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Chapter 15 INTERCORPORATE INVESTMENTS Presenter’s name Presenter’s title dd Month yyyy intercorporate investments • Intercorporate investments include investments in the debt and equity securities of other companies. • Reasons for investing in other companies: - To achieve additional profitability. - To enter new markets through companies established in those areas. - To diversify. - To obtain competitive advantages. • The classification of intercorporate investments is based on the degree of influence or control that the investor is able to exercise over the investee. Copyright © 2013 CFA 2 Institute Classifying intercorporate investments Investments are classified into four categories based on the degree of influence or control: − Investments in financial assets (ownership percentage < 20%): Investments in which the investor has no significant control over the investee. − Investments in associates (ownership percentage between 20% and 50%): Investments in which the investor has significant influence but not control over the investee. − Business combinations (ownership percentage > 20%): Investments in which the investor has control over the investee. − Joint Venture: An entity operated by companies that share control. Copyright © 2013 CFA 3 Institute accounting for Investments in financial assets Type Intent Accounting Treatment Held to maturity (for debt securities) Available for sale Held for trading and those designated as fair value through profit or loss Has intent and ability to hold the debt until it matures. Does not intend to sell in the near term, elect fair value accounting, or hold until maturity. Intends to sell in the near term (i.e., held for trading ) or has otherwise elected fair value accounting. • Reported at amortized cost. • Changes in value ignored unless deemed as impaired. • Recorded at fair value. • Changes in value are recognized in other comprehensive income. • Recorded at fair value. • Changes in value are recognized in profit or loss on income statement. Copyright © 2013 CFA 4 Institute accounting for Investments in financial assets • Both IFRS and U.S. GAAP permit reclassification of intercorporate investments, although certain criteria must be met. - IFRS generally prohibit the reclassification into or out of the designated at fair value category, and reclassification out of the held for trading category is severely restricted. - U.S. GAAP allow reclassifications between all categories using fair value at the date of reclassification. • Impairment occurs when the carrying value of a financial asset is expected to permanently exceed the recoverable amount. - Regardless of classification, a loss will be recorded on the income statement in the period impairment occurs. - For available-for-sale securities that have become impaired, the cumulative loss that had been recognized in other comprehensive income (OCI) will be Co reclassified from equity to profit or loss. 5 Institute ... - tailieumienphi.vn
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