ACCT 434- Mod 3

Question 1

What are equity investments?

Answer 1

Investments in the shares of another company

Question 2

How must non-strategic investments be reported?

Answer 2

At fair value

Question 3

How must strategic investments be reported

Answer 3

Methods other than fair value

Question 4

What is fair value?

Answer 4

The price that would be received to sell an asset to a market participant

Question 5

What reporting method must be used for an investment where you have significant influence?

Answer 5

Equity method

Question 6

What reporting method must be used for an investment where you have Control?

Answer 6

Consolidation method

Question 7

What reporting method must be used for an investment where you have Joint Control?

Answer 7

Equity method

Question 8

What reporting method must be used for a FVTPL investment?

Answer 8

Fair Value Method

Question 9

What reporting method must be used for a FVTOCI investment?

Answer 9

Fair value method

Question 10

What investments would use FVTPL?

Answer 10

Investments held for short term trading

Any other investment that they wish to designate FVTPL

Question 11

For FVTPL, where are unrealized gains and losses (as well as dividends) reported?

Answer 11

Income

Question 12

For FVTOCI, where are unrealized gains and losses reported? Where are dividends reported?

Answer 12

Unrealized gains & losses: OCI

Dividends are recorded in income

Question 13

When would the cost method be used in IFRS?

Answer 13

Investments in controlled entities
Available for sale investments
Internal reporting

Question 14

When would the cost method be used in ASPE?

Answer 14

Equity investments that are not quoted in an active market

Question 15

What happens under the cost method? (4 steps)

Answer 15

Investment is initially recorded at cost
Impairment losses are reported in Net Income
Dividends are reported in net income
When sold, the realized gains or losses are reported in net income

Question 16

What are some indications of significant influence?

Answer 16

Representation on board of directors
Participation in policy making decisions
Material transactions between investee and investor
Interchange of management personnel
Provision of essential technical information
Hold between 20-50% of shares

Question 17

What are the basics of the equity method? When is it used?

Answer 17

Investor records proportionate share of investee’s income

Dividends received reduce the investment account

Investor records discontinued ops and comprehensive income from investee seperately

It is used when we have significant influence

Question 18

What happens when losses exceed the balance in the investment account?

Answer 18

The investment could end up being reported as a liability rather than an asset

Question 19

What method should be used to determine any gain or loss when an investor sells part of its investment?

Answer 19

Average cost

Question 20

How do we determine if control over a company has been established?

Answer 20

50% + 1

Contract/agreement giving control

Question 21

What is a business combination?

Answer 21

When one company takes control of the assets of another company

Merger
Acquisition
Takeover
Reverse Takeover

Question 22

What is a non-strategic investment?

Answer 22

Where one company buys debt or equities (bonds and shares) of another company in order to obtain a return on investment

Question 23

What are the two reporting methods that can be used for a non-strategic investment?

Answer 23

FVTPL

FVTOCI

Question 24

What is an investment in associate?

Answer 24

When one company buys shares in another company and can excercise significant influence, but not control

Question 25

What method is used to account for investments in associates?

Answer 25

Equity method

Question 26

What is a joint venture?

Answer 26

When two or more companies have made a contractual agreement to cooperate on a venture

Question 27

Where are dividends recorded for: FVTPL, FVTOCI and Equity method?

Answer 27

FVTPL: income on income statement

FVTOCI: income on income statement

Equity Method: Charged against the investment account on the balance sheet

Question 28

What are the 5 columns of the table that Mrs. Dahm suggested for solving problems involving business combinations

Answer 28

Is it applicable
Investment account
Income statement
OCI
Other Account

Question 29

What are the 6 rows of the table that Mrs. Dahm suggested for solving problems involving business combinations

Answer 29

Purchase price
Brokerage fee
Cost of share issue
Unrealized gain/loss
Equity income
Dividends