chapter 12 Flashcards
what are the 2 reasons for investments?
strategic investments
non-strategic investments
how do you account for non-strategic investments?
using the fair value through profit or loss (FVTPL) model
what are the 2 ways to account for strategic investments?
equity method
cost model
what are the 2 kinds of investments?
debt invstemetns
equity investments
what is a debt investment?
guaranteed investments certificates or term deposits, bonds, commercial part that earn interest over time and the borrower is usually obligated to return the original investment (principal)
what are equity investments?
preferred and common shares of other corporations that may or may not earn dividend income and with no obligation to return principal
what are the 3 reasons companies invest?
they have excess cash to invest to earn interest or dividends over short or longer periods of time
to buy and sell investments to earn trading Gails
to purchase an interest in another company in order to excessive some influence over another company
are trading investments held for strategic purposes?
no always just help in short run for profit
what are the 2 ways to account for trading investments?
fair vale profit and loss
cost model
what are 3 kinds of non current investments?
debt investments non strategic
long term equity investments non strategic
investments in associates
how are non strategic debt investments accounted for?
amortized cost model
how are long term equity investments non strategic accounted for?
fair value profit and loss model (FVPNL)
how are investments and associates accounted for?
equity
what determines if an investment is strategic or not?
if they own 20.01% -50% of a companies shares that is strategic
what is the only kind of investment that can be a strategic investment?
only equity investments (normally common shares)
what are the 3 ways to account for non-strategic investments?
fair value through profit or loss (FVTPL)
amortized cost model
cost model
what is the fair value through profit or loss?
adjust investment up or down to reflect fair value at end of accounting period
resulting in unrealized gain or losses, recorded on the statement of income
what is the amortized cost model?
apples only to debt investments not adjusted to reflect fair value, any discount or premium on purchase is amortized over the remaining life
what is the cost model?
used for equity investments when fair value is not available, no adjustment to record fair value
how do you adjust investments for fair value?
dn/cr trading inv
dr/cr unrealized gains/ losses
if a company owns more than 50% of another companies shares what kind of influence is that?
control influence
how are common shares recorded when it is more then 20% ownership of a company?
it is recorded in investment in associates
how do net income or loss impact “investment in associates”?
it will increase or decrease the investment in associates
how do dividends earned impact “investment in associates”?
it decreases them, but decreases cash
how often is the investment account adjusted?
annually
under the cost model, when is investment adjusted for any changes in fair value?
only when the investment is sold
