chapter9_notes

chapter9_notes - Chapter 9 Investments Recent Changes •...

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Unformatted text preview: Chapter 9: Investments Recent Changes: • Three new Handbook sections substantially harmonized Canadian standards with FASB and IASB • Section 1530-Comprehensive Income • Section 3855-Financial Instruments-Recognition and Measurement • Section 3865-Hedges • Above sections all effective in October 2006 • Section 3862-Financial Instruments-Disclosure; effective October 2007 Financial Assets and Investments: • Debt investments include: “investments in government debt, corporate bonds, convertible debt, commercial paper, and securitized debt instruments” • Equity instruments represent ownership interests in companies (e.g., common stock, preferred stock) • Motivations for investments include: to obtain short-term returns or long-term returns on investments, and for corporate strategy Fair Value Issues: • Recent changes require that investments are to be recognized at their fair value at acquisition (usually = the purchase price) • Also, many investments are re-valued to fair value at the balance sheet date • Unrealized holding gains or losses occur when a financial instrument is re-valued at its fair value Investment in Debt Securities: Held-to-Maturity Investments: Financial assets qualify as HTM only if : • Assets have fixed payments, and • A fixed maturity date, and • There is intent and ability to hold investment to maturity • Generally, classification of financial assets as HTM applies only to debt instruments HTM classification is not allowed if material amount of HTM investments have been sold or reclassified before maturity in the past 2 years • HTM investments are recorded at fair value at acquisition • Transaction costs: a choice—expense or capitalize • Subsequent to acquisition, HTM investments are accounted for at amortized cost • Reclassification to “available for sale” is necessary if the investment no longer meets the intent and ability-to-hold criteria The entry to record this purchase is: Discount/Premium Amortization: • Interest revenue is always calculated using the market (effective) rate at the time of purchase • With a premium , the difference between cash received and interest revenue is subtracted from the carrying amount of bonds • On disposition of a bond investment, the related portion of the discount or premium is taken off the books by removing the amortized cost of the investment at the time of disposal Reporting Held-to-Maturity Investments:...
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This note was uploaded on 11/16/2009 for the course BBA ADMN1107 taught by Professor M.o'gay during the Fall '08 term at Laurentian.

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chapter9_notes - Chapter 9 Investments Recent Changes •...

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