Investments in Associates and Joint Ventures
Organic Food Everyday gets supply from an organic farm: Vege Farm. As Vege Farm is looking for additional funds to expand their business, after performed due-diligence, we decided to invest in Vege Farm by buying 30% of Vege Farm shares with $10,000 (assume $1.00 per share, 10,000 units of Vege Farm shares). This kind of investment is called Equity Investment, and be more specific, Investments in Associates and Joint Ventures. As we own 30% of Vege Farm shares and we have significant influence in the board, Vege Farm is considered as our Associate.
In this case, we will record the outflow cash $10,000 in the Cash Flows from Investing Activities section. $10,000 is also a long-term asset in our Balance Sheet.
| Cash Flow Statement | Year 1 | Year 2 |
| Cash flows from operating activities | ||
| Net Income | 28,804.00 | 39,406.00 |
| Depreciation | 0.00 | 6,000.00 |
| Amortisation of intangible assets | 11,000.00 | |
| (Gains) / Losses on disposal of quoted shares | 0.00 | (1,000.00) |
| PP&E written off | 0.00 | 3,000.00 |
| Inventories written off | 0.00 | 500.00 |
| Receivables written off | 0.00 | 800.00 |
| Changes in working capital | ||
| (Increase)/Decrease in Inventory | 0.00 | (22,000.00) |
| (Increase)/Decrease in Accounts Receivable | 0.00 | (45,000.00) |
| (Increase)/Decrease in Prepaid Expenses | 0.00 | (16,000.00) |
| Increase/(Decrease) in Accounts Payable | 0.00 | 4,000.00 |
| Increase/(Decrease) in Deferred Revenue | 0.00 | 11,500.00 |
| Net cash from operating activities | 28,804.00 | (7,794.00) |
| Cash flows from investing activities | ||
| Capital Expenditures | 0.00 | (18,000.00) |
| Acquisition of quoted shares | 0.00 | (10,000.00) |
| Disposal of quoted shares | 0.00 | 11,000.00 |
| Acquisition of Café 95 | 0.00 | (180,000.00) |
| Acquisition 30.0% of Vege Farm ownership | 0.00 | (10,000.00) |
| Net cash from investing activities | 0.00 | (207,000.00) |
| Cash flows from financing activities | ||
| Proceeds from bank borrowings | 0.00 | 50,000.00 |
| Repayment of bank borrowings | 0.00 | (5,000.00) |
| Shares Issuance | 0.00 | 10,000.00 |
| Dividends Issued | 0.00 | (8,000.00) |
| Shares Repurchase | 0.00 | (10,000.00) |
| Net Cash from financing activities | 0.00 | 37,000.00 |
| Net Change in Cash | 28,804.00 | (177,794.00) |
| Balance Sheet | Year 1 | Year 2 |
| Assets | ||
| Current Assets | ||
| Cash | 30,000.00 | (67,794.00) |
| Inventory | 0.00 | 21,500.00 |
| Accounts Receivable | 0.00 | 44,200.00 |
| Prepaid Expenses | 0.00 | 16,000.00 |
| Short-Term Investments | 0.00 | 0.00 |
| Total Current Assets | 30,000.00 | 13,906.00 |
| Long Term Assets | ||
| Property, plant and equipment | 0.00 | 39,000.00 |
| Intangible Assets | 0.00 | 44,000.00 |
| Goodwill | 0.00 | 25,000.00 |
| Investment in Associates | 0.00 | 10,000.00 |
| Total Long Term Assets | 0.00 | 118,000.00 |
| Total Assets | 30,000.00 | 131,906.00 |
| Liabilities & Equity | ||
| Current Liabilities | ||
| Accounts Payable | 0.00 | 14,000.00 |
| Deferred Revenue | 0.00 | 11,500.00 |
| Total Current Liabilities | 0.00 | 25,500.00 |
| Long Term Liabilities | ||
| Borrowings | 0.00 | 45,000.00 |
| Total Long Term Liabilities | 0.00 | 45,000.00 |
| Toal Liabilities | 0.00 | 70,500.00 |
| Equity | 30,000.00 | 61,406.00 |
| Total Liabilities & Equity | 30,000.00 | 131,906.00 |
Want to challenge your understanding of Business Combinations and Investments? Here you are.
Impact of Investments in Associates and Joint Ventures to the Financial Statements in a Glance
