tailieunhanh - Lecture Financial accounting: Tools for business decision-making (7th edition) – Chapter 12

Chapter 12 - Reporting and analyzing investments. This chapter include objectives: Identify reasons to invest, and classify investments; account for non-strategic investments; account for strategic investments; explain how investments are reported in the financial statements. | CHAPTER 12: REPORTING AND ANALYZING INVESTMENTS LO 1: Identify reasons to invest, and classify investments. LO 2: Account for non-strategic investments. LO 3: Account for strategic investments. LO 4: Explain how investments are reported in the financial statements. LO 5: Compare the accounting for a bond investment and a bond payable (Appendix 12A). LEARNING OBJECTIVES Debt investments Guaranteed investment certificates or term deposits, bonds, commercial paper and other debt securities Earn interest over time Borrower is usually obligated to return the original investment (principal) Equity investments Preferred and common shares of other corporations May or may not earn any revenue No obligation to return principal Classifying Investments Non-strategic investments To generate investment income Strategic investments To influence or control the operations of another company Classifying Investments (Cont’d) Non-Strategic Investments Reasons for purchasing non-strategic investments: . | CHAPTER 12: REPORTING AND ANALYZING INVESTMENTS LO 1: Identify reasons to invest, and classify investments. LO 2: Account for non-strategic investments. LO 3: Account for strategic investments. LO 4: Explain how investments are reported in the financial statements. LO 5: Compare the accounting for a bond investment and a bond payable (Appendix 12A). LEARNING OBJECTIVES Debt investments Guaranteed investment certificates or term deposits, bonds, commercial paper and other debt securities Earn interest over time Borrower is usually obligated to return the original investment (principal) Equity investments Preferred and common shares of other corporations May or may not earn any revenue No obligation to return principal Classifying Investments Non-strategic investments To generate investment income Strategic investments To influence or control the operations of another company Classifying Investments (Cont’d) Non-Strategic Investments Reasons for purchasing non-strategic investments: Effective use of excess cash To earn capital gains – held for trading investments Further classified as short-term investments or long-term investments Depends on liquidity of investment and how long management wishes to hold the investment Only equity securities (normally common shares) can be considered a strategic investment To influence the relationship between companies Usually classified as long-term investments Strategic Investments Recorded at purchase cost at acquisition After acquisition, four alternate valuation models Fair value through profit or loss model Adjust up or down to reflect fair value at end of period Causes an unrealized gain or loss, recorded in the income statement Fair value through other comprehensive income (OCI) model As above, except unrealized gain or loss is recorded in other comprehensive income Amortized cost model (applies only to debt investments Not adjusted to reflect fair value Any discount or premium on purchase is amortized over the remaining .