Ch 9 Investments - Investments Chapter 9 1 2 Investments...

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Unformatted text preview: Investments Chapter 9 1 2 Investments Accounting Models Introduction Cost / amortized cost model Fair value through net income model Fair value through OCI model GAAP classifications Impairment Incurred loss model Expected loss model Fair value loss model Accounting standards for impairment IFRS / Private Entity GAAP Comparison Looking ahead Comparison Strategic Investments Investments in associates Investments in subsidiaries Presentation, Disclosure, and Analysis Financial statement presentation and disclosure Analysis 3 Investments Accounting Models Introduction Cost / amortized cost model Fair value through net income model Fair value through OCI model GAAP classifications Impairment Incurred loss model Expected loss model Fair value loss model Accounting standards for impairment IFRS / Private Entity GAAP Comparison Looking ahead Comparison Strategic Investments Investments in associates Investments in subsidiaries Presentation, Disclosure, and Analysis Financial statement presentation and disclosure Analysis 4 Investments Recent Changes Due to the complexity of accounting for investments, there are currently a number of projects by IASB and FASB in this area: 1. Simplification of existing accounting standards 2. Improved guidance on fair value measurement 5 Financial Assets and Investments Debt investments include investments in government debt, corporate bonds, convertible debt, and commercial paper 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 6 Financial Assets and Investments Method of accounting for a particular investment can depend on: Type of instrument (debt vs. equity) Managements intent Ability to reliably measure instruments fair value, or Extent of influence over the investee company 7 Fair Value Issues Investments generally recognized at their fair value at acquisition (usually purchase price) Also, many investments are adjusted to fair value at the balance sheet date Unrealized holding gains or losses occur when a financial instrument is adjusted to its fair value 8 Accounting Models There are three main models of accounting for investments: 1. Cost/amortized cost model 2. Fair value through net income model (FV-NI) 3. Fair value through other comprehensive income model (FV-OCI) 9 Financial Assets Classification Classification is determined at initial recognition (nature and purpose) 1. Held for trading designated as financial assets as fair value through profit or loss (FVTPL) e.g. Cash, currency contracts, bank operating loans 2. Held-to-maturity investments e.g. other assets such as money market fund investment as security. as money market fund investment as security....
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This note was uploaded on 01/05/2012 for the course BACK 1ALL taught by Professor Mach during the Spring '11 term at Folsom Lake College.

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Ch 9 Investments - Investments Chapter 9 1 2 Investments...

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