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Consolidated statement of cash flows

How to represent a purchase of cash for an acquisition of a sub

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Company A purchases Company B for £56m by a way of a loan.

Company B is a shell company and is effectively a purchase of cash which has attracted negative goodwill.

On the consolidated statement of cash flows how would this be presented in the statement of cash flows? The issue I have is that at consolidation, the £56m paid for the consideration has ended up within the “cash held at year-end”, meaning that I can show the increase in loans of £56m within Financing Activities but cannot show the payment out of £56m within Investing Activities as it wouldn’t balance.

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By lionofludesch
11th Dec 2019 16:40

Well, have you got £56m in the bank ?

If not, reducing this by £56m would seem to rebalance your accounts.

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By Robert1981
11th Dec 2019 17:40

Yep, the £56m is part of the year-end cash balance.

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RLI
By lionofludesch
11th Dec 2019 17:50

So which journal doesn't have a partner ?

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By Robert1981
12th Dec 2019 08:39

Got it: within the investing activities I have to show the consideration paid for the new business (outgoing) with the cash acquired with acquisition. All balances perfectly. Many thanks.

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By paul.benny
11th Dec 2019 16:54

It's almost impossible to diagnose an error in a cashflow statement without seeing the workings. Here's a few pointers, though
- cash outflow for purchase of subsid should be the amount paid
- if the subsid was just a cash shell, you should have an increase in cash for the value of the cash at year end (not the amount at acquisition)
- don't forget that goodwill (positive or negative) is a non-cash item.

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By Robert1981
12th Dec 2019 08:39

Got it: within the investing activities I have to show the consideration paid for the new business (outgoing) with the cash acquired with acquisition. All balances perfectly. Many thanks.

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