BU387 Chapter Notes - Chapter 9: Credit Risk, Cash Flow, Book Value
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Three major models of accouning for investments: cost/amorized cost model, fair value through net income model (fv-ni, fair value through other comprehensive income model (fv-oci) Report unrealized holding gains and losses (changes in fair value) Transfer total realized gains/losses to net income (recycling) or directly to retained earnings: cost/amorized cost model. Amorized cost model applies only to investments in debt instruments and long-term notes and loans receivable. Cost model may be applied to investments in equity instruments (shares) of other companies. Investments in shares of other eniies: recognize the cost of the investment at the fair value of the shares acquired. The discount or premium on a bond investment is not usually recognized and reported separately, although it would be correct. Using the efecive interest method (required under ifrs unless the investment is held for trading purposes) results in recognizing interest income at a constant yield rate on the investment each period.