Intercorporate Investments Flashcards
Standards for Investments in Financial Assets
IAS 39, then IFRS 9
IFRS classifications for investments in financial assets
- held to maturity (HTM) ; 2. fair value through profit or loss (FVTPL); 3. available for sale (AFS); 4. loans and receivable
Passive investments
the investor cannot exert significant influence or control over the investee’s operations
Conditions for recognition of HTM Financial Assets
Intent and ability to hold —> Not sold or reclassified a significant amount of HTM in past 2 years
Measure of HTM investments
(Debt securities) Fair Value (initial), Amortized Cost (subsequent) w/ effective interest rate method + Discounts and Premiums also amortized
Measure of FVPL investments
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
Measure of Available-for-Sale (AFS) investments
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;
Methods for recognition of Loans and Receivables investments
IFRS > amortized cost (if not HTM or FVPL); US GAAP > it one of the other three
Discount / Premium of a Bond
fair value below par value / fair value exceeds par value
Equity security
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)
Definition of Debt security
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))
Comprehensive Income
Definition, where is found in Earnings, components
[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
Other Comprehensive Income
[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);
Investments in Financial Assets in BS and PL
BS > Investments and Marketable Investments; PL > investment income;
Investments in Associates in BS and PL
BS > Investments in Associates; PL > % of the associate PL;
Business Combination investments in BS and PL
BS > fully merged; PL > 100% consolidated in controlling PL;
Reporting of unrealised gain/losses HFT financial assets
unrealised gain/losses in PL
Reporting of gains AFS financial assets
unrealized gains/losses in OIC (Equity, BS)
Impact on Earnings HTF investments
immediate in PL
Impact on Earnings AFS investments
in OCI until sold, then PL
Where in the BS is the carrying value of a debt security
Non Current Assets
Carrying Value of a security
initial value adjusted for amortization or impairment
Evidence for Impairment of an AFS asset
significant or prolonged decline in fair value of the investment below cost
Criteria for amortized cost of financial assets under IFRS 9
- 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
IASB standard for investments in associates and joint ventures
IAS 28 (2011)
evidence for significant influence over an associate
- representation on board of directors 2. partecipation in policy-making processes 3. interchange of managerial personel 4. technological dependency
equity method
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.
Equity method investment in excess of book value
when you pay more than the book value you put the excess amount in goodwill
par value of a bond
the dollar value of coupon payments
carrying amount of the investment
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.
accounting method for investment in associates
equity method (20-50% ownership)
