Financial Reporting: Investment in Financial Assets

Question 1

1. Held to Maturity
2. Held for trading
3. Available for sale

Answer 1

1. Held to maturity: Investments with a fixed life (bonds) / Set at initial fair value or acquisition value. Interest payments are amortized and counted as interest income.
2. Held for trading: bonds or equity that is held at fair value (recognize profits and losses) and intend to be held for a short period. Dividends are income.
3. Available for sale: Longer term debt and equity investments held at fair value but adjustments each year hit OCI on the BS. Dividends paid by investments held for sale are considered income on the IS.

Question 2

Fair Value Reporting (IFRS vs. GAAP)

Answer 2

1. GAAP all entities can use fair value for equity investments
2. IFRS only VC’s, mutual funds and similar can use fair value

Question 3

Acquisition Method Effect on Financial Statements

Answer 3

1. Net income and sales of investment are included on IS (not just NI like equity method.)

2.