Chapter 2 Notes L2 - Fvtpl and Fvtoci PDF

Title	Chapter 2 Notes L2 - Fvtpl and Fvtoci
Course	Advanced Financial Accounting
Institution	Athabasca University
Pages	1
File Size	30.7 KB
File Type	PDF
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Fvtpl and Fvtoci...

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Lesson 2/7:

Reporting Non-Strategic Investments using the FVTPL or FVTOCI

1.) FVTPL: Fair Value through Profit or Loss: • For the Parent Co, this includes Investments held for short-term trading • Always classified as Current Assets on the basis that they are actively traded and intend to be sold by management within one year) • Therefore, using the FVTPL is beneficial when the Parent Co. wants to show a strong Current Ratio. Because by using the FVTPL Method, its Investment in the Sub Co. is always reported as a Current Asset, while all other methods may be Current Assets or Non-Current Assets, dependant on management. Acquisition: • Initially measured at FV upon acquisition (usually the amount paid for investment) Year End: • At each Reporting Date (Dec. 31, Record Adjustment of Investment to Fair Value): **NOT BASED ON PROFIT DR: Investment in Sub Co. CR: Unrealized Gain on FVTPL Investment Receipt of Dividends: • Dividends Received/Receivable are reported as: DR: Cash CR: Dividend Income Sale of Investment • DR: Cash CR: Gain on Sale CR: Investment in Sub Co. 2.) FVTOCI: Fair Value through Other Comprehensive Income: • Not held for short-term trading - Classified as either Current or Non-Current Assets Acquisition: • Initially measured at FV upon acquisition (usually the amount paid for investment) Year End: • At each Reporting Date (Dec. 31, Record Adjustment of Investment to Fair Value): **NOT BASED ON PROFIT DR: Investment in Sub Co. CR: OCI - Unrealized Gain on FVTOCI Investment Receipt of Dividends: • Dividends Received/Receivable are reported as: DR: Cash CR: Dividend Income Sale of Investment • DR: Cash CR: Gain on Sale CR: Investment in Sub Co. Accumulate Total OCI and Transfer to Retained Earnings • Can occur at any time when the Investment is Sold or Transferred • Additional entry required to clear total gains/losses in OCI to Retained Earnings • DR: Accumulated OCI – reclassification to Retained Earnings CR: Retained Earnings – Gain on Sale...