Intercorporate Investments Flashcards
What are the 4 different categories of intercorporate investments
- Investment in financial assets
- Investments in associate
- Joint venture
- Business combination
When is something categorized as Investment in financial assets
Less than 20% ownership in equity
No significant influence or control
When is something categorized as Investments in associate
20-50% of equity ownership
Significant influence but no control
When is something classified as Joint venture
When 2 or more entities share control of a company.
When is something classified as Business control
More than 50% equity ownership
How are investment in financial assets classified if they’re to be sold?
Fair value through profit or loss
Fair value through IOC
What is the equity method?
The equity method requires the investing company to record the investee’s profits or losses in proportion to the percentage of ownership.
How are investments initially recorded?
Initially recorded at cost of acquired shares.
Where should Increase in proportion of earnings be recording in the equity method
In income statement
Where should Increase in proportion of dividends be recording in the equity method
Only in balance sheet
What is fair value method?
The estimated price at which an asset is bought or sold when both the buyer and seller freely agree on a price.
Individuals and businesses may compare current market value, growth potential, and replacement cost to determine the fair value of an asset.
Who can use fair value method under IFRS and GAAP?
IFRS: Strictly Venture capital, Mutual funds, are restricted to only use FV
GAAP: All entities
Where is unrealized gains/loss reported in fair value method?
In net income
Where is interest/dividends reported in fair value method?
In net income
How is impairment tested in Fair value method
For both IFRS and GAAP
If impaired, write down to recoverable amount
When is acquisition method used?
In business combination
When we go from influence to control
Used for IFRS and GAAP
Formula for calculation of impairment of loss
Carrying value - Recoverable amount of units