Investments Flashcards
Fair Value through Net Income Method
highly unlikely that the investor has the ability to exercise significant influence over the operating and financial policies of the investee by virtue of the investment.
FVTNI Method Dividends
not recognized as income until they are declared by the investee.
Transfer between Trading and AFS
the security is transferred between the corresponding portfolios at the fair value at the date of transfer. If fair value is less than cost, the fair value becomes the new basis, and the difference is accounted for as if it were a realized loss and included in the determination of net income.
Equity Method
the investment is recorded at cost. Changes in the market value of the investee’s common stock do not affect the Investment account or the Investment Income account.
Equity Method: Income
share of the investee’s earnings or losses in the periods in which they are reported by the investee.
Equity Method: Dividends
represent a distribution of earnings previously recognized and, thus, do not affect the Investment Income account.
Transfer from Trading
accounted for at fair value.
The unrealized holding loss resulting from the decrease in market value while classified as trading debt securities is included in earnings.
Recording of Stock Dividends
memorandum entries only, reducing the unit cost of the stock owned. No dividend revenue is recorded and the total cost of the stock owned remains the same.
Investment: Lack of Significant Influence
the accounting for the investment will depend on the below classifications: - Trading or Held-for-trading (HFT) securities. Available-for-sale (AFS) securities. Held-to-maturity (HTM) securities.
Trading Securities
debt securities bought and held principally for the purpose of selling them in the near term. They are initially recorded at cost and then carried at Fair Market Value (FMV), as trading securities are marketable and there is intent to sell in the near term.
Transfer from AFS to Trading: Earnings
the entire portion of the unrealized gain or loss previously recognized as OCI to be recognized in earnings.
Fair Value Disclosures
If it is not practicable to estimate the fair value of a financial instrument, disclosures are required that include: (1) the information pertinent to estimating the fair value of that financial instrument, such as the carrying amount, effective interest rate, and maturity; and (2) the reasons why it is not practicable to estimate fair value.
Sale of Equity Securities
The realized loss reported from the sale of the equity securities is determined as the difference between the proceeds received (i.e., the gross selling price of the shares less any brokerage commissions and taxes incurred in the sale) and the carrying value of the securities. .
Liquidating Dividend
where the investor’s share of dividends declared by the investee exceeds the investor’s share of investee earnings subse¬quent to the date of the investment.
Fair Value through Net Income
Investments in equity securities with a readily determinable market value measured at fair value with changes in the fair value recognized through net income
Market Adjustment Account
The excess of cost over fair value or fair value over cost for AFS debt securities is recorded as a credit or debit in a Market Adjustment account.
IFRS Impairment Test
Under IFRS, a one-step approach requires that an impairment test be done at the cash-generating unit (CGU) level by comparing the CGU’s carrying amount, including goodwill, with its recoverable amount. Any impairment loss on the CGU (amount by which the CGU’s carrying amount, including goodwill, exceeds its recoverable amount) is allocated first to reduce goodwill to zero, then, subject to certain limitations, the carrying amount of other assets in the CGU are reduced pro rata, based on the carrying amount of each asset.
IFRS: Cost Model vs. Revaluation Model
Under IFRS, the cost model or the revaluation model is used to value intangible assets. Revaluation model may be used only for intangibles that are traded with active market prices (as revaluation model requires fair value determination from active market):
Cost Model
Cost - Accumulated Amortization (if finite life) -Accumulated Impairment.
Revaluation Model
Fair Value from active market @revaluation date -Subsequent Accumulated Amortization (if finite life intangibles) – Subsequent Accumulated Impairment.
Deferred Revenue Expenditure
An expenditure which is expected to yield revenue for more than one accounting year
Cost minus Impairment
an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
