Vol. 3 LM2 Non-Current Assets: Financial Assets Flashcards
define (under IFRS)
financial instrument
Balance Sheet
a contract that gives to a financial asset of one entity, and a financial liability or equity instrument of another entity (per IAS 32, paragraph 11)
Balance Sheet
Concept
a contract that gives to a financial asset of one entity, and a financial liability or equity instrument of another entity (per IAS 32, paragraph 11)
Balance Sheet
financial instrument (per IFRS)
Blanace Sheet
Define
derivatives
Balance Sheet
- financial instruments for which the value is derived based on some underlying factor (interest rate, exchange rate, commodity price, security price, or credit rating), and;
- for which little or no initial investment is required.
Balance Sheet
Concept
- financial instruments for which the value is derived based on some underlying factor (interest rate, exchange rate, commodity price, security price, or credit rating), and;
- for which little or no initial investment is required.
Balance Sheet
derivatives
Balance Sheet
measurement method(s)
financial assets
Balance Sheet
- amortized cost
- fair value
Balance Sheet
measurement method
Financial assets classified as held-to-maturity investments
Balance Sheet
amortized cost
Balance Sheet
define (under US GAAP ASC 820)
fair value
Balance Sheet
the price that would be received to sell an asset or paid to transfer a liability in an orderly market transaction
Balance Sheet
measurement method
held-to-maturity financial assets
Balance Sheet
measured at amortized cost
Balance Sheet
measurement method
available-for-sale financial assets
Balance Sheet
measured at fair value
Balance Sheet
US GAAP vs IFRS
treatment of available-for-sale assets
Balance Sheet
under US GAAP, available-for-sale applies only to debt securities;
it is not permitted for investments in equity securities
Balance Sheet
measurement of financial assets
debt securities designated as trading securities (US GAAP only)
Balance Sheet
measured at fair value
* unrealized holding gains or losses recognized in the income statement
Balance Sheet
define
trading securities
Balance Sheet
pertains to a debt security that is acquired with the intent of selling it rather than holding it to collect the interest and principal payments.
Balance Sheet
measurement of financial assets
debt securities that are to be held to maturity
Balance Sheet
measured at cost or amortized cost
Balance Sheet
measurement of financial assets
loans and notes receivable
Balance Sheet
measured at cost or amortized cost
Balance Sheet
measurement of financial assets
unquoted equity instruments
Balance Sheet
measured at cost or amortized cost (IAS 39)
Balance Sheet
measurement of financial assets
available-for-sale debt securities under US GAAP
Balance Sheet
measured at fair value through other comprehensive income (FVOCI)
Balance Sheet
measurement of financial assets
all equity securities unless the investment gives the investor significant influence (US GAAP only)
Balance Sheet
measured at fair value through profit and loss
Balance Sheet
Name the US GAAP equivalent
Measured at Cost or Amortized Cost
Balance Sheet
Held to maturity
Balance Sheet
Name the US GAAP equivalent
Measured at Cost or Amortized Cost
Balance Sheet
Held-to-Maturity Debt Securities
Balance Sheet
Name the US GAAP equivalent
Measured at Fair Value through Profit and Loss
Balance Sheet
Trading Debt Securities
Balance Sheet
ignoring taxes, calculate interest income on HTM, AFS, trading assets
Consider an entity that $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
included in Income Statement for period Jan 1-June 30, 200X
* HTM: $2,500,000
* AFS: $2,500,000
* Trading: $2,500,000
Balance Sheet
ignoring taxes, calculate unrealized gains on HTM assets
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
included in Income Statement for period Jan 1-June 30, 200X
interest income: $0
because the securities are measured at cost rather than fair value, no unrealized gain is recognized
Balance Sheet
ignoring taxes, calculate impact on proft and loss on HTM assets
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
included in Income Statement for period Jan 1-June 30, 200X
* Interest income + unrealized gains = impact on profit and loss
* 2,500,000 + 0 = $2,500,000
* HTM assets are not marked-to-market
Balance Sheet
ignoring taxes, calculate impact on proft and loss on assets AFS
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
included in Income Statement for period Jan 1-June 30, 200X
* Interest income + unrealized gains = impact on profit and loss
* 2,500,000 + 0 = $2,500,000
* This is the same for HTM assets
Balance Sheet
ignoring taxes, calculate impact on proft and loss on trading assets
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
included in Income Statement for period Jan 1-June 30, 200X
* Interest income + unrealized gains = impact on profit and loss
* 2,500,000 + 2,000,000 = $4,500,000
Balance Sheet
ignoring taxes, calculate cash and cash equivalents assets HTM
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
* cash and cash equivalents HTM = $2,500,000
Balance Sheet
ignoring taxes, calculate cash and cash equivalents assets AFS
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
* cash and cash equivalents AFS = $2,500,000
Balance Sheet
ignoring taxes, calculate cash and cash equivalents trading assets
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
* cash and cash equivalents trading debt securities = $2,500,000
Balance Sheet
calculate cost of securities, HTM, AFS, Trading
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
Cost of securities
HTM = $100,000,000
AFS = $100,000,000
Trading = $100,000,000
Balance Sheet
ignoring taxes, calculate total assets HTM
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
* cash and cash equivalents = $2,500,000
* Cost of securities = $100,000,000
* Unrealized gains on securities = $0
$102,500,000
in practice, unrealized gain would be listed on a separate line
Balance Sheet
ignoring taxes, calculate total assets AFS
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
* cash and cash equivalents = $2,500,000
* Cost of securities = $100,000,000
* Unrealized gains on securities = $2,000,000
$104,500,000
in practice, unrealized gain would be listed on a separate line
Balance Sheet
ignoring taxes, calculate total trading assets
Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.
Balance Sheet
Balance Sheet As of June 30, 200X
* cash and cash equivalents = $2,500,000
* Cost of securities = $100,000,000
* Unrealized gains on securities = $2,000,000
$104,500,000
in practice, unrealized gain would be listed on a separate line
Balance Sheet
