Chapter 2 - Investments in Equity Security PDF

Preview

Summary

IAF710 - Advance Accounting Chapter 2 - Investments in Equity Security September 13,Describe the Main Changes in the Reporting of Equity Investments over the past 12 years Question: How to report an investment in share of another company? Equity Investments = investment in shares of another company ...

Description

IAF710 - Advance Accounting Chapter 2 - Investments in Equity Security September 13,2018 Describe the Main Changes in the Reporting of Equity Investments over the past 12 years Question: How to report an investment in share of another company? Equity Investments = investment in shares of another company Two Main Categories of Equity Investment: 1) Strategic a) Intends to establish or maintain a LT operating relationship with the entity in which the investment is made b) has some level of influence over the strategic decisions of the investee company i) Influence can range from full control, joint control, and significant influence 2) Non-Strategic a) Intends to hold for the rate of return b) does not intend to have the ability to play an active role in the strategic decisions of the investee company Reported at cost-based amount,written down if there was impairment in value (2005)IAS39 - Financial Instruments - Recognition and Measurement 1) FV measurement introduced for non-strategic investments on the basis that FV is more relevant information. 2) Unrealized gains and losses reported either in Net Income or Other Comprehensive Income. 3) Investment sold - Unrealized G/L removed from OCI and reported in NI (recycled through Net Income) (2009)IFRS9 - Financial Instruments - Classification and Measurement 1) Requires that all non-strategic investments be reported at FV, including investments in private companies. 2) No longer refers to and does not have any specific provisions for available for sale (AFS) investments category of investments eliminated 3) Initial recognition: FV or Equity Method - not held for trading 4) G/L cleared out of AOCI and into RE directly, never through Net Income (2011)IFRS13 - Fair Value Measurement 1) Unified and singled the definition of Fair value and Measurement framework 2) Details of required disclosures 3) Fair Value - the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction b/w market participants at the measurement date (i.e. exit price)

Strategic Investments = reported @ values other than FV | Non-strategic Investments = reported @ FV

20% & 50% = control Distinguish between the Various Types of Equity Investments Measured at FV IFRS9: Deals with two types of Equity Investments: 1) Fair Value through Profit or Loss (FVPL) a) Includes investments held for short-term trading -- classified as Current Assets: basis that they are actively traded and intended by management to be sold within one year. b) Initially measured @ FV and subsequently measured at FV at each reporting date c) Unrealized G/L - reported in Net Income along with dividends received(able) (dividend income) 2) Fair Value through OCI (FVOCI) a) Equity investments not held for short-term trading - classified as Current or Non-current Assets, depending on how long management intends to hold on to the shares b) Initially measured @ FV and subsequently measured @ FV at each reporting date c) Ull unrealized G/L - reported in OCI. Dividend income - reported in Net Income as dividends are declared. d) Cumulative unrealized G/L are cleared out and transferred to Retained Earnings directly -- when investment is sold or derecognized (although it can be transferred @ any time) >>ILLUSTRATION - PDF PG 88 | Textbook PG 65>ILLUSTRATION PDF PG 89 | Textbook PG 67...