investment Flashcards
IFRS rules for investments
Types of classifications
Transfer restriction
Two types only
HTM for debt measured at amortized cost
FV Through profit and loss - all at FV
Transfer restriction
Do not permit transfer into/out of trading
Equity method reporting adjustment effect
> 20% use equity method of accounting
Required investors periodically 1) adjust CV of investment to reflect changes in the invested SH’s equity; 2) recognize any differences between cost assigned to FV and BV of those assets
If no significant influence, investor will record investment at what value?
FV
If prior ownership have no significant influence and then additional shares were purchased results significant influence, what are the methods switched and what adjustment were needed?
Need to retrospectively switch from FV method to Equity method, and adjust investment and income as equity method have been used the whole time.
Entry for investment in company
Investment in A co. Xx
Cash. Xx
Cost include: purchase price and brokerage commission, transfer fees, etc.
When recognized initial investment, recognize FV, BV, bargain or goodwill
Journal entry for equity method income and dividends
Income entries
Investment in investee xx
Investment income. xx
If loss, reverse the entry
Investee dividend reported
Cash/ dividend receivable xx
Investment in investee. xx
Equity method dividend paid will liquidate investor investment
Under equity method accounting, what need to be disclosed in annual f/s?
Company’s actg policy on the investment either using equity or elect FV option
If an investor owners greater than 25% of the stock of another company, and a standstill agreement exist, what does that mean?
It means the investor can’t exercise significant influence, so try investor has to use FV method
If the investor has no significant influence investment for the first half of the year and then purchased additional shares results significant influence, what method are used for the year?
First half year use FV method, second half us equity method
U.S. GAAP and IFRS differences for investment
- Can apply FVO to equity investee; can only elect for venture investor, mutual fund or unit trust
- No requirement for actg policy conform; do have to conform
- Report w/in 3 month; required to be within 3 months
- Not required to adjust significant transaction in 3 months window; do require!
- Can recognized losses; can’t recognized losses unless investor has obligation and commitment to investee.
- Impairment loss is CV-FV; CV-recoverable amount
- Apply equity method until investment is sold; adjust to lower of FMV or CV, and reclassify as HFS
Skipped
Actg for joint venture
Record asset contribution
VIE for corporate joint venture treatment
At CV on date of contribution and recognize investment **
Legal form of joint venture
Corporate JV or partnership JV
GAAP: usually use equity method
IFRS
If VIE,consolidate the joint venture
If not VIE: using equity method for joint venture
If one investor control the JV but not VIE, the person in control consolidate the JV
IFRS joint venture vs joint operation
No arrange structure (yes), no legal form, no contractural arrangement and no other facts and circumstances where the party depends on the continuous involvement, then it’s joint venture, not joint operation
Usually set up by contract or a separate entity
Investor stock dividend, split and rights
How to count Stock dividend received by investors
As dividend
Adjustment made at per share value
Upon sales, write off shares at new per share cost
Stock split received by investors
When received stock split, the per share value decrease
Only adjust at per share level
Calculation is the same as stock dividend
Stock rights received by investors
Investors receive rights to purchase additional shares at specific price at specific time (stock warrant)
If option price
