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Ch3 Investments
Ch3 Investments
PREVIEW OF CHAPTER 3
Intermediate Accounting
IFRS 2nd Edition
Kieso, Weygandt, and Warfield
17-2
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
17-3
ACCOUNTING FOR FINANCIAL ASSETS
Financial Asset
Cash.
Equity investment of another company (e.g., ordinary or
preference shares).
Contractual right to receive cash from another party
(e.g., loans, receivables, and bonds).
17-4 LO 1
ACCOUNTING FOR FINANCIAL ASSETS
17-5 LO 1
ACCOUNTING FOR FINANCIAL ASSETS
ILLUSTRATION 3-1
Summary of Investment Accounting Approaches
17-6 LO 1
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for equity
financial assets. investments at fair value.
17-8 LO 2
Debt Investments—Amortized Cost
January 1, 2015
17-9 LO 2
Debt Investments—Amortized Cost
ILLUSTRATION 3-2
17-10 LO 2
Debt Investments—Amortized Cost
ILLUSTRATION 17-2
Cash 4,000
Debt Investments 614
Interest Revenue 4,614
17-11 LO 2
Debt Investments—Amortized Cost
ILLUSTRATION 3-2
ILLUSTRATION 3-3
17-13 LO 2
ILLUSTRATION 3-2
Cash 102,417
Interest Revenue (4/6 x €4,000) 2,667
Debt Investments 96,193
Gain on Sale of Debt Investments 3,557
17-15 LO 2
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for equity
financial assets. investments at fair value.
2. Understand the accounting for debt 6. Explain the equity method of
investments at amortized cost. accounting and compare it to the fair
value method for equity investments.
3. Understand the accounting for
debt investments at fair value. 7. Discuss the accounting for impairments
of debt investments.
4. Describe the accounting for the fair
value option. 8. Describe the accounting for transfer of
investments between categories.
17-16
Debt Investments—Fair Value
17-17 LO 3
Debt Investments—Fair Value
The journal entries in 2015 are exactly the same as those for
amortized cost.
17-18 LO 3
Debt Investments—Fair Value
17-19 LO 3
Debt Investments—Fair Value
17-20 LO 3
Debt Investments—Fair Value
ILLUSTRATION 3-6
Financial Statement Presentation
of Debt Investments at Fair Value
17-21 LO 3
Debt Investments—Fair Value
At December 31, 2016, assume that the fair value ILLUSTRATION 3-7
Computation of
of the Evermaster debt investment is €94,000. Unrealized Gain on
Debt Investment (2016)
17-22 LO 3
Debt Investments—Fair Value
ILLUSTRATION 3-8
Financial Statement Presentation
of Debt Investments at Fair Value (2016)
17-23 LO 3
Debt Investments—Fair Value
17-24 LO 3
Debt Investments—Fair Value
Income
Effects on
Debt
Investment
(2015-2017)
Illustration 3-9
17-25 LO 3
Debt Investments—Fair Value
17-26 LO 3
Debt Investments—Fair Value
17-27 LO 3
Debt Investments—Fair Value
Cash 90,000
Loss on Sale of Debt Investments 4,214
Debt Investments 94,214
17-28 LO 3
Debt Investments—Fair Value
ILLUSTRATION 3.12
Computation of Fair
17-29 Value Adjustment (2016) LO 3
Debt Investments—Fair Value
17-30 LO 3
Debt Investments—Fair Value
ILLUSTRATION 3-13
Reporting of Debt
Investments at Fair Value
17-31 LO 3
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for equity
financial assets. investments at fair value.
2. Understand the accounting for debt 6. Explain the equity method of
investments at amortized cost. accounting and compare it to the fair
3. Understand the accounting for debt value method for equity investments.
investments at fair value. 7. Discuss the accounting for impairments
of debt investments.
4. Describe the accounting for the
fair value option. 8. Describe the accounting for transfer of
investments between categories.
17-32
Fair Value Option
17-33 LO 4
Fair Value Option
17-34 LO 4
Summary of Debt Investment Accounting
ILLUSTRATION 3-14
Summary of Debt
Investment Accounting
17-35 LO 4
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for
financial assets. equity investments at fair value.
2. Understand the accounting for debt 6. Explain the equity method of
investments at amortized cost. accounting and compare it to the fair
3. Understand the accounting for debt value method for equity investments.
investments at fair value. 7. Discuss the accounting for impairments
4. Describe the accounting for the fair of debt investments.
value option. 8. Describe the accounting for transfer of
investments between categories.
17-36
EQUITY INVESTMENTS
17-37 LO 5
EQUITY INVESTMENTS
ILLUSTRATION 3-15
Levels of Influence
Determine Accounting Methods
17-38 LO 5
EQUITY INVESTMENTS
Illustration 3-16
Accounting and Reporting for Equity
Investments by Category
17-39 LO 5
EQUITY INVESTMENTS
17-40 LO 5
EQUITY INVESTMENTS
17-41 LO 5
Equity Investments—Trading (Income)
Cash 4,200
Dividend Revenue 4,200
17-43 LO 5
Equity Investments—Trading (Income)
ILLUSTRATION 3-17
Computation of Fair Value Adjustment—
Equity Investment Portfolio (2015)
17-44 LO 5
Equity Investments—Trading (Income)
ILLUSTRATION 3-17
Cash 287,220
Equity Investments 259,700
Gain on Sale of Equity Investment 27,520
17-46 LO 5
Equity Investments—Trading (Income)
ILLUSTRATION 3-19
Computation of Fair
Value Adjustment—
Equity Investment
Portfolio (2016)
17-47
ILLUSTRATION 17-19
17-48 LO 5
Equity Investments—Non-Trading (OCI)
17-49 LO 5
Equity Investments—Non-Trading (OCI)
17-50 LO 5
Equity Investments—Non-Trading (OCI)
Cash 450
Dividend Revenue 450
17-51 LO 5
Equity Investments—Non-Trading (OCI)
17-52 LO 5
Equity Investments—Non-Trading (OCI)
ILLUSTRATION 3-21
Financial Statement Presentation
17-53 LO 5
Equity Investments—Non-Trading (OCI)
ILLUSTRATION 3.22
Adjustment to Carrying Value of Investment
17-54 LO 5
Equity Investments—Non-Trading (OCI)
ILLUSTRATION 3-22
Adjustment to Carrying Value of Investment
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for equity
financial assets. investments at fair value.
2. Understand the accounting for debt 6. Explain the equity method of
investments at amortized cost. accounting and compare it to the
3. Understand the accounting for debt fair value method for equity
investments at fair value. investments.
4. Describe the accounting for the fair 7. Discuss the accounting for impairments
value option. of debt investments.
8. Describe the accounting for transfer of
17-56
investments between categories.
Holdings Between 20% and 50%
17-57 LO 6
Holdings Between 20% and 50%
Equity Method
Record the investment at cost and subsequently adjust
the amount each period for
the investor’s proportionate share of the earnings
(losses) and
dividends received by the investor.
17-58 LO 6
ILLUSTRATION 3-23
Comparison of Fair Value Method and Equity Method
17-59 LO 6
Holdings of More Than 50%
17-60 LO 6
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for equity
financial assets. investments at fair value.
2. Understand the accounting for debt 6. Explain the equity method of
investments at amortized cost. accounting and compare it to the fair
3. Understand the accounting for debt value method for equity investments.
investments at fair value. 7. Discuss the accounting for
4. Describe the accounting for the fair impairments of debt investments.
value option. 8. Describe the accounting for transfer of
investments between categories.
17-61
OTHER REPORTING ISSUES
Impairment of Value
For debt investments, a company uses the impairment test to
determine whether “it is probable that the investor will be unable
to collect all amounts due according to the contractual terms.”
This impairment loss is calculated as the difference between the
carrying amount plus accrued interest and the expected future
cash flows discounted at the investment’s historical effective-
interest rate.
17-62 LO 7
Impairment of Value
17-63 LO 7
Impairment of Value ILLUSTRATION 17-24
Investment Cash Flows
ILLUSTRATION 17-25
Computation of
Impairment Loss
17-65 LO 7
3 Investments
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the accounting framework for 5. Understand the accounting for equity
financial assets. investments at fair value.
2. Understand the accounting for debt 6. Explain the equity method of
investments at amortized cost. accounting and compare it to the fair
3. Understand the accounting for debt value method for equity investments.
investments at fair value. 7. Discuss the accounting for impairments
4. Describe the accounting for the fair of debt investments.
value option. 8. Describe the accounting for
transfer of investments between
categories.
17-66
Transfers Between Categories
17-67 LO 8
Transfers Between Categories
17-68 LO 8
Transfers Between Categories
17-69 LO 8
Reporting Treatment of Investments
ILLUSTRATION 3-26
Summary of Investment Accounting Approaches
17-70 LO 8