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Chapter 5 - Analyzing investing activities: Intercorporate investments. This chapter extends our analysis to intercorporate investments. We analyze both intercorporate investments and business combinations from the perspective of the investor company. We show the importance of interpreting disclosures on intercompany activities for analysis of financial statements. We conclude with a discussion of the accounting for investments in derivative securities. | Financial Statement Analysis K.R. Subramanyam Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 05 CHAPTER Analysing Investing Activities: Inter-corporate Investments Overviews of Topics Investment Securities Various types Different methods of recording Equity method of accounting for securities Business Combinations Derivative Securities The Fair Value Option Investment Securities What are the two main reason to Analyzing Marketable Investment securities? Investment Securities Two main objectives: To separate operating performance from investing (and financing) performance Remove all gains (losses) relating to investing activities Separate operating and nonoperating assets when determining RNOA (Return on operating assets) To analyze accounting distortions from securities Opportunities for gains trading Liabilities recognized at cost Inconsistent definition of equity securities Classification based on intent Analyzing Investment Securities Investment Securities What are the two types of Marketable Investment securities? Composition Investment Securities What are the two types of Marketable Investment securities? Debt Securities Equity Securities Composition Investment Securities What are examples of the two types of Marketable Investment securities? Composition Investment Securities Investment (marketable) securities: Debt Securities • Government or corporate debt obligations Equity Securities • Corporate stock that is readily marketable Composition Investment Securities ASC 320 and ASC 825 – Significantly alter (changed) the accounting and reporting of investment securities. Accounting for Investment Securities Investment Securities ASC 320 and ASC825 No longer the traditional lower-of-cost-or-market principle. Accounting is determined by its classification. Accounting for Investment Securities Investment Securities ASC . | Financial Statement Analysis K.R. Subramanyam Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 05 CHAPTER Analysing Investing Activities: Inter-corporate Investments Overviews of Topics Investment Securities Various types Different methods of recording Equity method of accounting for securities Business Combinations Derivative Securities The Fair Value Option Investment Securities What are the two main reason to Analyzing Marketable Investment securities? Investment Securities Two main objectives: To separate operating performance from investing (and financing) performance Remove all gains (losses) relating to investing activities Separate operating and nonoperating assets when determining RNOA (Return on operating assets) To analyze accounting distortions from securities Opportunities for gains trading Liabilities recognized at cost Inconsistent definition of equity .
