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After studying this chapter you should be able to: understand the nature of investments including which types of companies have significant investments, explain and apply the cost/amortized cost model of accounting for investments, explain and apply the fair value through net income model of accounting for investments,. | 1 CHAPTER 9: INVESTMENTS 2 2 Chapter 9: Investments After studying this chapter you should be able to: Understand the nature of investments including which types of companies have significant investments. Explain and apply the cost/amortized cost model of accounting for investments. Explain and apply the fair value through net income model of accounting for investments. Explain and apply the fair value through other comprehensive income model of accounting for investments. Explain and apply the incurred loss, expected loss, and fair value loss impairment models. Explain the concept of significant influence and apply the equity method. Explain the concept of control and when consolidation is appropriate. Explain how investments are presented and disclosed in the financial statements noting how this facilitates analysis. Identify differences in accounting between IFRS and ASPE, and what changes are expected in the near future. 3 3 Investments 4 4 Type of Investments Debt investments include investments in government debt, corporate bonds, convertible debt, and commercial paper Equity instruments represent ownership interests in companies (e.g., common stock, preferred stock) Motivations for investments include: to obtain short-term returns or long-term returns on investments, and for corporate strategy 5 LO1 5 Measurement Method of accounting for a particular investment can depend on: Type of instrument (debt vs. equity) Management’s intent Company strategy Ability to reliably measure instrument’s fair value 6 LO1 6 Accounting Models There are three main models of accounting for investments: Cost/amortized cost model Fair value through net income model (FV-NI) Fair value through other comprehensive income model (FV-OCI) 7 LO1 7 Accounting Models: Summary Cost/Amortized Cost Model FV-NI FV-OCI At acquisition, measure at: Cost (fair value + transaction costs) Fair value Fair value At each reporting date, measure at: Cost or amortized cost Fair value Fair value . | 1 CHAPTER 9: INVESTMENTS 2 2 Chapter 9: Investments After studying this chapter you should be able to: Understand the nature of investments including which types of companies have significant investments. Explain and apply the cost/amortized cost model of accounting for investments. Explain and apply the fair value through net income model of accounting for investments. Explain and apply the fair value through other comprehensive income model of accounting for investments. Explain and apply the incurred loss, expected loss, and fair value loss impairment models. Explain the concept of significant influence and apply the equity method. Explain the concept of control and when consolidation is appropriate. Explain how investments are presented and disclosed in the financial statements noting how this facilitates analysis. Identify differences in accounting between IFRS and ASPE, and what changes are expected in the near future. 3 3 Investments 4 4 Type of Investments Debt investments .
