Financial Reporting & Analysis 1: Inter-corporate Investments Flashcards
What are inter-corporate investments?
Inter-corporate investments are investments in other companies, and they effect both the Income Sheet and the Balance Sheet
What are the 4 types of inter-corporate investments?
1) Investments in Financial Assets
2) Investments in Associates
3) Business Combinations
4) Joint Ventures
How much influence and control does the investor have in the investee under an investment in financial assets?
There is not significant influence, generally equity stake is less than 20%
How much influence and control is there under an investment in associates? What method do we report investments in associates?
There is generally significant influence and equity stake is between 20%-50%.
We use the equity method of reporting.
How much influence and control is there under a Business Combination? How do we report a Business Combination?
Investor is a controlling member, with ownership > 50%.
We report business combinations using the consolidation method.
What is the influence structure in a Joint Venture and how do we classify a Joint Venture?
Influence is shared among investors, and reported using the equity method.
For Investments in Financial Assets, we usually consider them (passive or active)because ______
Passive, because we don’t have significant control or ownership
For Invesments in Financial Assets, Dividends and Income are reported ______
On the income statements
Held to Maturity securities are typically (debt or equity). What are some of their characteristics?
HTM are typically debt securities. They generally will have a fixed or determinable payment schedule and maturity date.
When considering how a HTM security is initially recognized, compare IFRS and GAAP
For IFRS, a HTM security is initially recognized at Fair Value.
For GAAP, a HTM security is initially recognized at Price Paid.
These two are generally the same amount
When considering how a HTM security is subsequently recognized, compare IFRS and GAAP.
IFRS and GAAP are the same when it comes to subsequent value recognitions. HTM securities are recognized at their amortized cost using the Effective Interest Method.
For a HTM security, interest income is reported where?
On the Balance Sheet
For a HTM security, how do we recognize unrealized gains and losses?
We don’t recognize them, because we intend to hold the security until maturity, so they should not be consequential.
Securities Held for Trading, as well as securities designated as Carried at Fair Value, are broadly classified as _______
Fair Value through Profit and Loss (FVPL)
How would you classify debt and equity securities that are held with the intent to sell in the near term?
Held for Trading
Held for Trading securities are initially recognized at ______
Fair Value
For Held for Trading securities, how do we treat unrealized gains and losses?
They are reported as profit and loss
For Held for Trading securities, how do we treat realized gains and losses?
They are reported as Profit and Loss
For Held for Trading securities, how do we treat income from interest and dividend payments?
Though Profit and Loss
Available For Sale securities are (debt and/or equity) investments that are not classified as ____ or _____
AFS securities are both debt and equity securities that are not classified as HTM or FVPL
For AFS securities, we generally initially recognize them at _____
Fair Value
For AFS securities, how to we recognize realized gains and losses?
For AFS securities, realized gains and losses go on the income statement
For AFS securities, interest and dividend income go on the ______
Income Statement
What is the main difference between IFRS and GAAP when it comes to unrealized gains and losses on AFS securities?
The main difference is that for GAAP, ALL unrealized gains and losses flow to OCI. Importantly, ALL includes exchange rate movements for debt securities. Under IFRS, the impacts of FX movements does not flow to OCI, they go straight to the income statement.