320 Lesson 7a

320 Lesson 7a - Week7 Investments PartI 1 Reasons for...

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Week 7 Investments Part I 1
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Reasons for holding investments Earn return on idle cash short-term investments, easily sold, usually pay interest but could pay dividends, cash equivalents, sell when cash is needed or price is right Invest for strategic reasons buy into other companies to influence or control their activities, capture more market share, solidify a supplier or customer, usually equity investment as debt not provide much leverage Develop a portfolio of investments diversify earnings, earn interest or dividends, sell when price changes or hold to maturity, can be short-term or long-term 2
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Classification of Financial Instruments Basis of classification  (IFRS 9) the company’s business model for managing the financial assets the contractual cash flow characteristic of the financial asset 3
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Canadian investment categories (also IAS 39) Held-to-maturity Available-for-sale Held-for-trading _____________________________ Controlled investment Significant influence investments IFRS investment categories (IFRS 9 - required 2013) Investments with fixed payments of principal and interest All other investments measured at fair value ____________________________ Controlled investment Significant influence investment 4
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Accounting for investments Amortized cost investment initially recorded at cost transaction costs may be included in the cost or expensed interest or dividends declared are recorded as investment income if long-term, any premium/discount is amortized over the life of the asset if sold before maturity, record gain/loss on difference between selling price and carrying value no gain/loss at maturity date because cash received = carrying value 5
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Fair value method: unrealized gains/losses in net income initially record investment at cost transaction costs are expensed interest or dividends declared are recorded as investment income at the end of the period, investment is revalued to fair value gains/losses through revaluation and sale are included in net income 6
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Fair value method: unrealized gains/loss in other comprehensive income initially record investment at cost transaction costs may be part of cost or expensed* interest or dividends declared are recorded as investment income end of accounting period – asset revalued at fair value (market value) unrealized gain/loss recorded in other comprehensive income when investment sold, total realized holding gain/loss reported in net income - cumulated unrealized gains/losses moved to net income ( if with recycling ) or moved to retained earnings ( if without recycling ) 7
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Interest-bearing debt investments recorded at market value on the date of acquisition MV = PV of cash flow streams discounted at the market interest rate if acquired between interest payment dates, must pay accrued interest to seller on interest payment date, full six months or one year of
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320 Lesson 7a - Week7 Investments PartI 1 Reasons for...

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