Lecture Intermediate accounting: IFRS edition - Chapter 12: Investments

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In this chapter, you will learn that investments that companies make in the stock and debt securities of other companies are accounted for differently depending on the nature of the investments. For instance, you'll see that investment securities categorized as securities held-to-maturity are reported at amortized cost, while securities available-for-sale and trading securities are reported at their fair values.

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Chapter 12 INVESTMENTS © 2013 The McGraw-Hill Companies, Inc. Slide 2 Nature of Investments Bonds and notes (Debt securities) Common and preferred stock (Equity securities) Investments can be accounted for in a variety of ways, depending on the nature of the investment relationship. Slide 3 Reporting Categories for Investments ReportingCategoriesfor Investments Control Characteristicsof theInvestment ReportingMethodUsedbytheInvestor in theSeparateFinancial Statements ReportingMethodUsed bythe Investor intheConsolidated Financial Statements The investorlacks significant influence overthe operating andfinancial policies of the investee: Investments intypicallyquoted or publiclytraded debt securities for whichthe investor has the “positive intent and ability”to hold to maturity Investments inunquoted debt securities Investments held inanactive tradingaccount Other Held­to­maturity (“HTM”) — investment reported at amortized cost* Loans andreceivables (“L&R”) — investments reported at amortized cost Trading securities (“TS”) — investment reported at fair value (withunrealized gains and losses included innet income) Available­for­sale securities (“AFS”) — investment reported at fair value (withunrealized gains and losses excluded fromnet income and reported directlyinshareholders’ equity)* As in the separate financial statements The investorhas significant influence overthe operating andfinancial policies of the investee: Typicallythe investor owns between20% and 50% ofthe ordinaryshares ofthe investee The investorcontrols the investee: Typicallythe investor owns more than50% ofthe investee Investment reported at cost or as a financial asset Investment reported at cost or as a financial asset Equity method—investment cost adjusted for subsequent earnings and dividends ofthe investee Consolidation— the financial statements ofthe investor and investee are combined as iftheyare a single company. *If theinvestor electsthefair valueoption, thistypeof investment alsocanbeaccountedfor usingthesameapproachthat’susedfor tradingsecurities, withtheinvestment reportedat fair valuethroughprofit or loss(FVTPL) andunrealizedholdinggainsandlosses includedinnet income. Slide 4 Held-to-Maturity Securities On January 1, 2012, Matrix Ltd purchased as an investment $1,000,000, of 10%, 10-year bonds, interest paid semi-annually. The market rate for similar bonds is 12%. Let’s look at calculation of the present value of the bond issue. Present Amount PV Factor Value $ Interest 50,000 × 11.46992 = $573,496 Principal 1,000,000 × 0.31180 Present value of bonds = 311,805 $885,30 1 PV of ordinary annuity of $1, n = 20, i = 6% PV of $1, n = 20, i = 6% Slide 5 Held-to-Maturity Securities Partial Bond Amortization Table Interest Period Payment 1 50,000 2 50,000 3 50,000 4 50,000 Interest Revenue 53,118 53,305 53,503 53,714 Discount Amortization (3,118) (3,305) (3,503) (3,714) Unamortized Discount 114,699 111,581 108,276 104,773 101,059 Carrying Value 885,301 888,419 891,724 895,227 898,941 Date 1-1-12 6-30-12 Description Investment in bonds Discount on bond investment Cash Cash Discount on bond investment Investment revenue Debit 1,000,000 50,000 3,118 Credit 114,699 885,301 53,118 ... - tailieumienphi.vn


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