Investments Flashcards
Held to Maturity
- Can and Intends to hold to maturity
- Record at cost
- Use amortized costs
- Recognize interest earned
- No gain/loss on I/S
- B/S - current if matures in less than 1 year, otherwise not current
- C/F - Investment
Trading
- Sell in near term
- Record at cost
- Fair Mkt Value
- Gain/Loss on I/S
- B/S - current
- C/F - Operating
Available for Sale
- Not HTM or Trading
- Record at cost
- Fair mkt value
- Int & Dividends reported as earnings
- Gain/Loss on OCI - Owners Equity
- B/S * current or non current
- C/F - Investment
Significant Interest
- 20% to 50% interest generally
- Record at cost
- Equity classification
- Equity method
- No gain/loss on I/S
Controlling interest
- > 50% of voting stock
- Record at cost
- Subsidiary
- Consolidated statements
Treatment of Losses
Permanent Loss - AFS securities
- Recognized in earnings because probable (Net Income)
Non Permanent Loss - AFS securities
- Direct reduction to equity in Investments AFS
Cost method
Equities only with no significant influence or determinable fair value
- B/S at cost
- Dividends in earnings
- C/F Investing activity
Cost method
Equities only with no significant influence or determinable fair value
Transfers between categories
Change in intent or ability
From HTM to AFS
AFS established at FV, unrealized gain/loss recorded in ACOI
From AFS to HTM
HTM account established at FV, unrealized gain/loss in ACOI is amortized over life of security
Trading to HTM
Establish HTM account at FV, unrealized gain/loss is recognized as income (VERY RARE)
Trading to AFS
Establish AFS account at FV, unrealized gain/loss recognized as income (very rare)
HTM to Trading
Establish trading account at FV, unrealized gain/loss recorded in income
AFS to Trading
Establish trading account at FV, unrealized gain/loss in ACOI is recognized as income
Revenue (Loss) Recognized - Equity Method
= Investor’s share of investee’s income/loss (after eliminating its share of any intercompany profits/losses in assets) - “Depreciation/Amortization” of investment cost > book value, OR + “Depreciation/Amortization” of book value > investment cost = Net Revenue/Loss Recognized
(Equity) Investment in Investee X (on Balance Sheet)
Original cost of Investment | Pro rata share of investee’s income since acquisition | Pro rata share of investee’s losses since acquisition Amortization of book value in excess of cost (i.e., on amounts allocated to write down nonfinancial assets) | Amortization of cost in excess of book value (i.e., on amounts allocated to identifiable assets, but not Goodwill) Retroactive adjustment due to change from Fair Value to equity method (DR or CR) | Pro rata share of investee’s dividends declared | Impairment losses | Disposal of investee stock (write off)
Investment (Equity) Revenue, Investee X (On I/S)
Pro rata share of investee’s losses since acquisition | Pro rata share of investee’s income since acquisition Amortization of cost in excess of book value (i.e., on amounts to identifiable assets, but not Goodwill) | Amortization of book value in excess of cost (i.e., on amounts allocated to write down non-financial assets)
Differences IFRS & GAAP
IFRS - uses “associates, reserve accounts, must use same accoutnting polices, must adjust for losses immediately even if immunient return appears assured and must change from equity method to available for sale as soon as decision is made, impairment measured over recoverable amount instead of FV.
Journal Entries
Recognized share of Investor reve
Debit Investment x
Credit Investment revenue
Recongizee div on common stock
Debit Dividends receivable
Credit Investment X
