In cash flow statement of parent company(stand-alone), the company has advanced loans/advances i)to its subsidiary and ii) to its jointly controlled entity.
Under which head should it (i & ii above) be reported (in stand alone CashFlow statement)-- is it financing activity / investing activity / operating activity
While seeing the Balance Sheets of few reputed listed companies ( stand -alone only), I found that one has shown it under "Investing activity " and the other under " Financing activity" . Iam confused.
Can u plz tell me why the reputed companies have disclosed differently for the same loans/ advances given to i)subsidiary ii) JV - Jointly controllde entity.
Plz elaborate.I didn't understand the concept/logic for it
15 July 2008
Financing Activity is the activity which effects a change in the Capital Structure or Borrowings. On the other hand Investing Activities are those activities which involve a change in the company's assets by acquiring or disposing of the assets. loans and advances is definitely an item to appear on the assets side. As such loans or advances given or received back should be classified as Investing Activity.
If it is a short -term loan & advance given to subsidiary/ JV , can one also report it(alternatively) as an " operating activity" as it is included in "Current Assets, Loans & Advances"
15 July 2008
It must come under " Investing Activities" in case of long term advance / loan as the purpose of the advance/loan would be generation of future income and cash flows.
In case these are short term, they should naturally be classified as operating activities.
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