry to compute the risk premium (Brigham, E., and Houston, 2002).  Given case, facts do not allow ready application.  As an alternative, the industry P/E reciprocal is used here to estimate the cost of capital for the company.  This could be estimated at 1/35 or 2.86%.  This cost of capital could be used discount future dividends that may be given by the company using the dividend discount model.  Since there is no estimate of dividends available from the given facts, this method may not be applied without again making another assumption.

        Price to cash flow ratio cannot be used for the company since there is no available cash flow from the given.

        In selling its stock to market, the company could use selling via the Internet but there are registration and other requirements to be complied on what state or states should be targeted as market for investors in the initial public offering (Winmark Corporation, 2009).

        It can be concluded that Teabucks could only offer its stock at the initial public offering at amounts computed using assumed outstanding shares of stocks to be issued.  Teabucks’ investors normally may value the new public company on the basis of what the company may be discounted cash values using a discount factor  that represent the company’s cost of capital to bring down the values to their present values but cash values are not available.  This paper has instead found the application of P/E ratio and Price/Sales ratio as possible.  The value per share will however be again dependent on the number of shares that will be issued and outstanding.  Hence the primary thing to make valuation here is get the total market valuation of the company in terms of given earnings or net income and sales and divide each figure with estimated outstanding shares to be issued.  By dividing the same market valuation, using net income or sales revenues, by the assumed outstanding number 140 million shares that will be issued, the stock value per share that could be used as basis for IPO within the range of $100 to $1071.14 per share.

References:

Brigham, E. and Houston, J. (2002) Fundamentals of Financial Management, Thomson South-Western, US

Case Study – Regarding Teabucks

Winmark Corporation (2009) Internet Offering of Securities, {www document} URL, http://www.wbsonline.com/resources/internet-offerings-of-securities/, Accessed April 16, 2009

Aims Good educational background Safety for all students Enjoyable trip Effective and efficient transport Here are the aims in which we are looking at to achieve on the trip which we choose. We have chosen to aim to get a good educational background from the trip because it therefore gives us a higher value on which to evaluate the trip and we then gain good knowledge. Safety for all students is really Important no matter what the trip Involves. The trip being enjoyable by the students Is also Important because then we are also gallon an experience through school work.

Objectives Be organized Effective communication throughout the group Ensure everyone is aware – knowing what is going on at all times Make sure everyone is happy with what we are doing – student input Objectives are what are in place in order to achieve the aim therefore we are looking to achieve the aims above which will make the trip a successful one. The main objective on the trip is to be organized because if we are not organized then could end up causing big problems throughout.

Outcomes Successful trip Receiving a positive feedback from all Individuals on the trip Show that we can work together as a team and successfully These outcomes are in place as these are what we are looking to have achieved from the trip. Primary Market Research For the primary research in which we were using to use to see which options are best for the trip and will hopefully allow us to meet our aims and objectives, we created a questionnaire and asked 31 people to see what they thought. Here are the questions in which we asked.

Out of the following places where would you most likely like to visit? For each of these trips, how much would you be willing to pay for them? For each of these trips which activities would you most likely like to participate in? For each of these trips, which activities would you be most likely to participate in? For each of these trips how much would you be willing to pay for them? (Paris) Below are the results In which we received from the questionnaire that we asked and the evaluations to which we could chose most appropriately to the students’ wants and needs. Dents would want to visit would be New York. This shows that although some students would like to see some of the other options in which was available New York would be most likely. 15 out of 31 people said they would prefer New York which shows that it is a popular attraction and would be considered for our trip. We asked a number of people how much they would be willing to pay to go to New York. The results show that students would be willing to pay IEEE-IEEE. From these results we know that students are aware of the pricing in which New York would cost.

We now know that we would have to keep the pricing of the trip within this pricing bracket as none of the students we asked said that they would pay IEEE-IOW. We think that this is a good result because looking at the graph above, the majority of the people that we asked said that they would like to go New York, and comparing it to his one they said that they would be willing to pay a reasonable amount of money up to IEEE, this gives us prime reason to plan a New York trip at an affordable price and therefore meet our aims in which we have set.

For each trip we go on, we have to organism events on which to visit whilst we were on the trip to make them worthwhile. We asked this question to see not only what activities students would like to participate in but also where they would like to visit within the same question. This particular graph shows the results of where people would like to visit if we were to go on the trip to Paris. The results show that the majority of the people in which we asked would like to go to Chocolate although the other activities in which were asked about had a very popular response as well.

The second most popular answer is State De France which is also a very popular attraction. I think that visiting these areas of Paris would contribute to our aims and objectives within the group well because both of the most popular answers are very good for educational backgrounds and the trip would most definitely be enjoyable. I think that if we were to go to Paris, the prices from the question and results graph above would vary cause of the price of the activities on top of transport; accommodation etc. Loud appear a lot more than EYE. Here we were looking at how much students would be willing to pay if we were to go on the Paris trip. We asked this question so that we could see how much students would be willing to pay and therefore look at how we could afford this price with activities as well. The results show that students would be willing to pay IEEE-IEEE. If we were to choose this trip we would therefore have to keep the price within this price range as not many students would be willing to pay any more.

We would also have to look at including the activities in which were chosen in the above graph and including them in the price which would be difficult so we would have to do a lot of research to see what the best strategy would be to overcome this. This question was asked so that we could see how much each student would be willing to pay for each trip if it were to go to Barcelona. The most popular response was IEEE-IEEE. I think that this is a reasonable price to pay for all students and teachers but also it gives us room for negotiation within the trip so as it is quite a lot of money.

If we were to go than this amount finally because the other students which answered this said they would pay any more than IEEE. This question was asked so that we could see what activities students would like to participate in if the trip to New York were to go ahead. The most popular answer was Times Square therefore we would look into visiting Times Square if we were to take the trip to New York. To do this we would have to look at the cost in which students would be willing to pay for each visit within the place we chose to go and see if Times Square would be an option. Linking back t rap No. , students answered that they would be willing to pay IEEE-IEEE. This gives us enough off range to organism and plan a trip to Times Square. This graph I based on the results that students would be willing to pay for each trip in Berlin. The most popular result from the students was IEEE-IEEE. This is a reasonable price to pay although looking at graph No. L it shows that not as many students would like to go to Berlin compared to New York or Barcelona. Also, looking at graph No. 2, it shows that students would be willing to pay a lot more for a trip further away and also with ore of a reputation.

This gives us opportunity to make the trip an experience of a lifetime. The aim of this question on the questionnaire was to get results of what activities students would most likely want to participate in if the trip to Barcelona were to go ahead. The most common result based on this question was Non Camp, Poor of Barcelona being the second most popular answer. Looking at graph No. L only around 5 students said that they would rather go to Barcelona over the other three choices therefore it would not be our most popular trip request. Also, looking at graph No. He students were asked how much they would be willing to pay to go to Barcelona and the most popular answer was IEEE-IEEE. This could be a rough asking price for the trip but as Non Camp and Port of Barcelona are well-known tourist attractions, we would have to cater for these swell within the asking price which would boost it up. This graph is mainly relating to graph No. 7. That graph is asking students what they would be willing pay to towards a trip to Berlin, the most popular answer was IEEE- IEEE. This graph shows that 24 students would like to visit Reichstag Dome and the second most popular option being Alex Springer House.

This could involve the trip costing more as both of these places are popular tourist attractions. There is a chance that the trip to Berlin and or one of these trips whilst away could cost a lot more than the students are willing to pay for therefore we would have to negotiate the trip payments etc. BMW Motorbike Factory and the Berlin Stock Exchange are alas very popular answers within the results of this question therefore we could look at the prices for each trip in Berlin and see which would be closest to the price in which students would be willing to pay on this trip.

Secondary market research The secondary market research below involves us as a group researching the most important information from different websites about each of the trip options available. The research was print screened directly from the website therefore all information is correct and efficient. This print screen states the information in which appropriate place etc. This website could be very useful to use as if offers all the information that we need to make sure we meet our aims and objectives e. G. Health and Safety.

This website also sorts and chooses the most suitable accommodation for he needs of the students therefore it would be efficient in helping us to choose the important details within the trip. This screen shot is from European Study Tours which is a very efficient company when dealing with school trips abroad. The website includes all places in which are too available to visit and also enables us to book the trip and accommodation reliably. There is also an option on this website for ‘Educational Visits’ therefore we could plan the trip around education and include day trips etc. Ore efficient for this. The website also offers quotes to be given before the rip as well so that we could try and get the closest price to each trip relating to the questionnaire graphs and therefore how much the students are willing to pay to make sure we meet our aims and objectives. The website offers contact details so that we can contact them if we have any UN-answered questions etc. I think that this website looks efficient in booking our trip as they are a reliable company and provide the information possible for making the booking as easy as possible.

The screen shot on the left also states that the company advertise discounted school trips and special offers therefore we could use this to our advantage through the company and possibly decrease the price. Here is a screen shot of the Barcelona section within the European study tours website. It states what Barcelona offers for the students. It also has other links to Barcelona educational trips for 6th forms and colleges. On the right of this screen shot the website offers special offers for different options. The website also offers advice on booking trips on the left.

I think that the website offers good facilities to book the trips available. This screenings is based on looking at information about Berlin. The website is schools in Europe which is also a well-known and reliable company for booking school trips. I think that this website has a lot in favor compared to the screen shot above. This website offers information on day trips and tours etc. On the right therefore giving the students choices. The website also offers different languages and a lot of information on Berlin itself.

I think that this would be a suitable website for us to use to book our trip as it is efficient and has all of the information needed to make sure that we have the most efficient trip possible. We I think that the most appropriate website (company) for us to use would be United Airlines. This is because it seems the most efficient out of the ones in which we looked at and also it enables us to look at all of the different options for the trips relating to the questionnaire above. Travel insurance I looked in to finding some research based on travel insurance to see which one most and also at the cheapest price possible.

The results are below. This screen shot shows the research in which we looked in to about travel insurance from www. Directing. Co. UK. The screen shot says what the insurance covers, how to book etc. This particular travel insurance company covers all of the information at the bottom of the screen shot (bullet points). I think that this travel insurance company would be appropriate to cover our trip because it is a well known brand therefore it would be reliable, it covers a lot within the price and also the pricing is reasonable for the amount in which the price covers. This screen shot shows information from Targeted insurance company.

This insurance company shows that it offers school travel insurance which is useful to book in numbers as we would do. The screen shot shows what the travel insurance offers which aren’t a lot on this site although it looks reliable and covers the main areas of insurance which we would need. Another advantage if we were to use this company would be that we can get a quote online therefore we could chose if this is the right company for us there and then and therefore price up the trip for the students quicker. This screen shot is from Enkindles Travel Insurance. This company also offer school group travel insurance.

This covers accidental loss, theft or damage of the group money. The benefits of using this travel insurance company are at the OTTOMH of the screen shot and there are a lot of them which insures us that the company will be reliable for us students going on the trip. You can also get a quote on the first page of the website therefore we can get a quote quickly. The company looks reliable and efficient in insuring they do the best they can at the cheapest price. Here are four travel insurance companies in which we could use and they all give minimal detail about what they offer/cover.

Some of them are better than others for example ‘Protect Your Bubble’ looks better than ‘LULL Direct’ as they offer better over for the insurance which is more suited to the students and trips we have the choices to go on. The LULL Direct Company are suited more to the elderly where as the Topped look as though it is more suited to businesses as they speak about trading company insurance. I think that out of these four the most efficient one suited to the needs of our trip and the bases of the trips that we could be going on would be Protect Your Bubble.

Coach Comparisons When we planned the organization of the trip we had to plan and see how we would get to the airport and back etc all together. We researched four different coach impasses to see which was cheapest and we got these results. Company Contact number Price (return) Marshall 01 525376077 Souls IEEE(settle) Masons 01296661604 IEEE Cedar 0800731 5105 IEEE Here shows that the cheapest coach traveling company from the four options we chose from is IEEE because although Souls is cheaper at IEEE that was only one way whereas masons are return for a cheaper price.

Marshall did not get back to us with a quote therefore we could not state a price in the chart above. Finance for the trip In this part of the assignment I will provide the fixed and variable costs involved in he trip. The fixed costs are costs in which cannot be changed and have to be paid or the trip cannot go ahead, for example the flights and accommodation bills. The variable costs are costs in which can be paid/available but if they are not then it is not going to give any risk towards the trip and it can therefore still go ahead.

Variable costs are Variable’ to each person. Fixed and variable costs These are the fixed costs involved in the trip in which we go on. The coach is a fixed cost as this needs to pay in order for all students to arrive at the same time and to not be lost. The travel company is a very important fixed cost and needs to be paid in full. This enables the trip to go ahead; the travel company costs cover the accommodation for the trip and the flights. The visas are also very important fixed costs as they cover our insurance for the trip.

Above are the variable costs within the trip. A variable cost is a cost in which can change from person to person. Spending money is a variable cost because it differs, there is no set cost in which needs to be bought along on the trip, this is up to the individual. Meals are also a variable cost because students are asked to bring their win money for meals therefore they will need the money, yet if they chose not to bring it then they won’t be eating on the trip. Souvenirs are also not a necessity it is out of pure choice that students chose to buy souvenirs for others.

Fundraising As the cost of the trip in which we go on, including coaches, travel insurance etc. Would cost a lot more than anticipated, there could be a chance in which we would have to ask the students to do some fund raising activities to put some money towards the trip as it could turn out a big sum of money, more than they stated they ere willing to pay on the questionnaire analysis. The fund raising activities could include outside and inside of school activities involving sports events, year group events, car boots etc.

The money in which we raise will go towards the trip but could accommodation. The fund rising may not need to be done but if it does we feel that it is the best way to make the money quickly and also is an achievement. The finance of the trip will be paid in installments, the trip will be held in February when the decisions are finally made as to where we will be going. This will mean that the mount of money in which is needed to pay the fixed costs and the variable costs (if intended) can be paid over the 8 months in which we have until the trip.

The cost will be divided in to 8 costs (or as many months as there are until the trip) plus a OHIO deposit to ensure that we have a place on the trip. Finalized trip plan Looking through all of the above research we have decided as a group that we are going to choose to go to New York on the trip. We chose this trip above all of the others because we feel that it will benefit the students more also that it is a very exciting once in a life time trip away which students would pay good money to go on. The other main reason in which we chose this trip was because this was the most popular chosen option on the questionnaire analysis chart.

The research that we did for New York states those students would be willing to pay around E801E900. This is a reasonable amount to pay for the trip and we think that we could plan and organism a trip around this value of money. The research also states that students would like to visit Times Square, Ground Zero, Statue of Liberty and the Empire State Building. We have therefore booked these places to visit in New York. We have booked to go to New York using European Study Tours Travel Company as this looked the most efficient and reliable throughout the secondary research.

Looking at the coach research, we have chosen to travel with Masons to and from the airport as it is cheaper for a return than the other companies offer. Masons are a very reliable coach traveling company therefore we can meet our main aim which is safety for all students. The main details of the trip are below. Where are we going? New York Which travel company are we going with? European Study Tours. This company have planned our accommodation which will be Manhattan Hotel in Times Square (relating back to the visit to Times Square in which students said they would like to visit.

They have also arranged for us to fly with United Airlines. Where are we planning to visit whilst in New York? Mustang Harry on 7th Avenue Programmer tour of Financial district stop off at Mooring’s Bank Tavern Federal Reserve Ground Zero Liberty & Ellis island ferry Macy’s Guided tour Historic Herald Square Location Empire state building Madame Tussahs workshop We have planned these trips based on the questionnaire results and added some ore trips to visit that would make the trip more of an experience.

Below is an Itinerary in which we made to show the exact details of the trip and times for parents 17th-21st February Monday 17th February Arrive at London Heathers airport 7. Mama – Check in at United Airlines desk at terminal 10. Mama – Depart London Heathers airport for Newark Liberty Airport – Flight No: AU 28 13. Pm – Arrive at Newark Airport – Skylines – coach transfer to accommodation 3. Pm – Arrive at accommodation 7. Pm – Evening meal in Local restaurant Tuesday 18th February Breakfast – Mustang Harry on 7th Avenue Wednesday 19th February

Breakfast- Mustang Harry Visit Macy’s Guided tour Afternoon visit – Empire state building and free time before the evening Thursday 20th February Breakfast – Mustang Harry Visit Madame Tussahs workshop Students given a 45 minute presentation by key members of staff Check out of rooms 2. Pm – meet coach at accommodation for airport transfer 4. Pm – Check in at United Airlines desk at Newark Liberty airport 7. Pm – Depart Newark Airport for London Heathers on Flight No : CIA 29 Friday 21st February 7. Mama – Arrive at London Heathers Airport Coach from Airport to Cedars Make your own way home from School

I. Introduction The purpose of this paper is to present and explain the statement of cash flows by incorporating the statements No. 95, 102 and 104 that establish standards for cash flows reporting issued by FASB[i]. FASB Statement No. 95 (FAS 95) “Statement of Cash Flows” supersedes APB Opinion No. 9, Reporting Changes in Financial Position, and requires a statement of cash flows as part of a full set of financial statements for all business enterprises[ii] in place of a statement of changes in financial position and classify cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category. FASB Statement No. 102 (FAS 102) amends FAS 95, to exempt from the requirement to provide a statement of cash flows (a) defined benefit pension plans covered by FASB Statement No. 5, Accounting and Reporting by Defined Benefit Pension Plans[iii] , and certain other employee benefit plans and (b) highly liquid investment companies that meet specified conditions. This Statement also requires that cash receipts and cash payments resulting from acquisitions and sales of (a) securities and other assets that are acquired specifically for resale and carried at market value in a trading account and (b) loans that are acquired specifically for resale and carried at market value or the lower of cost or market value be classified as operating cash flows in a statement of cash flows.

FASB Statement No. 104 (FAS 104) amends FAS 95 to permit banks, savings institutions, and credit unions to report in a statement of cash flows certain net cash receipts and cash payments for (a) deposits placed with other financial institutions and withdrawals of deposits, (b) time deposits accepted and repayments of deposits, and (c) loans made to customers and principal collections of loans.

This Statement also amends FAS 95 to permit cash flows resulting from futures contracts, forward contracts, option contracts, or swap contracts that are accounted for as hedges of identifiable transactions or events to be classified in the same category as the cash flows from the items being hedged provided that accounting policy is disclosed. II. Purpose of a Statement of Cash Flows The purpose of a statement of cash flows is: 1. To provide relevant information about the cash receipts and cash payments of an enterprise during a period 2.

To help investors, creditors, and others to assess; 2. 1. The enterprise’s ability to generate positive future net cash flows 2. 2. The enterprise’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing 2. 3. The reasons for differences between net income and associated cash receipts and payments 2. 4. The effects on an enterprise’s financial position of both its cash and noncash investing and financing transactions during the period.

So the objectives of standards of financial accounting and reporting is to require the presentation of information about the historical changes in cash and cash equivalents of an enterprise by means of the statement of cash flows which classifies cash flows during the period according to operating, investing and financing activities. III. Focus on Cash and Cash Equivalents A statement of cash flows explains the changes in cash[iv] (cash on hand and demand deposits) and cash equivalents during a period.

Cash equivalents comprise the short-term, highly liquid investments that are (i) readily convertible to a known amount of cash and (ii) that are subject to an insignificant risk of changes in value. Generally an investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Equity investments are normally excluded, unless they are in substance a cash equivalent (e. g. preferred shares acquired within three months of their specified redemption date).

Bank overdrafts which are repayable on demand and which form an integral part of an enterprise’s cash management are also included as a component of cash and cash equivalents. Examples of items commonly considered to be cash equivalents are treasury bills, commercial paper, money market funds, and federal funds sold (for an enterprise with banking operations). Cash purchases and sales of those investments generally are part of the enterprise’s cash management activities rather than part of its operating, investing, and financing activities, and details of those transactions need not be reported in a statement of cash flows.

An enterprise shall establish a policy concerning which short-term, highly liquid investments that satisfy the said definition of cash equivalents. For example, an enterprise having banking operations might decide that all investments that qualify except for those purchased for its trading account will be treated as cash equivalents, while an enterprise whose operations consist largely of investing in short-term, highly liquid investments might decide that all those items will be treated as investments rather than cash equivalents.

An enterprise shall disclose its policy for determining which items are treated as cash equivalents. Any change to that policy is a change in accounting principle that shall be affected by restating financial statements for earlier years presented for comparative purposes. IV. Gross and net cash flows Generally, information about the gross amounts of cash receipts and cash payments during a period is more relevant than information about the net amounts of cash receipts and payments.

However, the net amount of related receipts and payments provides sufficient information not only for cash equivalents as noted in section III, but also for certain other classes of cash flows that have quick turnover, large amounts and short maturities. For certain other items such as demand deposits of a bank and customer accounts payable of a broker-dealer, the enterprise is substantively holding or disbursing cash on behalf of its customers.

Only the net changes during the period in assets and liabilities with those characteristics need be reported because knowledge of the gross cash receipts and payments related to them may not be necessary to understand the enterprise’s operating, investing, and financing activities[v]. Items that qualify for net reporting because their turnover is quick, their amounts are large, and their maturities are short are cash receipts and payments pertaining to (a) investments (other than cash equivalents), (b) loans receivable, and (c) debt, providing that the original maturity of the asset or liability is three months or less[vi].

Banks, savings institutions, and credit unions are not required to report gross amounts of cash receipts and cash payments for (a) deposits placed with other financial institutions and withdrawals of deposits, (b) time deposits accepted and repayments of deposits, and (c) loans made to customers and principal collections of loans.

When those enterprises constitute part of a consolidated enterprise, net amounts of cash receipts and cash payments for deposit or lending activities of those enterprises shall be reported separate from gross amounts of cash receipts and cash payments for other investing and financing activities of the consolidated enterprise, including those of a subsidiary of a bank, savings institution, or credit union that is not itself a bank, savings institution, or credit union. V. Classification of Cash Receipts and Cash Payments

A statement of cash flows shall classify cash receipts and cash payments as resulting from investing, financing, or operating activities[vii]. |Cash Flows from Investing Activities[viii] | |Cash inflows from receipts including; |Cash outflows for disbursements / payments including; | | | | |1. ollections of loans made by the enterprise |1. making loans by the enterprise | |2. sales of other entities’ debt instruments (other than cash |2. acquire debt instruments of other entities (other than cash | |equivalents and certain debt instruments that are acquired |equivalents and certain debt instruments that are acquired | |specifically for resale) that were purchased by the enterprise |specifically | |3. ales of equity instruments of other enterprises (other than |for resale) | |certain equity instruments carried in a trading account) |3. acquire equity instruments of other enterprises (other than | |and from returns of investment in those instruments |certain equity instruments carried in a trading account) | |4. sales of property, plant, and equipment and other productive |4. t the time of purchase or soon before or after purchase[ix] to | |assets. |acquire property, plant, and equipment and other productive | | |assets[x]. | | | | | | |Cash Flows from Financing Activities |Cash inflows from; |Cash outflows for; | | | | |1. Proceeds from issuing equity instruments |1. Payments of dividends or other distributions to owners, including | |2.

Proceeds from issuing bonds, mortgages, notes, and from |outlays to reacquire the enterprise’s equity instruments | |other short- or long-term borrowing. |2. Repayments of amounts borrowed | | |3. Other principal payments to creditors who have extended long-term | | |credit[xi]. | | | |Cash Flows from Operating Activities[xii] | |Cash inflows includes; |Cash outflows includes; | |1. Cash receipts from sales of goods[xiii] or services, |1.

Cash payments to acquire materials for manufacture or goods[xiv] | |including receipts from collection or sale of accounts and both |for resale, including principal | |short- and long-term notes receivable from customers arising |payments on accounts and both short- and long-term notes payable to | |from those sales |suppliers for those materials or goods | |2. Cash receipts from returns on loans, other debt instruments |2.

Cash payments to other suppliers and employees for other goods or | |of other entities, and equity securities—interest and dividends |services | |3. All other cash receipts that do not stem from transactions |c. Cash payments to governments for taxes, duties, fines, and other | |defined as investing or financing activities, such as amounts |fees or penalties | |received to settle lawsuits; proceeds of nsurance settlements |3. Cash payments to lenders and other creditors for interest | |except for those that are directly related to investing or |4. All other cash payments that do not stem from transactions defined| |financing activities, such as from destruction of a building; |as investing or financing activities, such as payments to settle | |and refunds from suppliers. |lawsuits, cash contributions to charities, and cash refunds to | | |customers. It is notable that certain cash receipts and payments may have aspects of more than one class of cash flows. For example, the acquisition and sale of equipment to be used by the enterprise or rented to others generally are investing activities. However, equipment sometimes is acquired or produced to be used by the enterprise or rented to others for a short period and then sold. In those circumstances, the acquisition or production and subsequent sale of those assets shall be considered operating activities.

Cash flows relating to extraordinary items should be classified as operating, investing or financing as appropriate and should be separately disclosed. The exchange rate used for translation of transactions denominated in a foreign currency and the cash flows of a foreign subsidiary should be the rate in effect at the date of the cash flows. [xv] Cash flows of foreign subsidiaries should be translated at the exchange rates prevailing when the cash flows took place.

As regards the cash flows of associates and joint ventures, where the equity method is used, the cash flow statement should report only cash flows between the investor and the investee; where proportionate consolidation is used, the cash flow statement should include the venturer’s share of the cash flows of the investee. Financial statements shall not report an amount of cash flow per share. Neither cash flow nor any component of it is an alternative to net income as an indicator of an enterprise’s performance, as reporting per share amounts might imply.

VI. Content and Form of the Statement of Cash Flows A statement of cash flows for a period shall report net cash provided or used by operating, investing, and financing activities[xvi] and the net effect of those flows on cash and cash equivalents during the period in a manner that reconciles beginning and ending cash and cash equivalents. In reporting cash flows from operating activities, enterprises are encouraged to use Direct Method to shows each major class of gross cash receipts and gross cash payments[xvii].

The operating cash flows section of the cash flow statement under the direct method would appear something like this: |Cash receipts from customers |xx,xxx | |Cash paid to suppliers |xx,xxx | |Cash paid to employees |xx,xxx | |Cash paid for other operating expenses |xx,xxx | |Interest paid |xx,xxx | |Income taxes paid |xx,xxx | |Net cash from operating activities |xx,xxx |

Enterprises that do so should, at a minimum, separately report the following classes of operating cash receipts and payments: Enterprises that choose not to provide information about major classes of operating receipts and payments by the direct method shall determine and report the same amount for net cash flow from operating activities indirectly by adjusting net income to reconcile it to net cash flow from operating activities (the indirect or reconciliation method). The Indirect Method adjusts accrual basis net profit or loss for the effects of non-cash transactions.

The operating cash flows section of the cash flow statement under the indirect method would appear something like this: |Profit before interest and income taxes | |xx,xxx | |Add back depreciation | |xx,xxx | |Add back amortization of goodwill | |xx,xxx | |Increase in receivables | |xx,xxx | |Decrease in inventories | |xx,xxx | |Increase in trade payables | |xx,xxx | |Interest expense | |xx,xxx | |Less Interest accrued but not yet paid | | xx,xxx | |Interest paid | |xx,xxx | |Income taxes paid | |xx,xxx | |Net cash from operating activities | |xx,xxx |

That requires adjusting net income to remove (a) the effects of all deferrals of past operating cash receipts and payments, such as changes during the period in inventory, deferred income, and the like, and all accruals of expected future operating cash receipts and payments, such as changes during the period in receivables and payables[xviii], and (b) the effects of all items whose cash effects are investing or financing cash flows, such as depreciation, amortization of goodwill, and gains or losses on sales of property, plant, and equipment and discontinued operations (which relate to investing activities), and gains or losses on extinguishment of debt (which is a financing activity). If the direct method of reporting net cash flow from operating activities is used, the reconciliation of net income to net cash flow from operating activities shall be provided in a separate schedule. If the indirect method is used, the reconciliation may be either reported within the statement of cash flows or provided in a separate schedule, with the statement of cash flows reporting only the net cash flow from operating activities.

If the reconciliation is presented in the statement of cash flows, all adjustments to net income to determine net cash flow from operating activities shall be clearly identified as reconciling items. Except for items described in section IV paragraphs 2 and 3, both investing/financing cash inflows and outflows shall be reported separately in a statement of cash flows—for example, outlays for acquisitions of property, plant, and equipment shall be reported separately from proceeds from sales of property, plant, and equipment; proceeds of borrowings shall be reported separately from repayments of debt; and proceeds from issuing stock shall be reported separately from outlays to reacquire the enterprise’s stock. VII.

Information about Noncash Investing and Financing Activities Information about all investing and financing activities of an enterprise during a period that affect recognized assets or liabilities but that do not result in cash receipts or cash payments in the period shall be reported in related disclosures. Examples of noncash investing and financing transactions are converting debt to equity; acquiring assets by assuming directly related liabilities, such as purchasing a building by incurring a mortgage to the seller; obtaining an asset by entering into a capital lease; and exchanging noncash assets or liabilities for other noncash assets or liabilities. Some transactions are part cash and part noncash; only the cash portion shall be reported in the statement of cash flows. VIII.

Exemptions from the Requirement to Provide a Statement of Cash Flows A statement of cash flows is not required to be provided by a defined benefit pension plan that presents financial information in accordance with the provisions of Statement 35. Other employee benefit plans that present financial information similar to that required by Statement 35 (including the presentation of plan investments at fair value) also are not required to provide a statement of cash flows. Employee benefit plans are encouraged to include a statement of cash flows with their annual financial statements when that statement would provide relevant information about the ability of the plan to meet future obligations (for example, when the plan invests in assets that are not highly liquid or obtains financing for investments).

For an investment enterprise (an investment company, an investment enterprise, a common trust fund, variable annuity account, or similar fund maintained by a bank, insurance company, or other enterprise in its capacity as a trustee, administrator, or guardian for the collective investment and reinvestment of moneys) to be exempt from the requirement to provide a statement of cash flows, all of the following conditions must be met: a. During the period, substantially all of the enterprise’s investments were highly liquid (for example, marketable securities, and other assets for which a market is readily available). b. Substantially all of the enterprise’s investments are carried at market value[xix]. c. The enterprise had little or no debt, based on the average debt outstanding[xx] during the period, in relation to average total assets. d. The enterprise provides a statement of changes in net assets. IX.

Classification of Cash Flows from Acquisitions and Sales of Certain Securities and Other Assets Banks, brokers and dealers in securities, and other enterprises may carry securities and other assets in a trading account[xxi]. Cash receipts and cash payments resulting from purchases and sales of securities and other assets shall be classified as operating cash flows if those assets are acquired specifically for resale and are carried at market value in a trading account. Some loans are similar to securities in a trading account in that they are originated or purchased specifically for resale and are held for short periods of time. Cash receipts and cash payments resulting from acquisitions and sales of loans lso shall be classified as operating cash flows if those loans are acquired specifically for resale and are carried at market value or at the lower of cost or market value[xxii]. Cash receipts resulting from sales of loans that were not specifically acquired for resale shall be classified as investing cash inflows. 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. X. Net Reporting of Certain Cash Receipts and Cash Payments According to FAS No. 95, information about the gross amounts of cash receipts and cash payments during a period generally is more relevant than information about the net amounts of cash receipts and cash payments.

However, for certain items, the net amount of cash receipts and cash payments may provide sufficient information. For example, gross cash flows need not be reported for demand deposits of a bank or for investments, loans receivable, and debt of any enterprise if the original maturity of the asset or liability is three months or less. As a result banks, savings institutions, and credit unions are not required to report gross amounts of cash receipts and cash payments for (a) deposits placed with other financial institutions and withdrawals of deposits, (b) time deposits accepted and repayments of deposits, and (c) loans made to customers and principal collections of loans.

When those enterprises constitute part of a consolidated enterprise, net amounts of cash receipts and cash payments for deposit or lending activities of those enterprises shall be reported separate from gross amounts of cash receipts and cash payments for other investing and financing activities of the consolidated enterprise. XI. Classification of Cash Flows from Hedging Transactions The Board received requests from various enterprises to reconsider the classification of cash flows from an item that is intended as a hedge of another item. Those requests generally focused on cash flows from a futures contract or forward contract that is accounted for as a hedge of an inventory transaction.

FAS 104 modifies FAS 95 to permit cash flows resulting from futures contracts, forward contracts, option contracts, or swap contracts that are accounted for as hedges of identifiable transactions or events (for example, a cash payment from a futures contract that hedges a purchase or sale of inventory), including anticipatory hedges, to be classified in the same category as the cash flows from the items being hedged provided that accounting policy is disclosed. If for any reason hedge accounting for an instrument that hedges an identifiable transaction or event is discontinued, then any cash flows subsequent to the date of discontinuance shall be classified consistent with the nature of the instrument. Endnotes ———————– i]- “Portions of various FASB Statements, copyright © by the Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, USA, are reproduced with permission. Complete copies of these documents are available from the FASB. ” [ii]- A statement of cash flows is not required for defined benefit pension plans and certain other employee benefit plans or for certain investment companies as provided by FAS 102, Statement of Cash Flows—Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale. [iii]- The financial reporting requirements of defined benefit pension plans are addressed in Statement 35.

Paragraph 6 of that Statement specifies that the annual financial statements of a plan shall include: (a) A statement that includes information regarding the net assets available for benefits as of the end of the plan year (b) A statement that includes information regarding the changes during the year in the net assets available for benefits (c) Information regarding the actuarial present value of accumulated plan benefits as of either the beginning or end of the plan year (d) Information regarding the effects, if significant, of certain factors affecting the year-to-year change in the actuarial present value of accumulated plan benefits. Statement 35 also states that existing generally accepted accounting principles other than those discussed in that Statement may apply to the financial statements of defined benefit pension plans. iv]- Consistent with common usage, cash includes not only currency on hand but demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. All charges and credits to those accounts are cash receipts or payments to both the entity owning the account and the bank holding it. For example, a bank’s granting of a loan by crediting the proceeds to a customer’s demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made. v]- cash flows from investing and financing activities should be reported gross by major class of cash receipts and major class of cash payments except for the following cases, which may be reported on a net basis: Cash receipts and payments on behalf of customers (for example, receipt and repayment of demand deposits by banks, and receipts collected on behalf of and paid over to the owner of a property). Cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short, generally less than three months (for example, charges and collections from credit card customers, and purchase and sale of investments). cash receipts and payments relating to fixed maturity deposits. Cash advances and loans made to customers and repayments thereof. Investing and financing transactions which do not require the use of cash should be excluded from the cash flow statement, but they should be separately disclosed elsewhere in the financial statements. vi]- For this purpose, amounts due on demand are considered to have maturities of three months or less. For convenience, credit card receivables of financial services operations–generally, receivables resulting from cardholder charges that may, at the cardholder’s option, be paid in full when first billed, usually within one month, without incurring interest charges and that do not stem from the enterprise’s sale of goods or services–also are considered to be loans with original maturities of three months or less. [vii]- Generally, each cash receipt or payment is to be classified according to its nature without regard to whether it stems from an item intended as a hedge of another item.

For example, the proceeds of a borrowing are a financing cash inflow even though the debt is intended as a hedge of an investment, and the purchase or sale of a futures contract is an investing activity even though the contract is intended as a hedge of a firm commitment to purchase inventory. However, cash flows from futures contracts, forward contracts, option contracts, or swap contracts that are accounted for as hedges of identifiable transactions or events (for example, a cash payment from a futures contract same category as the cash flows from the items being hedged provided that accounting policy is that hedges a purchase or sale of inventory), including anticipatory hedges, may be classified in the disclosed.

If for any reason hedge accounting for an instrument that hedges an identifiable transaction or event is discontinued, then any cash flows subsequent to the date of discontinuance shall be classified consistent with the nature of the instrument. [viii]- Investing activities exclude acquiring and disposing of certain loans or other debt or equity instruments that are acquired specifically for resale, as discussed in Statement 102. [ix]- 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. Incurring directly related debt to the seller is a financing transaction, and subsequent payments of principal on that debt thus are financing cash outflows. x]- Payments to acquire productive assets include interest capitalized as part of the cost of those assets. [xi]- Refer to footnote 8 which indicates that most principal payments on seller-financed debt directly related to a purchase of property, plant, and equipment or other productive assets are financing cash outflows. [xii]- Operating activities include all transactions and other events that are not defined as investing or financing activities in paragraphs 15-20. Operating activities generally involve producing and delivering goods and providing services. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. xiii]- The term goods include certain loans and other debt and equity instruments of other enterprises that are acquired specifically for resale, as discussed in Statement 102. [xiv]- The term goods include certain loans and other debt and equity instruments of other enterprises that are acquired specifically for resale, as discussed in Statement 102. [xv]- Paragraph 12 of FASB Statement No. 52, Foreign Currency Translation, recognizes the general impracticality of translating revenues, expenses, gains, and losses at the exchange rates on dates they are recognized and permits an appropriately weighted average exchange rate for the period to be used to translate those elements. This Statement applies that provision to cash receipts and cash payments. xvi]- Separate disclosure of cash flows pertaining to extraordinary items or discontinued operations reflected in those categories is not required. An enterprise that nevertheless chooses to report separately operating cash flows of discontinued operations shall do so consistently for all periods affected, which may include periods long after sale or liquidation of the operation. [xvii]- a. Cash collected from customers, including lessees, licensees, and the like b. Interest and dividends received c. Other operating cash receipts, if any d. Cash paid to employees and other suppliers of goods or services, including suppliers of insurance, advertising, and the like e. Interest paid f. Income taxes paid g. Other operating cash payments, if any. xviii]- Adjustments to net income to determine net cash flow from operating activities shall reflect accruals for interest earned but not received and interest incurred but not paid. Those accruals may be reflected in the statement of financial position in changes in assets and liabilities that relate to investing or financing activities, such as loans or deposits. However, interest credited directly to a deposit account that has the general characteristics described footnote 1, is a cash outflow of the payor and a cash inflow of the payee when the entry is made. [xix]- Securities for which market value is determined using matrix pricing techniques, which are described in the AICPA Audit and Accounting Guide, Audits of Investment Companies, would meet this condition.

Other securities for which market value is not readily determinable and for which fair value must be determined in good faith by the board of directors would not. [xx]- For the purpose of determining average debt outstanding, obligations resulting from redemptions of shares by the enterprise from unsettled purchases of securities or similar assets, or from covered options written generally may be excluded. However, any extension of credit by the seller that is not in accordance with standard industry practices for redeeming shares or for settling purchases of investments shall be included in average debt outstanding. [xxi]- Characteristics of trading account activities are described in FASB Statement No. 9, Financial Reporting and Changing Prices, and in the AICPA Industry Audit Guide, Audits of Banks, and Audit and Accounting Guide, Audits of Brokers and Dealers in Securities. [xxii]- Mortgage loans and mortgage-backed securities held for sale are required to be reported at the lower of cost or market value in accordance with FASB Statement No. 65, Accounting for Certain Mortgage Banking Activities. References 1. Statement of Financial Accounting Standards No. 95 Statement of Cash Flows November 1987 Financial Accounting Standards Board of the Financial Accounting Foundation 401 MERRITT 7, P. O. BOX 5116, NORWALK, CONNECTICUT 06856-5116 2. Statement of Financial Accounting Standards No. 102

Statement of Cash Flows—Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale an amendment of FASB Statement No. 95 February 1989 Financial Accounting Standards Board of the Financial Accounting Foundation 401 MERRITT 7, P. O. BOX 5116, NORWALK, CONNECTICUT 06856-5116 3. Statement of Financial Accounting Standards No. 104 Statement of Cash Flows—Net Reporting of Certain Cash Receipts and Cash Payments and Classification of Cash Flows from Hedging Transactions an amendment of FASB Statement No. 95 December 1989 Financial Accounting Standards Board of the Financial Accounting Foundation 401 MERRITT 7, P. O. BOX 5116, NORWALK, CONNECTICUT 06856-511