8 Investment in Financial Assets & in Equity

Question 1

Financial assets classification for equity instruments (stocks and bonds)

Answer 1

1. Fair Value through Profit or Loss (FVPL) -
2. Fair Value through Other Comprehensive Income (FVOCI)
   - irrevocable

Question 2

FVPL Journal entries

Answer 2

1. Upon recognition
   - At FV
   - Transaction cost to be expenses

Dr Investment in FVPL
Dr Transaction cost
Cr Cash

2. At B/S date
   - Marked to market
   - Unrealized gain/loss to P/L

Dr Investment in FVPL (increase in $)
Cr Unrealized gain on FVPL

3. On sale of shares
   - Realized gain/loss to P/L

Dr Cash
Cr Investment in FVPL
Cr Realized gain on sale of FVPL

Question 3

FVOCI

Answer 3

1. Upon recognition
   - Fair value + TRANSACTION COST
   Dr Investment in FVOCI
   Cr Cash
2. At B/S date
   - Mark to market
   - Unrealized gain/loss to FV reserve
   Dr Investment in FVOCI
   Cr FV Reserve

Question 4

Associated companies

Answer 4

Entity which investor has significant influence over operations

Whose investor:
- representation on board of directors
- participate in policy decisions
- holds 20% to 50% voting shares, but can be lesser also

Question 5

Subsidiary companies

Answer 5

Entity whose investor controls more than 50% of voting shares
-Investor: parent
-Investee: subsidiary (receives investment)

Question 6

Consolidation of financial statements for subsidiary

Answer 6

Combine: all assets, liabilities, income, expenses

Eliminate: inter-company transactions like loans and sales

Question 7

Non-controlling interest (NCI)

Answer 7

Equity
- Portion of net assets (equity) in a subsidiary not controlled by the parent

Question 8

What is Investment Property?

Answer 8

Property land/ building held by owner to earn rental/ capital appreciation

Question 9

What is the cost model measurement formula?

Answer 9

Cost - accumulated depreciation - accumulated impairment