Chapter 12 (handbook) Flashcards
US GAAP on investments
ASC Codification Topic 320
IFRS authoritative support on investments
IAS 39
What is the difference on reclassification between categories in IFRS IAS 39
(1) A reclassification INTO the fair value through profit or loss category (not allowed)
(2) A reclassification OUT OF the fair value through profit or loss category (not allowed)
but it is allowed with GAAP
Does IFRS allow fair value option of investments qualified as equity method
no
Does GAAP allowing fair value option of investments qualified as equity method
yes
GAAP classification of Investment securities
320
what are the requirements for trading securities
acquired with the intent of selling it within hours or days.
requirements for available for sale
debt and equity securities that have READILY DETERMINABLE FAIR VALUES not classified as trading securities or as HTM
requirements for HTM
debt securities if the reporting entity has the POSITIVE INTENT AND ABILITY to hold those securities to maturity
types of equity securities
CS, PS and other forms of capital stock.
rights to acquire ownership shares including: stock warrants, rights, and call options.
rights to dispose of ownership shares in the future
Equity securities DO NOT include
PS redeemable at the option of the investor or stock that must be redeemed by the issuer.
TS
Convertible bonds
What are TS classified in cash flows
operating
what are AFS classified in cash flows
Investing
what are HTM classified in cash flows
Investing
Where are Unrealized gains and losses reported for TS
current period earnings - net income
Where are unrealized gains and losses reported for AFS
OCI - AOCI
Reclassification: From Trading to any other
the unrealized holding gain or loss at the date of transferred is already recognized in earnings and shall not be reversed
Reclassification: From any other to Trading
recognized in current earnings (income) (because you haven’t recognized it yet)
Reclassification: from HTM to AFS
record in OCI
Reclassification: from AFS to HTM
Amortize gain or loss from OCI with any bond premium/ discount amortization over the remaining life of the security.
OTTI of AFS
must be reflected in EARNINGS (income)
what happens to subsequent recoveries in AFS for OTTI
previous permanent decline CANNOT be recognized in income UNTIL LIQUIDATED
What happens to the OTTI loss AFS
recognized in earnings (net income)
what happens to the carrying value of OTTI AFS
in the BS by that amount
permanent Impairment of TS
does not arise, the distinction between realized and unrealized gains or losses does not exist for TS
once OTTI is recognized for TS the reduced carrying value becomes..
the new cost basis from which other increases or decreases in value are measured
Hedging TS
gains and losses that hedge TS should be reported in earnings, consistent with the recovery of unrealized gains and losses on TS
Hedging AFS
gains and losses on derivative instruments that hedge AFS are recognized currently in earnings together wit offsetting losses or gains on the AFS securities attributable to the hedged risk
Sale of a TS
realized gain and loss is recognized as the difference between the adjusted costs and selling price
Sale of AFS
realized gain or loss is recognized as the difference between the selling price and original cost of the security. Any realized gains/losses in AOCI must be reversed at the time the security is sold
required disclosures for AFS and HTM
aggregate fair value
gross unrealized and realized holding gains/losses
amortized cost by major security type
information about the contractual maturities and debt securities
up and downs of equity method investors
up for net earnings and down for investee dividends paid
equity method includes
common stock not preferred stock
equity method has none of what
dividend revenue
Significant influence:
representation on BOD participation in policy making processes material intra entity transactions interchange of managerial personnel technological dependency
