Chapter 9

Question 1

What are changes in fair value amounts called?

Answer 1

Unrealized holding gains/losses
*Only realized at disposal

Question 2

What are the three models used for accounting for investments?

Answer 2

1. Cost/Amortized Cost Model (only debt instruments like bonds, long term notes and receivables)
2. Fair value - Net Income
3. Fair value - Other Comprehensive Income

Question 3

What is recycling versus no recycling under FV-OCI?

Answer 3

Recycling is when you transfer realized gain/loss to net income (debt instruments)
No recycling is when you transfer directly to retained earnings

Question 4

How do you recognize holding gain/loss under FV/OCI model?

Answer 4

IFRS: earned interest, dividend income, and any holding gain/loss on investment reported together as Investment Income
ASPE: All of the above must be recorded separately under respective accounts
*when you recognize interest income separately, discount or premium must be amortized first

Question 5

How do you record a non-interest bearing debt under FV-NI?

Answer 5

Investment income is recorded as the difference between the purchase price and maturity value

Question 6

What are the three journal entries required when you sell an FV-OCI investment before maturity?

Answer 6

1. Revalue investment to fair value
   Unrealized Gain/Loss
   FV-OCI Investment
2. Recognize the sale
   Cash
   FV-OCI Investments
3. Accumulated unrealized loss must be recycled through net income
   Loss on Disposal of Investments
   Unrealized Gain/Loss

Question 7

What is the incurred loss impairment model? When is it used?

Answer 7

ONLY ASPE
-Impairment test is only carried out if there is evidence of impairment
-Loss is moved to net income as difference between carrying amount and revised present value of expected cash flows
-Used for all investments under amortized cost method
-May be reversed

Question 8

What is the expected loss impairment model?

Answer 8

ONLY IFRS
-Impairment test carried out continually
-Loss is difference between carrying amount and revised present value of expected cash flows (excluding OCI equity investments)
-Present value calculated using original effective interest rate with probabilities factored in

Question 9

What is the fair value loss impairment model?

Answer 9

BOTH IFRS&ASPE
-Continually revalued
-Impairment is difference between carrying amount and fair value (if FV is less)
-No need to assess impairments using FV-NI all changes already recognized

Question 10

What defines significant influence?

Answer 10

-20-50% ownership
-Representation on board
-Participation in policy making
-Material intracompany transactions
-Same management personnel
-Provision of technical info

Question 11

What is recoverable amount according to the equity method?

Answer 11

The higher of value in use and fair value less costs to sell

Question 12

How does IFRS versus ASPE account for investments in subsidiaries?

Answer 12

IFRS: report the two corporations as a single entity and prepares consolidated financial statements
ASPE: consolidate subsidiaries or present them under equity or cost method (unless in an active market)