Investments

Question 1

Fair Value through Net Income Method

Answer 1

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.

Question 2

FVTNI Method Dividends

Answer 2

not recognized as income until they are declared by the investee.

Question 3

Transfer between Trading and AFS

Answer 3

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.

Question 4

Equity Method

Answer 4

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.

Question 5

Equity Method: Income

Answer 5

share of the investee’s earnings or losses in the periods in which they are reported by the investee.

Question 6

Equity Method: Dividends

Answer 6

represent a distribution of earnings previously recognized and, thus, do not affect the Investment Income account.

Question 7

Transfer from Trading

Answer 7

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.

Question 8

Recording of Stock Dividends

Answer 8

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.

Question 9

Investment: Lack of Significant Influence

Answer 9

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.

Question 10

Trading Securities

Answer 10

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.

Question 11

Transfer from AFS to Trading: Earnings

Answer 11

the entire portion of the unrealized gain or loss previously recognized as OCI to be recognized in earnings.

Question 12

Fair Value Disclosures

Answer 12

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.

Question 13

Sale of Equity Securities

Answer 13

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. .

Question 14

Liquidating Dividend

Answer 14

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.

Question 15

Fair Value through Net Income

Answer 15

Investments in equity securities with a readily determinable market value measured at fair value with changes in the fair value recognized through net income

Question 16

Market Adjustment Account

Answer 16

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.

Question 17

IFRS Impairment Test

Answer 17

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.

Question 18

IFRS: Cost Model vs. Revaluation Model

Answer 18

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):

Question 19

Cost Model

Answer 19

Cost - Accumulated Amortization (if finite life) -Accumulated Impairment.

Question 20

Revaluation Model

Answer 20

Fair Value from active market @revaluation date -Subsequent Accumulated Amortization (if finite life intangibles) – Subsequent Accumulated Impairment.

Question 21

Deferred Revenue Expenditure

Answer 21

An expenditure which is expected to yield revenue for more than one accounting year

Question 22

Cost minus Impairment

Answer 22

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.