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Flashcards in Investments Deck (22):

For actg purpose, how many levels of influence an investor may have over an investee?

Three: no significant influence, significant influence, control


If in an open market, an investor sold an investment bond AFS, and purchased its own outstanding bond, what is the gain and loss treatment?

Record separately because of the completely different transaction.


Marketable security classified as AFS realized gain and unrealized gain treatment?

Only realized liked gain will be recognize in income. Unrealized gain record in OCI


Permanent loss for AFS securities treatment

Permanent loss on AFS is recognized in earnings as if realized (conservatism), temporary loss is recorded in OCI instead.


Liquidating dividend and treatment on recognition of div income using cost method.

Liquidating dividend happens when the investee paid more dividend than income. When that happens, the return on investment is more like return of investment, so in order to keep the same % investment, we have to decrease the additional amount of dividend compare to the income declare. Like I have 40% of investment in s, s paid 40,000 dividend, but declared 35,000 income, my dividend would be 40,000 * .4 = 16,000, but I'm not going to have all that, so i have to do more steps, (40k-35K)* .4 =2k, my actual dividend received would be 16k-2k=14k.


Security transfer
From AFS - HTM?
From AFS - trading?

From HTM - AFS?
From HTM - trading?

From Trading - HTM?
From trading - AFS?

From HTM ( amortize cost) to AFS (record at FV, G/L record in OCI)
Establish AFS account, gain and loss recognize at AOCI, if otherway transfer, then establish HTM account at FV, amortize cost over the life of debt.

Transfer from trading to HTM or AFS


If purchase sectors for price appreciation, what is it classified?
what about for holding indefinitely?



Recording gain or loss at date of transfer, what prices to compare?

Compare the FV before transfer and price at date of transfer to decide gain or loss.


GAAP and IFRS difference in security investments

1. U.S. GAAP three classes; IFRS has two ( HTM and FV through profit and loss)

2. GAAP HTM valuation is contractual cash-flow and life; IFRS through estimate cash flow and life.

3. GAAP debt instrument Impairment: can't be reverse; IFRS can be reversed.
The only one that can't be reversed except goodwill.


What is not considered as a equity security for investment accounting purpose?

Redeemable P/S, also called callable P/S, issued under certain condition.


Hedge accounting gain loss treatment for CF hedge and FV hedge

Cash flow hedge G/L - OCI
Fair value hedge G/L - NI


Gaap and IFRS impairment measurement for financial asset and fixed assets

Gasp: fair value
IFRS : recoverable amount


Term "Accounting mismatch" for IFRS means?

Related asset and liabilities are measured with different basis


Disclosure for significant concentration of credit risk is required for:

All financial instruments


Disclosure of (un)recognized financial in an entity's financial stmt, fair value disclosure is required when:

The financial instrument is practicable to establish one values


Don't forget the liquidating dividend treatment. If it happens, what should the dividend be recorded using cost method?

Investment % x NI if NI repeated


If A's bond was issued and acquires by B, and then sold by B to C, who is investor and who is investee?

C is investor, A is investee.


Bond investment does not grant investors ownership rights.

When consider disclose and report financial statement, the method s payment used to acquire the investment is not required to disclose.


Unrealized gain or loss from transfer from AFS to HTM is amortized over the HTM's life

Premature sales of HTM are considered at maturity if (1) the sales occurs so close to maturity that interest risk can be vertically eliminated, (2) the sales occurs after at least 85% of the principal has been collected.

HTM securities can be classified as current and no current on an individual basis

For trading securities, the realized gains and losses are excluded from earnings because some of the unrealized is already included in income before security is sold.


Don't forget the liquidating dividend treatment. If it happens, what should the dividend be recorded using cost method?

Investment % x NI if NI repeated


When a. Concentration of credit risk must be disclosed and the exact amount is uncertain, what amount of risk company must disclose?

The maximum amount


Characteristics of derivatives

A Financial instrument
A derivative identified a specific price, rate, or other monetary measure
Identifies a specific quantity or other quantitative unit of measure

Does not require a contractual satisfaction by lever subject matter of the contract.