Intercorporate Investments

Question 1

Standards for Investments in Financial Assets

Answer 1

IAS 39, then IFRS 9

Question 2

IFRS classifications for investments in financial assets

Answer 2

1. held to maturity (HTM) ; 2. fair value through profit or loss (FVTPL); 3. available for sale (AFS); 4. loans and receivable

Question 3

Passive investments

Answer 3

the investor cannot exert significant influence or control over the investee’s operations

Question 4

Conditions for recognition of HTM Financial Assets

Answer 4

Intent and ability to hold —> Not sold or reclassified a significant amount of HTM in past 2 years

Question 5

Measure of HTM investments

Answer 5

(Debt securities) Fair Value (initial), Amortized Cost (subsequent) w/ effective interest rate method + Discounts and Premiums also amortized

Question 6

Measure of FVPL investments

Answer 6

Both Designated Fair Value (by Management) and Held for Trading -> unrealized profit or loss and interest or dividends are at fair value in the PL

Question 7

Measure of Available-for-Sale (AFS) investments

Answer 7

always FV; unrealized gain / loss -> OCI; realized gain / loss -> Reclassification Adjustments [PL] (from OCI); interests and dividends -> PL. Foreign Exchange gain / loss: IFRS > amortized in PL + other in OCI; US GAAP > all in OCI;

Question 8

Methods for recognition of Loans and Receivables investments

Answer 8

IFRS > amortized cost (if not HTM or FVPL); US GAAP > it one of the other three

Question 9

Discount / Premium of a Bond

Answer 9

fair value below par value / fair value exceeds par value

Question 10

Equity security

Answer 10

ownership interest held by shareholders in an entity (a company, partnership, or trust), realized in the form of shares ofcapital stock (both common and preferred)

Question 11

Definition of Debt security

Answer 11

borrowed money that must be repaid, with terms that stipulate the size of the loan, interest rate, and maturity or renewal date (government and corporate bonds, certificates of deposit (CDs), and collateralized securities (such asCDOs andCMOs))

Question 12

Comprehensive Income

Definition, where is found in Earnings, components

Answer 12

[BS] (= Net Income + OCI) the variation in the value of a company’s net assets from non-owner sources during a specific period. It includes net income and unrealized income. Unrealized income can be unrealized gains or losses on, for example, hedge/derivative financial instruments and foreign currency transaction gains or losses

Question 13

Other Comprehensive Income

Answer 13

[BS] OCI represents the balance between
net income and comprehensive income (i.e. portfolio of bonds that have not yet matured and consequently haven’t been redeemed);

Question 14

Investments in Financial Assets in BS and PL

Answer 14

BS > Investments and Marketable Investments; PL > investment income;

Question 15

Investments in Associates in BS and PL

Answer 15

BS > Investments in Associates; PL > % of the associate PL;


Question 16

Business Combination investments in BS and PL

Answer 16

BS > fully merged; PL > 100% consolidated in controlling PL;

Question 17

Reporting of unrealised gain/losses HFT financial assets

Answer 17

unrealised gain/losses in PL

Question 18

Reporting of gains AFS financial assets

Answer 18

unrealized gains/losses in OIC (Equity, BS)

Question 19

Impact on Earnings HTF investments

Answer 19

immediate in PL

Question 20

Impact on Earnings AFS investments

Answer 20

in OCI until sold, then PL

Question 21

Where in the BS is the carrying value of a debt security

Answer 21

Non Current Assets

Question 22

Carrying Value of a security

Answer 22

initial value adjusted for amortization or impairment

Question 23

Evidence for Impairment of an AFS asset

Answer 23

significant or prolonged decline in fair value of the investment below cost

Question 24

Criteria for amortized cost of financial assets under IFRS 9

Answer 24

1. the f.a. is held to collect contractual cash flows; 2. the contractual cash flow is solely a payment of principal and interest on principal

Question 25

IASB standard for investments in associates and joint ventures

Answer 25

IAS 28 (2011)

Question 26

evidence for significant influence over an associate

Answer 26

1. representation on board of directors 2. partecipation in policy-making processes 3. interchange of managerial personel 4. technological dependency

Question 27

equity method

Answer 27

is an accounting approach where an investor recognizes its share of an investee’s profits or losses on its financial statements, typically used when the investor has significant influence (usually 20-50% ownership) but not full control.

Question 28

Equity method investment in excess of book value

Answer 28

when you pay more than the book value you put the excess amount in goodwill

Question 29

par value of a bond

Answer 29

the dollar value of coupon payments

Question 30

carrying amount of the investment

Answer 30

refers to the value of an investment that is reported on the investor’s balance sheet. Represents the initial cost of the investment, adjusted for the investor’s share of the investee’s profits or losses, any dividends received, and any amortization or impairments related to the investment.

Question 31

accounting method for investment in associates

Answer 31

equity method (20-50% ownership)