Lecture19 - Lecture 19 Inter-corporate Investments Cisco...

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Unformatted text preview: Lecture 19 Inter-corporate Investments Cisco Systems Case Study (Cash, Investments, Employee Stock Options) 2 Accounting for investments in other firms Debt investments Equity investments Big investor with big cash Cisco Systems Today 3 Our focus The accounting for investments by one firm in the debt or equity securities of other firms can be very complicated. To simplify, we will examine investments debt securities investments in equity securities that constitute a passive minority interest investment securities that are marketable (i.e. have an observable market value). Investments in private companies have a cost of acquisition, but the current market value can be subjective. 4 There are three aspects of the accounting for investments that need to be examined to understand how inter-corporate investments impact the financial statements : Valuation at acquisition Valuation subsequent to acquisition Recognition of investment income and gains/losses Interest and dividends received Realized gains and losses Unrealized gains and losses Impact on the financial statements 5 Accounting at Acquisition At the initial investment, the cost is recorded. The cost is the fair market value made at the time of acquisition of the security. Debt securities Public equity securities Private equity securities 6 Accounting After Acquisition Accounting for inter-corporate investments after acquisition depends on: For debt securities, the intended/expected length of the investors holding period for the investment, and the intended classification of the securities For equity securities, the nature and purpose for the investment. 7 Investment in Equity Securities Active investments...
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This note was uploaded on 06/28/2009 for the course ACCT 101 taught by Professor Armstrong during the Summer '09 term at UPenn.

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Lecture19 - Lecture 19 Inter-corporate Investments Cisco...

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