Passive investments

Question 1

Purpose

Answer 1

To earn a return until the cash is needed in the future

Question 2

When to recognize

Answer 2

When contractual obligations are met. When entity gains control of the investment.

Question 3

Initial measurement

Answer 3

Fair value (price in regular market)

Question 4

3 Methods for subsequent measurement

Answer 4

FVTPL
Amortized cost
FVTOCI

Question 5

FVTPL for what type of investments?

Answer 5

1. AR not qualified to be amortized i.e not held for collecting contractual consideration
2. Assets held for trading - selling/repurchasing in near term, part of portfolio, derivative, public traded shares

Question 6

FVTPL rules

Answer 6

• Transaction costs expensed in NI when incurred
• Dividends are investment income
• Subsequent: Each reporting period adjust to fair value, gain/loss recorded in NI when incurred.
• Disposal - Selling P - Book value = Gain/loss to NI

Question 7

Amortized cost for what type of investments?

Answer 7

• Assets held to collect contractual terms
• Shares not traded in public market
• Bank deposits, AR, redeemable preferred shares, bonds to be held until maturity

Question 8

Amortized cost rules

Answer 8

• Transaction costs - added to investment on BS
• Subsequent: Not adjusted to FMV. At amortized cost. PV using effective interest rate - impairment
  Impairment only recorded if permanent.
  Recorded in NI. Can be reversed up to amount of amortized cost without impairment.
• Disposal. Selling P - original (unless permanently impaired) = gain/ loss recorded in NI

Question 9

FVTOCI for what type of investments?

Answer 9

• Equity investments designated OCI

- Debt instruments w/ cash flows that are solely principal and interest

Question 10

FVTOCI rules

Answer 10

Transaction costs - Capitalized as part of investment
Dividends - Investment income

Subsequent -
1. Debt instruments: NET OF TAX. At amortized costs using effective interest rate less impairment losses. Each reporting period adjusted to Fair value and gain/loss reported in OCI.
Disposal: can move cumulative gain/loss to NI (recycle from OCI) (PROBABLY WONT USE)

2. Equity - Reporting period adjust to FMV. Gains/losses recorded in OCI.
   Disposal: record gain/loss in OCI (not recycled from OCI) Then can recycle OCI to R/E (Optional, only prior OCI stuff not sale amount)
   DR accumulated OCI
   CR Retained earnings (prior yr OCI)

Question 11

To record gain in FVTOCI

Answer 11

DR Investment in shares (to get investment to FMV)
CR Unrealized gain - OCI (Gain - deferred tax amount)
CR Deferred taxes (gain x 50% x tax rate)

DIT only necessary because this affects OCI so the tax is being deferred. Anything going through NI doesn’t need this adjustment.

Question 12

ASPE Diff

Answer 12

No OCI - everything through NI

Question 13

ASPE & IFRS handbook

Answer 13

IFRS 9

ASPE 3856

Question 14

Bond question at amortized cost

To record at acquisition

Answer 14

FV - face value of bond
PMT - Interest payment
I/Y - interest rate (divide by 2 if semi annual pmts)
N - number of payments (x 2 if semi annual payments)
CPT PV
This is the amount the investment will be recorded at acquisition

Question 15

Bond questions at amortized costs

Subsequent (interest payment)

Answer 15

DR Cash (FV X coupon rate)
CR Interest revenue (Amt paid for bond x effective interest rate)
CR Investment in bonds (to reduce bond to its current PV or plug)