Investments

Question 1

Describe FV Option (US GAAP)

Answer 1

Same rules as trading debt- on specified dates measure eligible instruments @ fv (unrealized g/l in earnings)

Question 2

Debt Security Classifications

Answer 2

Trading - Current Asset, Operating CF, all g/l in earnings (even if unrealized), valued @ fv

2. AFS- CF investing, can be current or non, realized g/l = I/S, unrealized g/l = OCI , valued @ FV
3. HTM - CF investing, @ amortize cost, only realized g/l on I/S

Question 3

Reclassify Classification

Answer 3

1. All transfers @ fv
2. Transfer to trading - realized g/l to earnings
3. transfer from trading - unrealized g/l already in earning (no adjust)
4. HTM to AFS - @ fv unrealize g/l to OCI
5. AFS to HTM - OCI and amortize

Question 4

unrealized g/l journal entry

realized gain/loss entry

Answer 4

DR - loss ( gain cr)
CR valuation account

DR Cash
CR TS
CR gain

Question 5

When is impairment on investment recorded?

Answer 5

when other than temporary and a decline in FV below CV

TS - loss already recorded in earnings
AFS - unrealized g/l now on IS
HTM - Mark to FMV - loss on IS

Question 6

Calculate Realized gains

TS & AFS

Answer 6

TS & equity g/l = Selling price (less cost to sell) - adjusted cost ( original cost - unrealized gain or loss recorded in I/S)

AFS g/l = SP - orignial cost (reverse unrealized gain and loss out of OCI

J/E -
DR Cash xxx
Unrelaized Gain (OCI) xxx reduce
CR Realized gain (I/S)
CR AFS

Question 7

Equity Securities

Answer 7

Valued @ fv like T/S

exception - private no market available = cost - impairment
practicability exception

Question 8

Liquidating Dividend Vs Normal

Answer 8

Normal  = dividend income
liquidaing = return on capital (investment)

Question 9

IFRS same different name for debt instruments

Answer 9

TS = FV through Profit and loss
AFS = FV through OCI
HTM = same '

equity = FV P/L & FV OCI unlike US GAAP