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 StatementYear 1Year 2
Cash flows from operating activities
Net Income28,804.0039,406.00
Amortisation of intangible assets11,000.00
(Gains) / Losses on disposal of quoted shares0.00(1,000.00)
PP&E written off0.003,000.00
Inventories written off0.00500.00
Receivables written off0.00800.00
Changes in working capital
(Increase)/Decrease in Inventory0.00(22,000.00)
(Increase)/Decrease in Accounts Receivable0.00(45,000.00)
(Increase)/Decrease in Prepaid Expenses0.00(16,000.00)
Increase/(Decrease) in Accounts Payable0.004,000.00
Increase/(Decrease) in Deferred Revenue0.0011,500.00
Net cash from operating activities28,804.00(7,794.00)
Cash flows from investing activities
Capital Expenditures0.00(18,000.00)
Acquisition of quoted shares0.00(10,000.00)
Disposal of quoted shares0.0011,000.00
Acquisition of Café 950.00(180,000.00)
Acquisition 30.0% of Vege Farm ownership0.00(10,000.00)
Net cash from investing activities0.00(207,000.00)
Cash flows from financing activities
Proceeds from bank borrowings0.0050,000.00
Repayment of bank borrowings0.00(5,000.00)
Shares Issuance0.0010,000.00
Dividends Issued0.00(8,000.00)
Shares Repurchase0.00(10,000.00)
Net Cash from financing activities0.0037,000.00
Net Change in Cash28,804.00(177,794.00)

Balance SheetYear 1Year 2
Current Assets
Accounts Receivable0.0044,200.00
Prepaid Expenses0.0016,000.00
Short-Term Investments0.000.00
Total Current Assets30,000.0013,906.00
Long Term Assets
Property, plant and equipment0.0039,000.00
Intangible Assets0.0044,000.00
Investment in Associates0.0010,000.00
Total Long Term Assets0.00118,000.00
Total Assets30,000.00131,906.00
Liabilities & Equity
Current Liabilities
Accounts Payable0.0014,000.00
Deferred Revenue0.0011,500.00
Total Current Liabilities0.0025,500.00
Long Term Liabilities
Total Long Term Liabilities0.0045,000.00
Toal Liabilities0.0070,500.00
Total Liabilities & Equity30,000.00131,906.00

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

Impact of Investments in Associates and Joint Ventures to the Financial Statements in a Glance

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