Ch. 16: Investments

Debt Instruments

Term deposits, treasury bills, bonds

Equity instruments

common stock and preferred stock of another company

non-strategic investing

To house excess cash until needed:

money-market instruments (low risk, high liquidity, short term securities)

To generate earnings: debt securities and equity securities

strategic investing

To meet strategic goals: shares in companies of a related or unrelated industry that the company wishes to enter

Amortization Cost / AC (classification model)

- IFRS & ASPE

- Debt securities to hold to maturity

- Collect principal and interest payments (contractual cash flow)

Fair Value Through Profit or Loss / FVTPL (classification method)

- IFRS & ASPE

- Investments in both equity and debt that do not meet the criteria or the amortized cost or fair value through OCI

Fair Value Through Other Comprehensive Income / FVOCI (classification method)

- IFRS only

- Equity Investment NOT held for trading

- Investment in Debt Securities to collect contractual cash flows and to sell the investments

Acquisition for debt investments reported at AC / amortized cost

recorded at the purchase price paid for the investments

Reporting Interest revenue & amortization of any discount or premium

- as it accures

- any discount or premium is amortized using the effective interest method

- the investment is reported at amortized cost on the balance sheet

Reporting the sale of disposition at maturity for debt investments @ amortized cost

The cash recurved is recorded and it's carrying amount (amortized cost) is eliminated

The sale or disposition before maturity (AC)

Cash received > amortized cost of investment = Gain

Cash received < amortized cost of investment = Loss

FV through P/L

- fair value adjustments to be recorded as holding (unrealized) gains or losses

-> in ASPE, any equity security investment that is traded on an active market must use FVTPL but management can also designate certain FV through OCI

FV through OCI

Similar to FVTPL except...

- accounting for fair value adjustments at the end of the balance sheet

- accounting for the sale of investments

Strategic investments: cost method

ASPE can choose the equity or cost method to account for investments in associates.

Also for non strategic investments where no quoted market price is available

Cost method procedure

- record investment at no cost. No adjustment til sold

- Dividend revenue reported in profit

- reported at cost on the balance sheet in non-current assets