Marketable Securities and Business Combinations Flashcards
Classification of Securities
Trading Security, Available for sale securities, Held to Maturity
Under IFRS Marketable security investment can be classified
Financial assets at fair value through profit or loss
Available for sale
Held to maturity
Treatments
Trading securities wil go to IS and AFS will got o OCI
HTM securities are valued at amortized cost.
Reclassifications
From Trading Catogery: The unrealized holding gain or loss at the date of transfer is already recognized in earnings and shall not be reversed
To trading category: The unrealized holding gain or loss at the date of transfer shall be recognized in earnings immediately.
Debt security classified as held to maturity transferred to available for sale: The unrealized holding gain or loss at the date of transfer shall be reported in other comprehensive income.
Debt Security Classified as Available for sale Transferred to held to maturity
Equity Method
JE to record when Purchased: Investment
to cash
Ownership percentage in investee: Investment in Investee
Equity in Earnings
Decrease by Investors parent ownership percentage of cash dividends
Cash
Investment
Dividends not income treated as withdrawals
Income statement
investment
equity in earnings/investee income
Menemonic Base
Beginning balance
Add investors share of investee’s earning
Subtract Investors share of investee dividends
Ending bal
Stock Dividend- Memo entry
Treatment of extra purchase price
If you paid extra because of land you don’t amortize
What is the Journal entry for the amortization
It is reducing our investment so the entry is Equity in investee income
Investment in investee
Goodwill
Don’t test under equity method
NBV-FV
What accounting in used in JV
Under US Gaap and IFRS Joint Venture Accounting always recorded at cost
how will you calculate good will
Excess of Net bok value to FV is the amount you paid for other assets Excess of FV to purchase price is goodwill
Consolidation
Consolidate sub at 100% fair value at acquisition date. Recognition Principle Measurement Principle.
How you calculate Goodwill under Non-controlling interest
Fair value of consideration transferred(Cost to the acquirer)
+ Fair value of previously held equity interest in acquire
+ Fair value of non controlling interest_ fair value of net identifiable assets of the acquire
Two consolidation methods
Acquisition method-Recognition Principle- The acquirer recognizes all of subsidiaries assets and liabilities, including identifiable intangible assets.
Measurement Principle- Measuring assets at acquisition date fair value
How to calculate beginning retained earnings when they give you end retained earnings
BASE=ending retained earnings reverse income recverse dividends
Nuemonic to remember consolidations
CAR IN BIG
CAR- Common Stock Retained earnings APIC of subsidiary are eliminated
I-Investment in Subsidairy are eliminated
N-Non-controlling intrest
B-Balance sheet of subsidiary is adjusted to fair value
I-Identifiable Intangible assets
G- Goodwill (or Gain) is required
NCI
Everything even NCI is 100% fair value
Three types of securities
Trading securities,Available for sale, Held to Maturity
Trading securities recording rules
Current asset
include both debt and secuties
recorded at cost but carried at FMV
Any unrealized gains or lossed appear on Income statement
Realised gains and losses are always with on income statement along with dividend income
AFS recoding rules
Current or non current
Include both debt and equity
Initially recorded at cost but carried at FMV
Any urealized gains or losses are recorded in B/S as part of Comprehensive income in the stockholders equity section.
In cash flows record under investing activity
Temp or perm
If it is temp write it up or down if it is perm do not do anything
Held to Maturity
Only bonds no stocks
Record at cost
Carry at amortized costs
Unrealized gains and losses not applicable
investing activity on statement of cash flows
Considered HTM if sale occurs after 85% of principle has been collected
Reclassification Of securities
Between trading and AFS
Reclassify at FMV
The difference is treated on the realized loss/gain on income statement
Eliminate any related revaluation accounts
Between HTM and AFS
Reclassify to FMV
If HTM to AFS then record in OCI
IF AFS to HTM then the unrealized loss is reported on the part of B/S then amortized over the remaining life o the security
Fair Value Option
When an entity selects fair value option for financial instruments all changes in fair value are recognized in income regardless whatever the security is
classified.
Electing fair vaue option does not have any effect on how securities are classified
Fair value Hedge
If the firm is hedging against the physical assets or liabilities or a firm purchase commitment the changes in derivatives are reported from income from operations
Cash flow hedge
If the hedge is for a forecasted future transaction that is expected to take place in the future but not yet a legal commitment then changes in adjustments are reported in stockholders equity in other comprehensive income.
The non controlling interest
FMV increment
Elimaination of intra company transactions
PPand E
Cash
acc.dep
equip
gain
Then eliminate the gain
Gain 21 Acc.dep 7
Dep.Exp 7
PPand E 6
Acc.Dep 15
Elimiination of intra company transactions-sales
Sales
Inv(INventory at cost)
Cogs
Eliminate inter company Bonds:
BP
Dis
cash
gain or loss
AFS Securties in unrealized gain
at the end of every year releate to cost and report in B?S
Trading securities in unrealized gain
Don’t releate to cost but previous year
