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ACC 703 (19)
Chapter 2

Advanced Accounting Chapter 2 Notes.docx

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Department
Accounting
Course
ACC 703
Professor
Deidre Taylor
Semester
Fall

Description
AdvancedAccountingChapter2NotesEquityInvestmentsTheBigPictureEquityinvestmentsareinvestmentsinsharesofanothercompanyTherearetwomaincategoriesofequityinvestmentso1strategictheinvestorintendstoestablishormaintainalongtermoperatingrelationshipwiththeentityinwhichtheinvestmentismadeandhassomelevelofinfluenceoverthestrategicdecisionsoftheinvesteecompanyLevelofinfluencecanbeFullcontrolJointControlSignificantinfluenceo2nonstrategictheinvestorishopingforareasonablerateofreturnwithouthavingtheabilitytoplayanactiveroleinthestrategicdecisionsoftheinvesteecompanyIAS39FinancialInstrumentsRecognitionandMeasurementAllowedcertaininvestmentstobereportedatfairvalueregardlessofwhetherfairvaluewashigherorlowerthancostoTheunrealizedgainsandlosseswerereportedeitherinnetincomeorinanewcategoryofincomecalledothercomprehensiveincomeOCIoWhentheinvestmentsweresoldtheunrealizedgainsandlosseswereremovedfromOCIandreportedinnetincomeBECAUSETHEYWERENOWREALIZEDAlotofpeoplecomplainedthatIAS39wastoocomplexthereforanaccountingstandardfornonstrategicinvestmentswasbornInternationalFinancialReportingStandardIFRS9FinancialInstrumentsClassificationandMeasurementoIthasreplacedandsupersededtheclassificationandmeasurementstandardsthatareinIAS39oIFRS9requiresthatallnonstrategicequityinvestmentsbemeasuredatfairvalueincludinginvestmentsinprivatecompaniesoMeasuringallinvestmentsinequityinstrumentsinthesamewaywouldalsosimplifytheaccountingrequirementsandimprovecomparabilityoIFRS9hasnoavailableforsaleAFSinvestmentsooninitialrecognitionanentitycanelecttopresentthefairvaluechangesonanequityinvestmentthatisnotheldforshorttermtradinginOCIoOnesignificantchangeisthatthegainsorlossesareclearedoutofaccumulatedOCIandtransferreddirectlytoretainedearningsandneverrecycledthroughnetincomeIFRS13FairValueMeasurementItreplacedthefairvaluemeasurementguidancepreviouslycontainedinindividualIFRSswithasingleunifieddefinitionoffairvalueandaframeworkformeasuringitFairvalueisdefinedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdateieanexitpriceAmendmenttoIASB1EntitiesmustnowgroupitemspresentedinOCIintwocategorieso1thosethatwillberecycledthroughnetincomeando2thosethatwillnotberecycledthroughnetincomeExhibit21summarizesthereportingmethodsforequityinvestmentsDefinitionsSignificantinfluenceWhenparentcompanyowns20to50percentofsharesofsubsidaryControlmajorityshareholdermoredetailoncontrolissuesinlaterchapters
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