chapter 9 notes.docx

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Department
Accounting & Financial Management
Course
AFM 291
Professor
Robert Ducharme
Semester
Fall

Description
Chapter 9 Investments A - Introduction Recent Changes  Deficiencies of the historical cost model  Since only some of the instruments are recognized at fair value, standards had to be unnecessarily complicated  IASB and FASB are solving Financial Assets and Investments  Financial asset is 1. Cash 2. Equity instrument of another entity 3. Contractual right: receive cash or to exchange financial assets/ liabilities  Include debt securities which prices are quoted in an active market  Equity instrument represent ownership interests  Motivation for companies to invest lies in interest, dividends, capital appreciation  Managers may invest for short term returns or long term returns  Invest as part of corporate strategy than return (relationship, exercise right)  How investment are accounted for depend on: a. Type of investment b. Management's intent c. Ability to reliably measure investment's fair value/ extent to which investor can influence activities Prices and Fair Values  Price of debt instrument is quoted as percentage of par/face value  Investments on shares may be acquired on margin  If financial assets are measured initially at fair value, how should transaction cost, related to acquisition (fees, commissions) be accounted for? -> 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 B -
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