CMA Study Group

Here is the question :

The sale of available-for-sale securities should be accounted for on the statement of cash

flows as an:

a. operating activity.

b. investing activity.

c. financing activity.

d. noncash investing and financing activity.

The answer to above I thought was "b.investing activity" as the purchase and sale of securities is related to investment.

BUT the correct answer given is "a.Operating activity". I am not able to get to the logic behind choosing operating activity as the right answer. If anyone knows the answer please let me know.

Thanks,

Anil.

Hi Mahmoud ,

 

Thanks for clearing my doubt.

 

Regards,

 

Anil.

Securities portfolio is devided into two categories - Available-for-sale and Held-for-investment. Transaction on securities on hold is considered as investing activity where as securities for sale is considered as operating activity. 

Opinions solicited

Anil, Can you please confirm that you have copied the complete text of the question?

Thanks Kaushik.

Angel, I confirm I have copied the complete text of the question.

Here it is again:

Question No.12 :CSO: 2A1d LOS: 2A1c 

The sale of available-for-sale securities should be accounted for on the statement of cash

flows as a(n)

a. operating activity.

b. investing activity.

c. financing activity.

d. noncash investing and financing activity.

I have checked the answer too. and it is (a)

The above question is reproduced from the additional practice questions set given by the Institute on page 3

Can you please tell me what you think could be missing from the question?

 

Anil,

I agree with your original answer. AFS securities may be current or non-current. This makes it harder for me to digest answer (A) as correct, in the light of the bare statement that the item is AFS securities without any added description if it is current or non-current. In my opinion, this question is susceptible of two interpretations and, therefore, would accept A and B as correct answers. The item having been sold as mentioned in the problem does not necessarily mean that it was classified as current.

Hi anil,

I refer this matter with my reviewer and said that IMA maybe wrong at this answer for treating this as an operating activity. She suggested to email IMA in this regard. 

If you emailed IMA, please let us know of their answers.

Thanks.

Dear Ronald / Angel / Kaushik,

I vaguely remember the speaker of a IFRS workshop I  attended some time back , telling the audience that Available for sale securities are always current i.e., there is intention to sell it within a years' time.

I do not remember IFRS no. I plan to check on this and revert.

I have not emailed IMA.

Meanwhile if you get any updates please let me know.

Thanks

Whether an AFS securities may be classified as current or non-current depends on the intent of the company. When the problem is silent, the gen rule is to treat such as non-current. When the prevailing circumstances suggest that these securities represent cash available for current operations, it becomes more appropriate to report them as current assets.