investment

investment - Investments Click to edit Master subtitle...

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Click to edit Master subtitle style Commerce 353 Fall 2009 11 Investments Reference: Kieso et al, Chapter 9
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Commerce 353 Fall 2009 22 Outline o Accounting for debt investments n Held-to-maturity (HMT) n Held-for-trading (HFT) n Available-for-sale (AFS) Valuation, unrealized gain/losses, impairment losses etc., o Accounting for equity investments n No significant influence, significant influence, and control o Canadian GAAP and IFRS
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Commerce 353 Fall 2009 33 Investments – recent changes o Three new Handbook sections substantially harmonized Canadian standards with FASB and IASB. n Section 1530-Comprehensive Income n Section 3855-Financial Instruments-Recognition and Measurement n Section 3865-Hedges o Above sections all effective in October 2006. o Section 3862-Financial Instruments-Disclosure; effective October 2007.
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Commerce 353 Fall 2009 44 Investments and fair value o Investments: n Debt investments include: “investments in government debt, corporate bonds, convertible debt, commercial paper, and securitized debt instruments.” n Equity instruments represent ownership interests in companies n Motivation: investment returns and corporate strategy o Fair Value issues: n Investments should be recognized at their fair value at acquisition. n Also, many investments are revalued to fair value at the B/S date. n Unrealized holding gains or losses occur when a financial instrument is revalued at its fair value.
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Commerce 353 Fall 2009 55 Investment in debt securities Recognize as other comprehensive income; do not recognize in income until realized, or impaired At fair value; or at cost/amortized cost after acquisition if FV not Availabl e-for- sale Recognize in net income At fair value Held- for- trading Not applicable At fair value at acquisition; at amortized cost after acquisition Held-to- maturit y Recognize in net income Not applicable Recognize in net income by transferring unrealized losses from Impairment Losses Unrealized Holding Gains or Losses Valuation Category
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Commerce 353 Fall 2009 66 Held-to-Maturity investments o HTM classification is not allowed if material amount of HTM investments have been sold or reclassified before maturity in the past 2 years. o HTM investments are recorded at fair value at acquisition. o Transaction costs: a choice—expense or capitalize. o Subsequent to acquisition, HTM investments are accounted for at amortized cost. o Reclassification to “available for sale” is necessary if the investment no longer meets the intent and ability-to-hold criteria.
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Commerce 353 Fall 2009 77 Given: Face amount: $100,000 Purchase date: January 1, 2008 Maturity date: January 1, 2013 Interest paid: July 1st and January 1st Coupon (stated) rate of interest: 8% Market (effective) rate of interest: 10% What is the approximate purchase price? 1.
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investment - Investments Click to edit Master subtitle...

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