Chapter 11 - Investments

Question 1

What are passive, strategic, and controlling investments for EQUITY INVESTMENTS?

Answer 1

0-19% ownership = Passive Investment

20-49% = Strategic Investment

50% - 100% = Controlling Investment

Question 2

For PASSIVE EQUITY INVESTMENTS, what are the 2 methods for measuring them? When are each used?

Answer 2

1. FVTPL - Used when held for trading OR can be designated FVTPL
2. FVOCI - Used when not held for trading or can be irrevocably elected

ASPE:

With an active market - Amortized Cost or FV

Without an active market - Amortized Cost

Question 3

What are the 3 ways to measure a DEBT INVESTMENT? When do you use each?

Answer 3

1) Amortized Cost - Used when intent is to collect all cash flows until the end of the term

2) FVTOCI - Used when the intent is to collect some cash flows and possibly sell later

3) FVTPL - Intent as held for trading

Question 4

For both equity and debt investments, which ONE does not capitalize transaction costs while the other methods of measurement do?

Answer 4

FVTPL expenses transaction costs while the other methods of measurement capitalize them

Question 5

How does the amortized cost method keep track of the value?

Answer 5

It uses the effective interest method and involves the following steps:

1) initially, the investment has all of its future cash flows PV’d
2) Each period, the debt investment is amortized with interest expense/revenue and a corresponding change in the investment account value
3) Any actual repayments affect cash and the investment account

ASPE:
- The straight line method option exists which amortizes the discount or premium on a straight line basis

Question 5

How does FVOCI measure debt investments? Where does interest revenue/expense go? Where do changes in FV go?

Answer 5

Interest hits the PnL ALWAYS

Changes in FV go to OCI

Question 6

Since on F/S, everything needs to be valued in CAD, how would a difference in exchange rates for a foreign investment be different under AC, FVTPL, FVOCI?

Answer 6

For AC, the exchange gain/loss on revaluing is a separate element to earnings in the PnL

For FVTPL/FVOCI, the change in value is just a normal revaluation of the investment, not indicating exhange gain/loss

Question 7

How are strategic investments measured in both IFRS and ASPE?

Answer 7

Equity method in IFRS
= beg inv + share in earnings - share in dividends

ASPE:
Choice of cost or the equity method

Question 8

How are CONTROLLING investments measured in both IFRS and ASPE?

Answer 8

IFRS: Must consolidate

ASPE: Choice of either
1. Cost
2. Equity Method
3. Consolidate