Intercorporate Investments

Question 1

No Significant Control

Answer 1

Investments in Financial Assets

Question 2

Significant Influence (not control)

Answer 2

Investments in Associates (equity method)

Question 3

Control over Operations

Answer 3

Business Combinations (acquisition method)

Question 4

Financial Asset Classifications

Answer 4

1. Held-to-maturity
2. Held-for-trading
3. Designated at FV
4. Available-for-sale

Question 5

Held-to-maturity

Answer 5

Consists of debt securities. Reported on the BS at amortized cost

Question 6

Held-for-trading

Answer 6

Acquired for the purpose of profiting in the near-term (within 3 months). Reported on BS at FV. Realized and unrealized changes in FV recognized on the IS w/ any dividends or interest income.

Question 7

Available-for-sale

Answer 7

Securities that don’t fit in the held-for-maturity or held-for-trading buckets. Similar treatment as HFT except that URGL’s are excluded from IS and reported in OCI component of SE.

Question 8

Unrealized AFS G/L GAAP Treatment

Answer 8

Presented in OCI section of SE. When the securities are sold, they are removed from OCI and recognized on IS.

Question 9

Unrealized AFS G/L IFRS Treatment

Answer 9

Same as GAAP except for FX URGL on AFS securities. These are recognized in the income statement.

Question 10

Equity Method

Answer 10

Used for investments in associates. Initial investment is recorded at cost and reported on the BS as a non-current asset.
In sub. periods, the proportionate share of investee’s earnings increase the account on investors BS and is recognized in IS.
Dividends are treated as ROC, and thus, reduce the investment account. They are not recognized on the IS.