Case 13-02

Bucks Dilemma: Gross or Net?

Bucks Hunting Equipment Inc. (Buck) is a retailer of hunting equipment, hunting apparel and outdoor accessories. Bucks operations are based in Pittsburgh, PA, with

retail stores located in the nearby suburbs and throughout southwestern Pennsylvania Buck is actively developing opportunities to expand its operations in the surrounding

region, including construction of several new retail stores in West Virginia and southern Ohio. Buck intends to complete construction and

open each of the new stores over the next three years.

Buck anticipates incurring significant expenses and making short-term

cash outlays during the construction phase of the expansion. As a result

of this growing need

to obtain new, readily

available capital, Buck entered intoa three- year revolvingline of credit (the Facility)

with its bank on January 1, 2010. The line of credit has a maximum borrowing capacity of $100 million.

Since Buck has not previously used a revolving line of credit, it does not have knowledge

of the relevant accounting literature and guidanceon how to present

the related cashflows in its financial statements. Accordingly, as

Bucks external auditor, management has asked for your assistance in determining the appropriate presentation of the

borrowing and payment activity within its statement of cash flows for the year ended December 31, 2010.

Required:

1.

Should Buck present the borrowing and payment activity related to its revolving

line of credit as cash flows from oper

ating, investing, or financing activities?

2.

For each of the following scenarios, on the basis of

the specific

facts and

circumstanc

es,

determine whether Buck should present its borrowing and

payment activity under the Facilit

y on a net or

gross basis within

the financing

activities section of its statement of cash flows.

Scenario 1:

The line of credit has a maximu

m borrowing capacity of $100 million, and

under the terms of the agreement, all draws are considered to be due on

demand.

On Jul

y 15, 2010, Buck drew

$60 million on the Facility.

On August 30, 2010, Buck drew an additional $40 million on the Facility

.

On September 30, 2010, Buck

paid down the draws by $50 million.

Assume the turnover of transactions is considered to be quick.

Scenario 2:

The line o

f credit has a maximu

m borrowing capacity of $100 million, and

under the terms of the agreement, specific maturity

terms will be negotiated

by Buck and the bank after

each draw on the Facility.

Case

13-

02c

: Bucks Dilemma: Gross or Net?

Page

2

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Deloitte Development LLC

All Rights Reserved.

On June

15, 2010, Buck drew

$60 million, and signed a note to repay the full

amount borrowed by December 15, 2010.

On

September 30, 2010, Buck drew an additional $40 million, and signed a

note to repay the full amount borrowed by December 1, 2010.

On December 1, 2010, Buck paid $40 million to the bank related to the second

draw.

On December 15, 2010, Buck paid $60 million to the bank related to the first

draw.

Assume the turnover of the transactions is considered to be quick.

Scenario 3:

The line of credit has a maximum borr

owing capacity of $100 million.

Individual draws on the Facility do not contain specific maturity dates, other

than the entire amount outstanding under the Facility becomes due at the end

of the three

-year term.

On June 30, 2010, Buck drew

$70 million on the Facility.

On September 30, 2010, Buck dre

w an additional $15 million

on the Facility

.

On November 30, 2010, Buck drew the remaining $15 million available under

the Facility.

On December 15, 2010, Buck made a payment of $50 million related to the

outstanding balance.

Assume the turnover of the tra

nsactions is considered to be

quick.

3.

What international accounting standard

(IFRS

s) applies to cash flow statement

presentation? In general, how do those guidelines compare to U

.S . GAAP?