F-3 Marketable Securities and Business Combos

Question 1

How should debt securities such as AFS and Held to Maturity be reported?

Answer 1

AFS - Fair Value, Unrealized G/L OCI

Held to Maturity - Amortized Cost

Question 2

How should securities classified as trading be reported?

Answer 2

Trading Securities are reported at fair value with holding gains and losses included in earnings. So this means it hits the income stmt.

Question 3

Lets hawk some classifications of Securities:

Answer 3

Trading - equity and debt Current Asset
AFS - equity and debt - Non Current assets
Held to Mat - Debt Only - Non current

Question 4

How does an impairment in AFS or held to Mat securities occur?

Answer 4

A permanent decline in fair value. Amount of the write down is a Realized Loss included in earnings (Income Stmt)

Question 5

Where does a permanent impairment to AFS sec get recorded?

Answer 5

Income Statement - Recognized Loss

Question 6

Demonstrate JE for a Sale of AFS that has a previously unrealized holding loss in OCI. Was sold for exact same loss this year

Answer 6

Dr Unrealized Holding Loss 100
Cr Investment Acct 100
Cr Unrealized Holding Loss 100
Dr realized Loss 100 - Income Stmt

Question 7

What are IFRS rules for reporting Securities?

Answer 7

All AFS Sec are OCI except for FX g/l on AFS debt Sec (Income Statement)

Question 8

Business Combinations/Consolidations

Answer 8

Bankruptcy/reorg Sub? Dont consolidate

Consol FS are prepped in recognition of acct concept of ECONOMIC Entity

Question 9

Cost Method

Answer 9

Also known as the fair value method or AFS method is to be used when the investor owns less than 20% and does not have significant influence.

Question 10

Cost MEthod Calc

Answer 10

Original cost (FV given) + Legal Fees

Record on Balance Sheet

Question 11

Whats a difference between the cost method and equity method when it comes to Dividends?

Answer 11

Cost method has ROC which reduces the investment account

Equity method: No roc, 100% of dividends are considered a reduction of the investment account.

Question 12

Equity method to account for Investments

Answer 12

20-50 % ownership and less than 20% with the ability to exercise significant influence.

Question 13

Equity method goodwill

Answer 13

Excess over identifiable net assets goes to goodwill. So start with NBV then FMV then excess relative to cost

Question 14

Equity Method Rule for Dividends

Answer 14

Revenue is recorded as the share of investee earnings. Dividends recvd are a reduction in the carrying amount of the investment on the investor balance sheet.

Question 15

How are stock dividends treated under the cost and equity method?

Answer 15

Not considered income - value per share just decreases. never record at fair value

Question 16

Preferred Stock Dividends

Answer 16

PS Divs dont allow the investor to exercise significant influence. Use the cost method for DIvs and record as Dividend Revenue on the IS. Doesnt matter if you own 100% of the PS divs.

Question 17

Liquidating Dividend?

Answer 17

Not Income- ROC reduction of Investment balance sheet acct.

Question 18

Acquisition Method

Answer 18

1. Valued at fair value
2. 100% of net assests acquired are recorded at FV with remaining as goodwill.
3. Subsidiarys entire equity (CS, APIC, RE) eliminated.

Question 19

What is the parents basis in the ACQ method

Answer 19

Fair Value = ACQ Price = Investment in SUB