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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