AFM291 Chapter Notes - Chapter 9: Financial Asset, Transaction Cost, Book Value

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM291
• Professor: Robert Ducharme

Document Summary

Since only some of the instruments are recognized at fair value, standards had to be unnecessarily complicated. Include debt securities which prices are quoted in an active market: cash, equity instrument of another entity, contractual right: receive cash or to exchange financial assets/ liabilities. Motivation for companies to invest lies in interest, dividends, capital appreciation. Managers may invest for short term returns or long term returns. How investment are accounted for depend on: type of investment, management"s intent, ability to reliably measure investment"s fair value/ extent to which investor can influence activities. Invest as part of corporate strategy than return (relationship, exercise right) Price of debt instrument is quoted as percentage of par/face value. Investments on shares may be acquired on margin. > capitalize transaction for investment accounted using cost based model. > expense for fair value model: changes in fair value carrying amount are unrealized holding gains or losses.