Textbook Notes (367,753)
Canada (161,369)
Accounting (538)
ACC 414 (22)
Else Grech (19)
Chapter 9

Chapter 9 - Investments.docx

4 Pages
Unlock Document

ACC 414
Else Grech

Chapter 9 - Investments ACCOUNTING MODELS  Major models of accounting for investments\ o Cost/ Amortized cost model o Fair value through net income model (FV-NI) o Fair value through other comprehensive income model (FV-OCI) Cost/Amortized cost Fair value through Fair value through OCI model model net income model At acquisition, measure at: Cost (equal to fair valueFair value Fair value + transaction cost) At each reporting date, measure at: Cost or amortized cost Fair value Fair value Report unrealized holding Not applicable In net income In OCI gains/losses (changes in fair value): Report realized holding In net income In net income Transfer total realized gains/losses gains/losses: to net income or directly to R/E COST/AMORTIZED COST MODEL  Amortized cost mode: This model applies only to investments in debt instruments Both Cost-Based and long-term notes and loans receivable Methods  Cost mode: may be applied to investments n equity intruments of other companies  Investments in shares of other entities (through the cost model) o (1) Recognize cost of investment at fair value of shares acquired + costs to acquire shares o (2)Report investment at its cost at each balance sheet date (unless impaired) o (3)Recognize dividend income when the entity has a claim to the dividend o (4)When shares are disposed of, derecognize them and report gain/loss on disposal (NI)  Investments in Debt securities of other entities (Amortized cost model) any difference between acquisition cost recognized and the face value of the security is amortized over the period to maturity o (1)Recognize cost of investment at fair value of debt instrument acquired + cost to acquire investment o (2)Report investment at amortized cost + any outstanding interest receivable at each balance date (unless impaired) 1 o (3)Recognize interest income as earned, amortizing discount/premium at the same time by adjusting carrying amount of investment o (4)When investment is disposed of:  Bring accrued interest and discount/premium up to date  Derecognize the investment, reporting gain/loss on disposal (NI)  Income under the amortized cost model o Interest bearing  the party holding the investment on the interest payment date receives all the interest since the last interest payment date o Non-interest bearing  the price of the bond or other instrument adjusts to its present value at the date of the transaction and no additional amount is paid  Any interest to date is incorporated in the investment’s fair value o Effective interest method: results in recognizing interest income at a constant yield rate on the investment each period. o Straight line amortization of bond premium discount: the discount is evenly amortized to interest income from the date of acquisition to maturity FAIR VALUE THORUGH NET INCOME (FV-NI) MODEL  also known as fair value throught profit or loss (FVTPL)  Measurement at acquisition  Recognized at fair value, transaction costs incurred in acquiring such assets are expensed when incurred  Measurement after acquisition  carrying amount is adjusted to its current fair value at each reporting date o All holding gains/losses are reported in net income along with any dividends or interest income earned  Income from investments o Total income on any investment is always the net cash flow from investment (gain/loss plus interest/dividend) o Dividend and interest income not reported seperately  Non-interest-bearing debt investment  difference between the instrument’s purchase price and iits maturity value or the proceeds on its disposal.  As FV-NI investment, the shares are remeasured to their fair value at each balance sheet date ith the change in fair value also recognized in the investment income.loss account  When sold, the carrying amount is removed form the account and the investment income is recognized o Dividend and interest income reported separately  When a dividend is received, it is recognized in an account such as dividend income (FV-NI)  When the investment is adjusted to its current fait value at each reporting date, the change in value is recognized in a separate gain/loss account (FV-NI)  Any discount or premium must be amortized before the change in fair value is recognized  The investment account is maintained at fair value and the necessary amortized
More Less

Related notes for ACC 414

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.